How Alibaba & # 39; s Taobao solved the trust problem in China and changed the way people shop



Every month, as many as 634 million consumers – almost half of the Chinese population – get the Taobao Marketplace and Tmall e-commerce apps from Alibaba Group Holding on their smartphones. Whether you're a farmer after fertilizing crops or a new homeowner who wants to spend 18,000 yuan (US $ 2,630) on a 15-piece, Victorian furniture set, there's something for everyone.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "In China Alibaba has become synonymous with e-commerce, while its Taobao and Tmall platforms are well-known names, the Hangzhou-based company, which is the parent company of the South China Morning Post, has a market capitalization of approximately US $ 460 billion, making it the world's second most valuable e-commerce company after Seattle.com. "data-reactid =" 32 "> In China, Alibaba has become synonymous with e-commerce, while the Taobao and Tmall platforms are well-known names, the Hangzhou-based company, which is the parent company of the South China Morning Post, has a market capitalization of approximately US $ 460 billion, making it the world's second most valuable e-commerce company after Seattle-based Amazon.com.

The rapid ascent of Taobao – which translates to "searching for treasures" in Mandarin and Tmall, has provided billions of dollars in courier services such as SF Express and ZTO Express, which can deliver packages from Shenzhen to Beijing in less than 24 hours. Taobao is the consumer-to-consumer platform of Alibaba, while Tmall is a business-to-consumer platform where brands sell directly to consumers.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Spread over the country there are more than 2000 so-called Taobao villages, where inhabitants rely on Taobao to live by their own products and were to produce and sell on the platform, according to the China Internet Report co-author of the Post, his tech news site abacus and venture capital firm, 500 Startups, based in San Francisco. "data-reactid =" 34 "> Spread over the whole country are more than 2000 so-called Taobao villages, where residents rely on Taobao to live by producing their own and sell and were on the platform, according to the China Internet Report co-author of the Post, his tech news site abacus and venture capital firm 500 Startups in San Francisco.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Alibaba has a turnover increase of 61 percent, due to the increased New Retail investments"data-reactid =" 35 "> Alibaba owes 61% revenue growth to the increased New Retail investments

On Thursday, Alibaba reported an increase in sales of 61 percent to 80.9 billion yuan (US $ 11.8 billion) for the quarter ended June 30, driven by the company's main e-commerce activities, even if it were investing in -demand local services. other activities in the context of its New Retail strategy.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "" Our New Retail initiatives grow significantly Alibaba & # 39; s total addressable market in e-commerce, "said Joseph Tsai, executive vice president at Alibaba, during a conference call on Thursday. "Alibaba's three-tiered consumer offering in retail, entertainment and local services will be the driving force behind value creation in the long term, while the Chinese middle class is expanding and more of these consumers are demanding a higher quality lifestyle.""data-reactid =" 37 ">" Our New Retail initiatives are substantially growing the overall e-commerce market in Alibaba, "said Joseph Tsai, Executive Vice President of Alibaba during a Thursday conference call. "Alibaba's three-tiered consumer offering in retail, entertainment and local services will be the driving force behind value creation in the long term, while the Chinese middle class is expanding and more of these consumers are demanding a higher quality lifestyle."

Last year China's online sales came to US $ 1 trillion for the first time and the industry seems ready for further growth. Only 11 percent of the Chinese population has reached the middle class, according to Goldman Sachs statistics. As this number continues to grow, sales of e-commerce will also grow.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Alibaba is boosting on-demand local services as overseas expansion intensifies"data-reactid =" 39 "> Alibaba boosts on-demand local services while overseas expansion intensifies

From its modest beginnings as a local e-commerce platform against then-established eBay, Alibaba is now the clear leader in China. Domestic trading activities generated about 8.2 billion yuan, or about 67 percent of total sales, according to the latest profit for the quarter ended June 30.

The company has a 58.2 percent domestic market share in e-commerce, according to eMarketer statistics, compared with 16.3 percent of its biggest competitor JD.com. Every year on November 11, Alibaba Singles & # 39; Day, & # 39; the world's largest online shopping festival, where traders offer huge discounts on their platforms. Last year, US $ 25.3 billion in transactions were recorded, reducing US $ 5 billion sales from the Black Friday retail day in November in the US.

