The Great Firewall
Before we go down to look at the company itself, you have to understand one significant factor that contributes to Taobao’s success in China — the government.
Unlike many other businesses, Taobao boasts never accepting money from the Chinese government. “If your company needs money from the government, it’s rubbish,” says Jack Ma, the founder of Alibaba group.
However, the government did help him to create his empire in a more subtle way. They blocked many big websites from being accessible to Chinese citizens. As such, YouTube, Google, and Instagram are out of reach for most Chinese.
Yes, now the youth is trying to cheat the system by using proxies, but back at the time Taobao was founded, such an option wasn’t widespread. So, Jack Ma only had to beat the local competition.
The man behind Taobao
Even though Jack Ma left the Alibaba group in 2018, this man has influenced the company considerably. If it weren’t for him, Taobao would not exist as we know it.
Ma Yun grew up in a family that wasn’t even considered middle class. He first came in contact with foreigners after Nixon visited China and brought in a surge of tourists. He got his Jack nickname back then and started to learn English.
Everyone thought he was a failure — Jack was refused a job at the police and KFC, and it took him three attempts to get into the university. He failed at the university so much he probably had to buy the essay too. But then, this man went to the US and saw the perspectives of the Internet.
Soon after, he started Alibaba, convinced Yahoo to invest a lot of money in the company, and managed to keep the Chinese government out of his business. The rest is history.
Jack Ma is no engineer, so he can look at his products as a consumer. Maybe this is a part of his success.
Standing off eBay
eBay is not blocked in China, so Taobao had at least one serious competitor in its infancy. A young company had to compete against what was then a corporate giant.
They had a similar business formula but were different. Taobao was able to be cheaper for both sellers and buyers. As a result, it was able to defeat the American rival, Taobao’s market share more than tripled, and eBay’s share plummeted.
In 2006, eBay was not able to compete because of Taobao’s alliance with a Hong Kong company Tom Online, and exited the Chinese market, leaving the two unrivaled.
People selling to people
One of the main factors that contributed to Taobao’s grows is its business model, which is more like eBay than like Amazon. It’s a marketplace, not a seller. So when it entered the Chinese market, it was the first platform of such a type in the country.
Naturally, people started coming in large numbers. The only thing Taobao had to do to succeed is to fight off its main competitor, eBay. This is how the company did it.
Ads instead of cuts
eBay takes commissions from its sellers, and Taobao doesn’t. This alone was a tremendous contribution to its success in China.
The thing is, there are a lot of small vendors in China. In a country with over a billion people, this means a massive opportunity for online marketplaces to grab.
But once they got access to the internet, these vendors took the path of least resistance. They joined Taobao en masse because it was free to use.
The business model of Taobao is selling ads instead of taking commissions. This makes more sense than eBay since there are going to be so many people on the platform that you’ll have to scroll through dozens of pages to reach the end. Since you won’t be making much money in commission on those placed last, you can monetize this demographic by selling them the first place on the list.
Huge promotion effort
Popularity doesn’t come on its own — it has to be earned. Taobao earned its reputation in cooperation with the media that was widespread in China before the Internet. It partnered up with major TV shows and even got into movies to spread the word.
The company also got together with major websites in China to promote itself. It even partnered up with a salient blogging website and allowed its users to use their accounts to shop at Taobao.
Jack Ma made sure that all Chinese have easy access to the platform, and everybody is talking about it. There’s only a small step from discussing a company to becoming a buyer.
Banks join the game
At the core of any e-commerce website, there’s trust. Taobao gained the trust of its users by allying with the major Chinese banks. This made transactions on the site secure and provided users with protection against fraud.
With time, the number of payment options only increased. Taobao is now accessible to people in Taiwan and Hong Kong, as well as to anyone in the world since it supports most international cards. In some parts of China, you can even pay via an ATM.
Jack Ma went even further and created AliPay, a company that oversees payments outside of Taobao. Now, it’s a popular payment system on par with PayPal.
Taobao is not alone, however. It’s a part of a group of companies that are worth over $80 billion. Taobao only covers C2C transactions. There’s also Alibaba for B2B sales, Alipay that works like PayPal, a WeChat’s rival, Laiwang, and Chinese YouTube to name a few.
Good things come in bunches, and one of the secrets of Taobao’s success is that it is a part of a more complex system. Jack Ma created a set of companies to seize China’s key e-commerce opportunities. This is what made his every company successful.
About the Author
Mary Steinford has been a bookworm since a very young age. For that reason, she dedicated herself to creative writing. Novels, articles, news releases, book reviews. That is what her daily routine consists of. There is nothing more inspirational for her than the opportunity to investigate a new topic.