By Tyler Holt

Taobao Vs. eBay China

•At Glance•Ebay China•Taobao•Major Issues•Case Questions•Quiz

Outline

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

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

•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

•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

2000 2002 2004 2006 2008 2010 20120

100200300400500600

Internet Users (Millions)

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

•Founded in 1999 by Bo Shao and Haiyin Tan•MBAs inspired by Ebay•Major difficulty= customers trading in person

The Rise of Eachnet.com

•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

•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

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

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

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

•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

•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

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

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

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

•“Alipay”- provided escrow and help with transportation

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

TaobaoeBay China

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)

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 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

•Paid $40 million to Tom online to take control of eBayChina•Renamed Eachnet and entirely cut off in 2007•eBay.com.cn designated to international trade•Eachnet.com domestic C2C

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

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

Major Issues

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

•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?

Quiz

•What profession was Jack Ma when he started Alibaba.com?