Taobao and Tmall may be the biggest today, but when Alibaba founder Jack Ma Yun first had the idea to set up Taobao as a way to expand the business-to-business model of the company with consumers , the platform was seen as an underdog, a David compared to the Goliath who was eBay.

At the beginning of 2000, eBay was one of the dominant e-commerce sites worldwide. The online auction model offered users the opportunity to offer items for sale. Back then, eBay CEO Meg Whitman had set her sights on China, and in 2002 the American company bought a 33 percent stake in the Chinese auction site EachNet to get a foothold before it was completely taken over a year later. At that time, EachNet already had a significant market share in the consumer auction market in China and was the leading e-commerce site in China.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Ma thought that although eBay positioned itself as a consumer site, the ultimate focus on the wholesalers of Alibaba, according to the book Alibaba & # 39; s World: how a remarkable Chinese company changes the face of global business by Porter Erisman, former vice-president of Alibaba. "data-reactid =" 48 "> Ma felt that eBay would indeed position itself as a consumer website, but would eventually focus on the wholesalers of Alibaba, according to the book Alibaba & # 39; s World: how a remarkable Chinese company changes the face of global business by Porter Erisman, a former vice president of Alibaba.

To counter this threat, Ma gathered a small team of Alibaba employees who agreed to work on the Taobao project. Those involved were sworn to secrecy – they had to resign from Alibaba and nobody could know what they were working on, not even their former colleagues or friends and family.

The Taobao team worked from Ma & # 39; s old Hupan Gardens flat in Hangzhou – the same as he started with 17 other founders Alibaba – and secretly launched Taobao in May 2003. To get the site up and running, each member produce four items to mention on the site and buy items from each other to give the impression that the site already had traffic and active users.

Our new retail initiatives increase the total addressable market of Alibaba in the field of e-commerce

Joseph Tsai, executive vice president at Alibaba

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Ma even has his watch listed online, according to the book Alibaba: The house that Jack Ma built by Duncan Clark. A Chinese longquan sword was also part of these "early" lists and Taobao's very first transaction between a (real) buyer and seller saw a second-hand film camera change ownership. "Data-reactid =" 53 "> Ma even mentioned his view online, according to the book Alibaba: The house that Jack Ma built by Duncan Clark. A Chinese longquan sword was also part of these "early" lists and Taobao's first transaction ever between a (real) buyer and seller saw a second-hand movie camera change owner.

Unlike eBay's EachNet, which placed buyers against each other when bidding items at an online auction, Taobao was launched as a consumer-to-consumer site where sellers could sell goods at fixed prices to users.

But what Taobao offered its customers was also a unique online shopping experience, modeled on offline wholesale markets. It introduced chat features that allowed buyers to communicate directly with sellers, negotiate prices or learn more about the product, and designed its site to appeal to its users. Entries were divided into categories such as & # 39; men & # 39; and & # 39; women & # 39 ;, so users could see products that could appeal to them with the click of a button.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Alibaba & # 39; s new VIP membership plan to build platform loyalty is very similar to Amazon Prime"data-reactid =" 56 "> Alibaba & # 39; s new VIP membership plan to build platform loyalty is very similar to Amazon Prime

"Alibaba looked into the offline experience of shopping by turning Taobao's online event into a kind of bazaar, doing the same investment in customer service on the platform … where customer service is part of the purchase before and during the purchase and after purchase, "said Tom Birtwhistle, digital consulting director of PwC Hong Kong.

"Alibaba has made online shopping fun with video's, games and games on its e-commerce platforms, becoming a fun place to shop and spend time, just as offline shopping is a fun experience."

Another problem that Taobao had to solve was that of trust. In a low-trust, such as China, online transactions were difficult to complete because buyers did not know whether sellers would actually ship the product after receiving payment, and sellers were not willing to send items until they received a payment confirmation.

To solve this problem, Alipay was introduced in 2004 as an escrow service that would hold payments until the buyer received his purchase before the money was released to the seller. Although today Alipay has become one of the most dominant online payment platforms in China, where users can do everything, from paying for Taobao and Tmall purchases, and from peer-to-peer money transfers, the origin of the service was modest and largely based on manual efforts of employees. Alipay is now active under the Al Financial subsidiary Ant Financial Services.

