By 2002, eBay entered China with its acquisition of the start-up EachNet, holding over 70 percent share (Exhibit 1). But by 2006, Taobao established in 2003 overtook eBay China. Although eBay nominally continued to operate in China, it was no longer a concern of Taobao which held over 80 percent of the market in 2008 (Exhibit 1). Such case compares and contrasts their business strategies to analyze how to beat formidable players in China. Table 1: the comparison of business strategies between eBay and Taobao Strategy 1. “listing fee” model (Cramption, 2010)
1. “free of charge” plan for three additional years starting (Cramption, 2010) Advertising Channels Expensive advertisement expenditure 1. Sign exclusive contracts with almost all the major Chinese websites (Luo & Feng, 2010) 2. Invest heavily in its marketing campaigns Cheap advertisement expenditure 1. Put messages on bulletin board services (BBS) (Luo & Feng, 2010) Customer Service 1. At the beginning, eBay forbade the connection among buyers and sellers 2. In order to keep customer preference, eBay has to provide chatting service (e. g. Skype, chatting room, discussion board etc. )
1. Taobao encourages the direct connection among buyers and sellers to acquire more real information about products, so Taobao “AliWangWang” is offered Payment Service 1. PayPal is not suit used in China due to Chinese government’s tight control of financial service providers (Lu, 2007) 2. PayPal was prohibited from offering international transactions and flexible credit services that leveraged its global platform in China 1. AliPay provide escrow services.
It held the buyer’s payment until the merchandise was actually accepted by the buyer, and provided insurance for buyers in case of fraud to protect them from financial losses. Website Interface 1. global platform 2. it is translated from the website in US, which does not satisfy the Chinese customers’ expectation 1. typical structure for men and women (Wang, 2005) 2. colorful and attractive interface Source: IMS E-Business Models and Strategies, Jie Huang (2012) According to Chinese consumer behavior, there are some specifics. Firstly, “free” products are easier to attract the Chinese consumers.
Secondly, there are some problems of fraud so that they prefer to directly contact with the seller and obtain more detailed information about products in China. Thirdly, they like to use simple but secure approaches to pay the products. These explain the reason why Taobao beats eBay in China. Overall, Taobao has a more clear understanding on the Chinese customer behaviors than eBay China, and it implemented “free charge” strategy to earn customer preference. Also, Taobao “Wang Wang” and Alipay provide add-value services to remain Chinese consumer’s loyalty.
Hence, the failure of eBay China gives lessons to us, that is, the company who want to take a share on Chinese market should understand the specific customer behaviors at first. And then, they should make appropriate e-business strategy for Chinese market. If they ignored that lesson, the investments would not receive equivalent return in China. But eBay EachNet soon lost its market leadership position to Taobao. com (Taobao). Some analysts opined that this was because of eBay's failure to localize its globally successful business model to China.
Also, Chinese customers preferred Alipay7 as it was perceived to be safer than other payment systems such as PayPal8. Another factor for Taobao's success was that it did not charge any transaction fee from sellers on the website while eBay had listing fees for its sellers How taobao kept ebay out of the market and become china’s dominant e-commerce platform in a relatively short space of time holds lessons for Chinese and western companies alike First, taobao provided services and solved problems for the smaller businesses that are the driving force behind china’s economic boom.
For instance, Alipay enabled people to pay for goods and services easily. Second, taobao set up or integrated services that complemented each other and used this ecosystem to create a bar to competition. Third, Taobao identified how to help people buy and sell. By making online shopping easy, safe and fun it helped many first-time online buyers bulid confidence in e-commerce.
1. Cramption, T. , (2010), How Taobao beats eBay in China,[online] Available from: www. thomascrampton. com/china/taobao-china-eco[Accessed 26 April 2012] 2. Luo, X. Q. & Feng, M. , (2010) Taobao vs eBay China, Stanford Graduate School of Business. Case: IB-88. 3. Lu, Y. (2007), the comparison of C2C marketing strategies between eBay Eachnet and Taobao, Journal of Fujian University of Technology, Vol: 5, No. 2. 4. Vara, V. and Chao, L. eBay Steps Back from Asia, Will Shutter China Site. Wall Street Journal, Dec. 19, 2006. 5. Wang, H. H. (2005) Taobao vs eBay China, [online] Available from: http://helenhwang. net/2005/11/taobao-vs-ebay-china/ [Accessed 26 April 2012]