“The virtue of the Internet is that it uses small to compete with big, it uses fast to compete with slow.” (Liu & Avery, 2009, p.50)
— Jack Ma
Taobao, a Customer-to-Customer(C2C) and Business-to-Consumer(B2C) trading platform, it breaks people’s conventional concept of “shopping”. Through the openness and interoperability of the Internet, Taobao truly integrates business flow, information flow and logistics. A critical analysis will explain how Taobao has had a transformative impact on retail industry through Internet technologies, thinkings, and innovations.
Diagram of C2C Platform
This essay will be divided into four parts. The first part will introduce the main functions of Taobao and its development history and achievements. The commercial model of Taobao will be demonstrated in the second part, while the third part will derive the status of Taobao in social and internet ecology through a simple and clear ecological environment map of Taobao, and its partners, competitors and regulatory situation will also be defined. Finally, the last part will explore how Taobao has become a part of Internet reform and innovation, and how it has had a huge impact on people’s lives.
What is TaoBao?
- The leading online auction and shopping platform in China which operated by Alibaba Group. (Martinsons, 2014, p.27)
- A website takes the concept of “establishing contact” as the core, and integrates most functions of most Internet platforms, such as search engine. It uses the digital economy to build a network between buyers and sellers, providing them with a platform for trading, and creating a business ecosystem that grows together with partners. (Wu & Gereffi, 2018, pp.330-331)
- The main platform brings consumer goods to the villages and sells rural products to cities through Taobao village mode. It transforms many traditional agricultural communities into e-commerce clusters and drives rural economic development. (Ding, Chong, Chuen & Cheng, 2018, p.26)
What is the development history of Taobao?
In April 2003, Jack Ma, founder of Alibaba secretly sent a small team of about 10 people to settle in a small house in Hangzhou, and they were asked to sign nondisclosure statements. After a month of research and development all day and night, Alibaba Group announced that it had invested 12 million dollars in a project. On May 10, 2003, Taobao was officially launched. (Liu & Avery, 2009, p.118)
In the initial establishment stage of Taobao, Jack Ma insisted that Chinese current market was not mature enough for consumers to accept paid services. Therefore, Jack Ma positioned Taobao as a completely free service platform. The aim of this decision is to beat eBay completely and drive it out of the Asian market. (Liu & Avery, 2009, p.126) After that, Taobao launched “Wangwang”, an application that links instant messaging tools with online shopping. Wangwang promotes real-time online communication between buyers and sellers, and promotes the development of personal trust. (Ou & Davison, 2009, p.146)
In 2006, Taobao became the largest shopping website in Asia. In 2008, Taobao Mall (later renamed as Tmall) was launched. In 2009, the first Taobao village was officially established, and this number gradually climbed to 20 in 2013. In the following year, the number of Taobao villages increased 10 times. (Kong, 2019, p.134) By 2018, Taobao and Tmall had more than 580 million active visiting users per month.(Lulu & Luethje, 2019, p.1)
In 17 years, Taobao has completed the evolution from a service, a platform, to an ecology and a community, which is the biggest success of Taobao. Taobao proves with its own achievements that the Internet will eventually constitute the basic elements of life instead of just being an application tool.
What is the business model of Taobao?
- Low cost strategy: As mentioned above, the biggest reason why Taobao can resist the public exclusion and block of eBay is that it is free to users. For the traditional retail industry, physical facilities are an essential prerequisite for their development. (Kong, 2019, p.131) The rent of the shop, water and electricity cost, and the labor cost of sales are another big expense besides the product cost. Taobao’s business model breaks the basic requirement of traditional retail industry. Taobao focuses on the two concepts which are digital economy and sharing economy, providing a free online trading platform for all retail sellers. While greatly reducing their operating costs, it has brought a larger and more comprehensive source of customers. Therefore, Taobao began a rapid start of comprehensive promotion, attracted a huge customer group and expand market in a very short period of time.
- Diversification of marketing mode: After accumulating a large number of registered members through free C2C trading mode, Taobao launched a B2C purchasing platform Tmall in 2012. (Kwak, Zhang & Yu, 2018, p.5) The emergence of Tmall not only gives high quality sellers in C2C market an opportunity to improve their brands, but also create a platform for traditional retailers to expand their online sales business. Taobao itself does not have to operate inventory and logistics departments, while these businesses are handed over to the most skilled enterprises in these fields of the industrial chain.
- Credit evaluation system: Reputation system helps to manage risk and help users avoid cooperation with bad merchants or buyers. (Lin & Li, 2005, p.4) Taobao has set up a comment area under each product on the platform. After the transaction is completed, Taobao will invite the buyer to rate the seller according to several scoring items, such as the seller’s service attitude and the similarity of the product. Buyers can also post text reviews and upload photos and videos of the products they receive. Subsequently, Taobao will automatically update the seller’s credit points according to the feedback from buyers, so as to provide reference information for later consumers. At the same time, sellers can also score the buyers, including credit, favorability, etc., which can provide reference for the seller who wants to trade with this buyer in the future.
