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Taobao Vs. eB ay China. By Tyler Holt. Outline. At Glance Ebay China Taobao Major Issues Case Questions Quiz. CEO- Jack Ma May 2003 launched Taobao Ebay held 70% of market share 2008 eBay bowed out of market Taobao held 80% of market share. At a Glance. Slow start due to

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at glance ebay china taobao major issues case questions quiz

Outline

At Glance

Ebay China

Taobao

Major Issues

Case Questions

Quiz

at a glance

CEO- Jack Ma

  • May 2003 launched Taobao
  • Ebay held 70% of market share
  • 2008 eBay bowed out of market
  • Taobao held 80% of market share

At a Glance

the birth of china s online c2c market

Slow start due to

  • low Internet penetration rate
  • Lack of norms and laws supporting online exchange
  • Technological and financial infrastructures needed for online auctions not in place

The Birth of China’s Online C2C Market

the birth of china s online c2c market5

Fraud was rampant

  • Lacked comprehensive online payment system
  • Mainly debit cards specific to each city
  • Lack of credit system
  • Banks hesitant about issuing credit cards

The Birth of China’s Online C2C Market

slide6

In 2001 Bank of America and China Construction Bank issued credit cards through online application

  • China UnionPay- single card processing system
  • 1995- 14 million bank cards
  • 2008- 1.6 billion bank cards
the rise of eachnet com

1999 many internet B2C shopping sites started:

  • Yabuy.com
  • Netease.com
  • Sina.com
  • Eachnet.com

The Rise of Eachnet.com

the rise of eachnet com8
The Rise of Eachnet.com
  • Founded in 1999 by Bo Shao and Haiyin Tan
  • MBAs inspired by Ebay
  • Major difficulty= customers trading in person
the rise of eachnet com9

Problem- payment processing

  • Cash-on-delivery system
  • Partnerships with major banks to encourage credit card use
  • Escrow and “paypal” used but abandoned early on

The Rise of Eachnet.com

the rise of eachnet com10

Attempted to earn profits-

  • Switch from free service to pay for listing
  • Auctions dropped dramatically
  • Ebay approached in 2001
  • A new approach to Asian expansion
  • Used eBay market principles
  • eBay paid $180 million in 2003 for Eachnet.com

The Rise of Eachnet.com

ebay china

1995 as experiment by Pierre Omidyar

  • 1998 went public, worth billions
  • By 2001 expanded to Europe, Latin America, Australia, New Zealand, Singapore, Korea, Japan
  • Lost Japan in 2001
  • Announced entry into China

eBay China

leveraging ebay s global strategy and organization

Use world-wide capabilities to compete

  • High-ranking executives to lead eBay China
  • Servers moved from China to Silicon Valley
  • Long-term sustainability
  • Regional layer- eBay Asia

Leveraging eBay’s Global Strategy and Organization

taobao rivals ebay china

Jack Ma- founder of Alibaba.com, B2B

  • College english teacher-China’s earliest Internet pioneer
  • No Knowledge of computers
  • Found out about internet during visit to US
  • 1999 founded Alibaba.com
  • 2002 leading B2B Chinese website

Taobao Rivals eBay China

taobao rivals ebay china14

Saw eBay as serious threat early

  • Lots of government support
  • Launched Taobao as a way of cutting off eBay
  • Secretly started Taobao “searching for treasure”
  • $12 million investment from Alibaba to Taobao

Taobao Rivals eBay China

taobao rivals ebay china15

Worker ant mascot- unite and fight to the end

  • 2004 eBay still saw Taobao as a fledgling company
  • “….shark in the ocean, but we are a crocodile in the Yangtze”
  • Help from Masayoshi Son of Softbank from Japan

Taobao Rivals eBay China

competing for customers

eBay bought exclusive ad rights to major websites

  • Taobao used grassroots computer bulletin board services (BBS)
  • “They have deep pockets, but we will cut a hole in their pockets”

Competing for Customers

competing for customers17

Fee-free service

  • Used typical Chinese department store structure
  • Sense of community
  • Instant messaging service, full contact information

Competing for Customers

competing in payment services

“An Fu Tong”- Secure Pay, built on Eachnet payment and escrow services. Similar to Paypal

  • eBay bought Paypal in 2003
  • Paypal scrutinized by government- no international transactions or flexible credit
  • An Fu Tong and Paypal led to confusion

Competing in Payment Services

competing in payment services19

“Alipay”- provided escrow and help with transportation

  • 2005-
  • 79% of listings for Taobao accepted Alipay
  • 21% of listings for eBay accepted online payment

Competing in Payment Services

competing for partnerships

Taobao partnered with Sohu (leading portal website)

  • MSN China chose Taobao rather than eBay for shopping channel
  • eBay partnered with Global resources (international trade information provider)

Competing for Partnerships

the problem of counterfeit merchandise

Market flooded with counterfeit products- clothing and accessories

  • Government defended Taobao from seller fraud
  • eBay vulnerable to sellers committing fraud

The Problem of Counterfeit Merchandise

the endgame

Taobao flexible and fast to respond to users

  • eBay bogged down by global platform complexity
  • 2005-2006 eBay replaced CEO several times
  • Tried several partnerships

The Endgame

the endgame23

Paid $40 million to Tom online to take control of eBay

  • China
  • Renamed Eachnet and entirely cut off in 2007
  • eBay.com.cn designated to international trade
  • Eachnet.com domestic C2C

The Endgame

becoming a profitable company

2006 Fee-based service

  • New product PR disaster
  • Asked for vote from customers
  • 2008 “Mall of Brands” B2C
  • Entirely fee-based

Becoming a Profitable Company

where they are now

Taobao-

  • 2009- advertising revenues $220 million
  • 2010- advertising revenues >$765 million
  • eBay-
  • Partnered with three Chinese manufacturing giants
  • Breo- professional healthcare products
  • Kwong Pontus Telecom and Techno Company- communication electronics products
  • Aigo- digital and electronic equipment

Where they are now

major issues

Fraud

  • Lack of integrated banking system
  • Competition for customers
  • Competition for payment services
  • Competition for partnerships
  • Counterfeit merchandise

Major Issues

slide27

Would you have started Taobao as non-fee based?

  • What factors should eBay have paid more attention to?
  • What were the critical errors that eBay made?