Alibaba group operated the leading online marketplaces in Chines, including Alibaba.com, B2B, and Taobao, which assisted small and medium-sized companies (SMEs), and Chines enterprises in trade both locally and find overseas markets (Wulf and Oberholzer-Gee, 2009).
Additionally, the group ran a web portal, an online payment service provider, and an online business advertising inventory platform. Most of the SMEs conducted their operations in fragmented markets whose expansion was restricted by the limited communication channels which would promote their products. One of the critical difficulties that these SMEs faced was the limited options to express their trustworthiness. At the onset, posting on Alibaba was free, although some firms which subscribed to the premium received forefront display opportunities for their stores. Likewise, the company helped them manage and build their websites.
Alibaba Group’s motivation to diversify into the retail consumer business with the launch of Taobao was the rapid growth displayed by eBay. eBay was an American company that had invested in the Chinese market and was fast growing. Thereupon, it could easily result in the demise of Alibaba unless a counter-measure was taken. Jack thus formulated a group to pursue a new venture which would eventually ensure the survival and possible growth of Alibaba (Wulf and Oberholzer-Gee, 2009).
EBay’s entry was aggressive, and in a short while, it had dominated the entire market, acquiring a share of about 85% in 2002 (Wulf and Oberholzer-Gee, 2009). The existing Chinese online auction mostly catered to tech-savvy enthusiasts and was soon bought by eBay. At that time, eBay had made public predictions of China’s advancement for the next decade.
Notably, it is evident that Alibaba Group faced a severe threat and risked collapse due to eBay’s overbearing presence in the Chinese market. The move to invest in other ventures was hence justified in a bid to protect its interests. EBay’s power sellers could grow drastically to take the space of the B2B platform. Moreover, its overall revenue collection was relatively small compared to eBay’s enormous capital, hence lower competitive capacity (Wulf and Oberholzer-Gee, 2009). The success of Taobao provided insights into advancing the other branches of Alibaba Group, which has contributed immensely to its present state today.
Taobao invested a lot of technical expertise with unique mechanizing strategies that automatically beat eBay. One such epochal technique was Taobao’s market design which was oriented with a strong sense of local culture that deeply understood the Chinese consumers. It naturally appealed to the target clients, especially its attitude of informality. The employees selected nicknames that equally reflected the cultural attachment of the platform to Chinese individuals (Wulf and Oberholzer-Gee, 2009). The customer base is unlike the Westerners, and they want busy websites with strong color content with numerous links embedded in between. Accordingly, it captured the Chinese shopper’s thought patterns providing a user interface that they could easily relate to.
Another essential factor that Taobao incorporated in its methodology is building and maintaining trust with its clients. It sought to engender sureness between the customers and various vendors selling through the platform. Unlike in the west, affect and cognition-based trust is highly intertwined in China, a scenario common even in business. Most Chinese associate businesses with socio-economic exchanges, such as socializing with each other’s families and sharing meals.
Whence, emotional elements had to be imbibed to appeal to this peculiar trait. Some of the strategies implemented include the sellers registering using their bank account information and national identity cards. Additionally, the company introduced Alipay to prevent issues arising from payment conflicts among the trading parties (Zhang and Wang, 2018). For instance, the seller would only initiate shipping after the buyer had paid, and only after the client has received the item is the bank instructed to release funds to the vendor. Besides, Taobao also invested in an instant messaging service to facilitate communication between the users and the company.
Furthermore, Taobao lowered its fees to the bare minimum, unlike eBay, which charged listing fees. During its inception, people in China were wary of scams due to their unfamiliarity with online marketplaces. Most of the mechanisms and the clients were reluctant to trade online without special incentives. Whereof, they wanted a free market unsure of the e-commerce development scope and pattern (Wulf and Oberholzer-Gee, 2009). The two-way network type also allowed for more traffic to the website as more buyers thronged the site while vendors offered diversified products to attract more clients. The free transaction technique worked to encourage early adopters, unlike eBay. Hence, it was able to build an extensive customer base among the Chinese people at the time.
Ma should not implement Zhao Cai Jin Bao because it failed to solve consumer market needs adequately. After displacing eBay, Ma has gained widespread attention and introduced several features and ventures within its platform to improve diversification. One such is Zhao Cai Jin Bao which lets vendors bid for keywords and ranked listings whose fee is collected after transactions are completed. The feature’s principal disadvantage is that most sellers are attracted to Taobao mainly because it is free. Any element of monetization is likely to discourage some from registering. Moreover, it might demoralize others due to uncertainty about its freeness if the clients fail to purchase the products (Wulf and Oberholzer-Gee, 2009).
Additionally, several other websites offer the same service with zero charges, yet the e-commerce market is highly competitive. They are likely to lose other customers in the process; accordingly, Zhao Cai Jin Bao’s monetization should not be pursued.
Wulf, J. and Oberholzer-Gee, F., 2009. Alibaba’s Taobao (A). Havard Business School, pp.1-15.
Zhang, Q., & Wang, Y. (2018). Struggling towards virtuous coevolution: institutional and strategic works of Alibaba in building the Taobao e-commerce ecosystem. Asian Business & Management, 17(3), 208-242.