BSAD 415:66 Electronic Business
Prof. G. Trites
Jie Yue (Kathy)
June 10, 2008
Being the largest online trading company, eBay has launched websites across the world, including thirty other countries in addition to its original U.S. website. China, with its large online market, is one of these countries. In 2003, after its cooperation with Eachnet, the first C2C online company in China, eBay became the largest online trading company in China, controlled 90 percent of the Chinese C2C market (Zazaian, 2006). The success continued until Taobao, a completely free online C2C platform, established in China by the founder of Alibaba.com. Taobao quickly became dominant in Chinese online C2C market, controlling as much as 67 percent of the market in 2005, compared to eBay’s 29 percent (Zazaian, 2006). According to the 2008 China Online Shopping Report, in 2007, 70.4 percent of online customers choose Taobao, while eBay only controlled 8 percent of the market (China IntelliConsulting, 2008). Not only is Taobao attracting more and more consumers, it is also the symbol of online shopping in China. With great success in C2C market, Taobao also launched its B2C platform in 2008, Taobao mall, which expands Taobao’s business to a new level. In contrast, in 2008, eBay China’s Website (Eachnet.com) has to declare that it will not charge any listing fees in order to compete with Taobao. EBay also announced recently it would partially admit Taobao users' credits (Shanghai Daily, 2008).
With the same Chinese e-business environment, eBay and Taobao differentiated significantly in their business accomplishments; with the same strategy, eBay failed in China, while making great success in the U.S. and many other countries. This is not just an accident.
In the remaining paper, a detailed comparison and analyze between eBay and Taobao will be conducted. According to the result of comparison, we can come up with several suggestions for online business in China. In the end, a conclusion will be made.
2 Comparison between eBay and Taobao in China Online Market
Considering the whole Chinese e-business environment and business characteristics of eBay and Taobao, there are several differences between these two online trading companies. Among these differences, we can easily observe the reasons why eBay was unable to maintain its early-mover advantage.
Pricing strategy is the most evident difference between eBay and Taobao. Taobao’s service for buyers and sellers are completely free, while eBay charges “insertion fees”, “final value fees” and “gallery feature fees” for listings (eBay, 2008). Though “gallery feature fees” have been cancelled since February 2008 and “insertion fees” are much lower, they are still not competitive with Taobao’s completely-free-listing strategy. By offering free listings, the listings on Taobao reached 10 million in September of 2005, while its competitor, eBay China, only had 1 million listings (Wang, 2005). Also, among online sellers in 2007, 65.7 percent sold on Taobao and only 7.5 percent sold on eBay (China IntelliConsulting, 2008). Taobao’s success comes from its proper analysis to Chinese online market. Since Chinese online market is not mature to accept customer service fee, it is more important to nurture the market than to charge listing fee, and free fee strategy is most suitable for this market. Just as Jack Ma, Chairman and CEO of Alibaba, said, “No charges is the right business model for China's current conditions (China Daily, 2005).”
Though free listing is an important advantage for Taobao to win over customers, it is not the only reason why customers use Taobao over all the other C2C websites. In China, there are other C2C vendors such as Dangdang.com and Paipai.com, both of which followed Taobao’s...