What is Taobao? And who founded Taobao? Jack Ma founded Taobao in 2003 and right now, it is the most significant e-commerce website in China. Until November 11th 2019, Taobao has made a total of sales of 29 billion GBP within one day! The question rises, why is it so successful in China? Let us go back to the late 90s and start of 2000s.
At the start of 2000, unlike any other western countries, China was a country with people who liked to collaborate and work together just like farmers did. This idea of community led them to have extreme xenophobic thinking. This xenophobic thinking set a mental barrier for this group of people not allowing any other people to enter their social community group. This also made them be opposed to any novelties. Therefore, at the late 1990s, China’s market was still in the old system where it was not performing as efficiently as the western market was, this was called the ice age of Chinese market. However, this all came to a change in 2001, where China joined the WTO (World Trade Organization). This allowed Western firms such as Carrefour and Walmart to enter the Chinese market . Also, the entry of internet to China made a massive change to China’s earlier e-commerce mode
Only at the end of 1999 did the Chinese start to use the internet more frequently. Some Chinese investors saw the success of eBay and Amazon in the western market and therefore started creating their Chinese duplicates. However, this did not go well. The reason was that, although China joined the WTO, their economy still was not excellent. Credit cards were not widely used yet and most people did not even own one. The e-commerce firms were not efficient. They had to give the product to customers first then as the customers received the product, they had to provide the money. So, there were not many people using online shopping. As a result of this, the cost of e-commerce at that time was getting higher and higher tho the point where firms could not handle the costs anymore.
As firms realized that the “amazon way” could not work in China, they soon started copying e-Bay. One of the leading firms was EachNet. However, because e-Bay was based on auction sales, this didn’t work in China, because at the time a lot of Chinese people were still not familiar with how auctions worked and even though they would raise the price, in the end they would not buy what they were bidding for. EachNet set an auction place at Shanghai and set a trade area where buyers and sellers could trade and pay. However, the fixed cost of maintaining was too high. Therefore soon, the owner of EachNet closed these trade areas.
In 2003 Alibaba entered the e-commerce market and created Taobao. In the USA, Amazon was using the Walmart market structure of using high sales for low cost to save budgets for mass production and high technologies. In contrast, e-Bay was using auction sales to resell second-hand or vintage items. Unlike e-Bay and Amazon, Taobao was a small firm, which made it easier for it to be accepted by Chinese consumers.
Furthermore, Taobao is paying more attention to helping both the supplier and the consumer. Unlike e-Bay and Amazon, they spend more focus on the item itself and the consumers without much consideration for the suppliers. Also, the design of Taobao is more suitable for Chinese people. As life in China is hectic and fast, people prefer a simple, secure trade and web page. Another significant factor of why Taobao was so successful in China was because they introduced their unique payment method, which is called Alipay. In that period, because bank payments and cash were so inconvenient, they set an app which people could store money in and use it with just having a phone. As Alipay was introduced, Taobao soon took off and stayed at the top one e-commerce place in China.