Pictures showing the reputation system and comment area of Taobao
Image: Screenshots taken by Yueli Chen
- 7 days no reason returning policy: Alipay as a trading third party platform, will hold the money of transaction during the transaction process. Until customers confirm receipt, Alipay will transfer the money to the seller’s account. In addition, Taobao also launched a new customer service which allows the return or cancellation of a transaction within seven days without any conditionality. (Kwak, Zhang & Yu, 2018, p.6) This transaction mode has greatly protected the rights of consumers, built the stability of transactions and won the trust of users.
What is Taboo’s place in its industry and social ecology?
Zhang & Wang (2018, p.7) mention that business ecosystem is now considered as a way for enterprises to seek competitive advantage in today’s rapidly networked and institutionalized business world. In the e-commerce ecosystem, Taobao has been built as a resource infrastructure for platform participants by Alibaba, which is not only a provider of services, but also a provider of resources and value proposition. (Zhang & Wang, 2018, p.16)
- One of the most important reasons for Taobao’s success is its cooperation of Alipay which is a third party payment platform. By March 2006, Alipay’s online payment usage on Taobao had reached as high as 95 percentages. (Hu & Zhao, 2010, p.226) Alipay’s insurance transaction mode provides security for C2C buyers and sellers. As the only enterprise in the global market that combines platform and payment, Alipay has made great contributions to Taobao’s market legitimacy construction. (Kwak, Zhang & Yu, 2018, p.5) Without Alipay, Taobao would not have a powerful payment platform and an efficient credit management system. Without Taobao, Alipay would have on trading transactions to survive. Therefore, Alipay and Taobao are interdependent to achieve survival.
Picture showing Alipay app
- The development of Taobao also led to the rise of the whole express industry. In the past, many places in China lacked the infrastructure and services needed for online shopping. (Martinsons, 2014, p.28) The popularity of Taobao made people realize the importance of logistics, and began to quickly improve the transportation facilities and processes of products. The rapid development of logistics industry has also created many new jobs.
Competitors: In the field of C2C, Taobao has few competitors. However, in the B2C market, Taobao has two biggest competitors, Jingdong and Suning. Tmall’s market share in online shopping GMV accounts for 58%, while Jingdong and Suning account for 22.9% and 3.8% respectively, which poses a great threat to Tmall. (Zhang & Wang, 2018, p.7)
Regulators: Taobao is not only composed of company employees, but also composed of hundreds of millions of members and millions of sellers. Taobao has gradually become a network society, involving a lot of economics, sociology and other issues. This requires Taobao to provide rules and regulations as necessary for the network society as soon as possible. Consequently, (Zhang & Wang, 2018, p.16) explores that, Alibaba released the “Declaration of Great Taobao”, clarifying the basic rights and obligations of users and the basic principles of Taobao platform transactions in 2010. Apart from this, different ministries and public institutions of the central government have been controlling the development of the retail industry. Profitable online retail enterprises must meet the requirements of provincial and municipal regulators. (Martinsons, 2014, p.26）
Below is a diagram of Taobao’s ecosystem:
Innovation & Influence
11.11 Global Shopping Festival
Taobao uses special promotions to boost sales throughout the year. As Thibaud (2017) indicates in his article, Taobao sets the date of November 11 as the largest shopping festival on Chinese online trading platform. On November 11, almost all stores on Taobao platform will reduce prices for promotion. Taobao uses such gimmicks as “seckill” and “panic purchasing” to enlarge and stimulate the consumption psychology of the public. The festival has been going on for five years this year, and making a great contribution to Taobao’s annual turnover.
Video concerning and understanding of 11.11 Shopping Festival
Source: Alibaba Group, YouTube
Internet Celebrity Economy
In the past 15 years, Taobao’s real advantage is not to copy itself, but to continuously breed businesses beyond its own capabilities and form an ecological matrix. Since 2006, Taobao has started to build a service system for content entrepreneurs. Whether it is in the form of graphics and text, short video or live streaming, Taobao has covered all media content creators. Internet celebrities sell products to the public in the form of live streaming, and use their popularity to drive the sales of products. Taobao’s live streaming function combines the “Internet celebrity economy” with e-commerce, and maximizing the power of celebrity effect. (Qian, 2019, p.94)
Picture showing live streaming on Taobao Live
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Multimedia Reference List
Andria, J. (2019). How To Shop On Taobao Directly (If You Can’t Read Chinese). Retrieved from https://www.imoney.my/articles/taobao-shopping-guide
Alibaba Group (Publisher). (2020). Understanding 11.11: Alibaba’s Mega Shopping Festival [Video]. YouTube. Retrieved from https://www.youtube.com/watch?v=Yyq1dHJXUz0
Cai Y. (2018). Alibaba’s Taobao, Alipay Start Offering Group Buying Service to Rival Pinduoduo. Retrieved from https://www.yicaiglobal.com/news/alibaba-taobao-alipay-start-offering-group-buying-service-to-rival-pinduoduo
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