TAOBAO vs. EBAY China

Elise Lin BUS 550

Overview

• Background Overview• Macro and Micro

• What made a difference in China• eBay vs. Taobao: business strategies and technologies• Comparison in the capital market

• Conclusion

• 1995:Pierre Omidyar founded eBay, an online

marketplace for buyers and sellers• 1998: listed on NASDAQ• 2002: acquired for $1.5 b• 2002: started strategic alliance with in

China• 2005: acquired for $2.6 b Voice Over Internet Protocol (VOIP)

eBay’s headquarters in San Jose

Growth Strategy: acquisition

Internet Infrastructure took off

Top 10 Internet Countries – 2012 Q1

Source: Internet World Stats

R i s i n g P u r c h a s i n g P o w e r

Huge Business Opportunity for C2C in China is forseen

First Mover Advantage

+ in

• 1999: EachNet was founded by two Chinese entrepreneurs, American- trained MBAs inspired by eBay’s success

• 2001: EachNet held 90 % of China’s Internet C2C market• 2001: EachNet started to charge listing fees to sellers• 2001: eBay approached EachNet • 2002: eBay acquired EachNet for $180 m (record high in

China)• 2002: eBay Japan struggled• 2004: eBay China officially moved onto eBay’s global platform

eBay considered China to be the company’s second most important target market, after the U.S.

eBay Did Not Keep the Lead, the First Mover Advantage

C2C (Taobao)

B2C

Cloud computing Internet portals

Shopping search engine

B2B

third-party online payment platform

Source: www.people.com.cn

Alibaba Group’s headquarter in Hangzhou, China

40%

20%30 %

2% (Ma and manageme

nts)

Taobao

• 1999: Alibaba was founded in Jack Ma’s apartment• 2002: Alibaba grew to be the leading B2B Website in

China• 2003: Taobao was founded again in Jack Ma’s apartment• 2004: Alipay was launched • 2008: Taobao Mall, a dedicated B2C platform, is

introduced to complement Taobao’s C2C marketplace• 2010: Taobao Mall launches a new independent web

domain, Tmall.com• 2011: Taobao broke into three separate companies,

Taobao Marketplace, Tmall.com and eTao• 2012: Tmall.com changes its Chinese name to

strengthen its positioning as a source of high-quality, brand-name products

Why + < in

• Centralization -- Too globalized, not localized enough2005: Jack Ma: eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose–but if we fight in the river, we win.

• Less innovative and integrations in technology(IT systems)

• Arrogant, over-confident2004: Cobb: viewed Internet C2C as eBay’s primary expertise, and did not think that it could be matched by its competitors in China

Centralization Vs. Localized• eBay changed the Chinese operation to match with eBay global (listing

categorization, interface styles and technologies)

• Taobao : categorizes as the typical structure of a local department store

• eBay created a regional layer, eBay Asia in Korea

• eBay Moved servers and the maintenance to Silicon Valley

• Pricing changed

: insertion fees, final-value fees and features fees : 3% of the transaction as the service fee : no fee

Inflexibility to respond to the customer

Chinese customers complained

Fees for selling on eBay

Sources: eBay

Fees for selling on Taobao— Tmall (天貓 )

Source: Tmall

eBay Taobao

Payment Services

1. An Fu Tong by EachNet (2004)2. PayPal by eBay (2003)

Alipay (2003)

Payment descriptions

An Fu Tong: Alipay + PayPal Secure buyers

Response from customers

Customer confusion Customer trust

Corporate response Emphasized 2 distinct systems

Alipay available to merchants beyond Taobao

Relationship with key government

Encountered tight control of financial service providers

Ma and his team had longstanding relationship with China officials

Integrations of IT systems

Lack of integration Integrated delivery service requests into Alipay’s user interface

Result 21% of its users use payment services

79%

Competing in Technology Services (IT systems)

Competing in MarketingeBay Taobao

Marketing Strategy

Spend heavily in marketing campaigns

Grassroots approach (bulletin board services)

Main website had exclusive agreements with all major Chinese websites

“Ants way” to response (Strength in numbers)

Ma: “eBay may have deep pockets, but we will cut a hole in their pocket.”

Taobao’s EC Strategies

Categorizes similar to local department stores

Integrated an instant messaging service into each seller’s webpage

Customers perceive Taobao as informal and friendly

No fee policy and secured Alipay service discourage customers from doing offline trasactions

AliWangwang: http://www.taobao.com/wangwang/2010_fp/buyer.php?TBG=43351.80787.3

Running a Business is like a Marathon

Source: yahoo finance

It Is Still Too Early to Claim Alibaba’s Fate

NASDAQ

China Shanghai Composite Index

Conclusion• Nowadays it is important for corporations to go

global, but key strategies have to be considered:• Centralization vs. decentralization (empowerment,

globalized)• Potential issues from growing through acquisitions

(cultural conflict, IT integrations…)• Are you ready for the target market (Alibaba failed in

Korea)

• For contemporary companies, how to find the IT FIT that can go along with the company culture and the external environment is a key to success

• How to generate the revenue (revenue streams) in order to gain substantial competitive advantage in the market

Question 1

In the case eBay and Taobao, which company did eBay acquire?

a. EachNetb. EveryNetc. Baidud. Tmall

Question 2

In the case eBay and Taobao, why did eBay in China have only 21% of its users use their payment services?

a. Taobao had first mover advantageb. eBay China’s payment system constantly

crashedc. Customers confused about multiple payment

systemsd. None of the above

Question 3

In the case eBay and Taobao, why did Chinese customers complain about the eBay China’s availability of service?

a. eBay China’s servers were overloaded by too many users

b. Maintenance was done on California time schedule

c. Hackers attacked eBay serversd. Government censorship in China

Thank You !

Q & A

National Aquatics Center, Beijing, China

Beijing's Bird's Nest stadium