When Alipay was first introduced, employees used fax machines to receive offline bank transfer confirmations from customers, and according to Alibaba they would manually record all abnormal bank payments in a notebook.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Alibaba is investing 4.5 billion yuan in online services company to stimulate the national strategy in China"data-reactid =" 78 "> Alibaba invests 4.5 billion yuan in online services company to stimulate rural strategy in China

Alipay, which eventually became more sophisticated and automated, was a game changer for the Taobao platform, giving users confidence that they would not be deceived when using the platform.

One of the biggest factors that gave Taobao a head start in China at the time was that it was a free-to-use service. This contrasted with eBay's EachNet, which charged sales costs for each transaction and offer.

Alibaba also benefited from the missteps of eBay at EachNet in China – including the migration of servers from China to the US that resulted in a slow, unreliable service, as well as the decision to unite EveryNet's interface with that of clean, minimalistic eBay & # 39; s, to the great disappointment of users. As a result, people started to leave the EachNet platform en masse, with many vendors taking the Taobao instead, whose website was both free and aesthetically pleasing to Chinese users who preferred colorful images and pop-ups scattered throughout the site.

In 2004, Taobao had already captured almost 60 percent market share. Four years later it was the clear leader with nearly 84 percent of the market, compared to 7.2 percent of EveryNet. By then, eBay had already closed its Chinese site and decided to collaborate with the Chinese company Tom Online to relaunch the EveryNet site.

EBay from California did not respond immediately to a mailed request for comment. Alibaba did not make the Taobao executives available to interview for this story and did not comment.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "" The initial success of Taobao was just as much due to the failure of the US management teams of EachNet and eBay, in terms of the success and the savvyness of Alibaba's management team, "said Shaun Rein, managing director of the China Market Research Group and author of The War for China & # 39; s Wallet: Benefit from the New World Order. "data-reactid =" 100 ">" The initial success of Taobao was due to the failure of the US management teams of EachNet and eBay, as well as to the success and the savvyness of the Alibaba management team, "said Shaun Rein, managing director, director of China Market Research Group and author of The War for China & # 39; s Wallet: Benefit from the New World Order.

"Many Americans complain that Western technology companies can not succeed in China because of the government, but in fact many of the failures were due to the management teams, from eBay to Google."

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The internet ecosystem model of China is increasingly being copied worldwide"data-reactid =" 102 "> The Internet ecosystem model of China is increasingly copied worldwide

For e-commerce companies such as Alibaba, industry remains a green area of ​​opportunity today. As China's growing middle class becomes more prosperous, many turn to e-commerce platforms such as Tmall and JD.com for more expensive foreign products, such as baby milk powder and cosmetics.

In rural areas and less populated cities with fewer shopping centers compared to major cities like Beijing and Shanghai, e-commerce residents offer a wider range of choices and is the next engine of online growth for companies such as Alibaba and JD. .com. Both companies have implemented national e-commerce initiatives, including investing in logistics infrastructure, exploring drones as a delivery solution for remote regions & encouraging Chinese Chinese users to sell their wares on the platform while the country largest mobile and mobile internet market in the world.

Liu Qing¸, a 23-year-old car salesman from a rural city in Shandong Province, said that the popularity of Taobao and Tmall has greatly changed the way he shops.

"When I was young, our family had to travel to Qingdao to buy branded products, because that was the nearest big city with a wide range of shopping malls," Liu said. "But nowadays, even if I do not leave my house, I can buy almost anything I want on Taobao as long as I can afford it."

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Alibaba has started to merge food supply units because it aims to increase competition in China with Meituan-Dianping"data-reactid =" 107 "> Alibaba set up to merge food suppliers because it aims to increase competition in China with Meituan-Dianping

But the days when Taobao and Tmall remain only e-commerce platforms can be numbered. In the past two years, Alibaba has embarked on its "New Retail" strategy to merge online and offline shopping experiences across its ecosystem of services, whether it's shopping, food delivery or local services.

Taobao and Tmall could soon offer delivery services on demand via its Ele.me food supply unit, according to Ele.me, Chief Executive Wang Lei. This subsidiary of Alibaba has a fleet of three million deliverers, which is a resource that can increase the on-demand logistics capabilities of Alibaba, allowing users to receive orders within hours if they buy from a trader who is located in the same city.

The on-demand local services market "is a must-win and must-have" for Alibaba, said Maggie Wu Wei, the company's chief financial officer, during the Thursday conference call.

"While consumers demand more quality and diversity of services in China, this category represents a gigantic billions of times," Wu said.

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