TAOBAO VS. EBAY CHINA
Ten to 15 years from now, I think China can be eBay's largest market on a global basis…. We think China has tremendous long-term potential and we want to do everything we can to maintain 1 our No. 1 position. — Meg Whitman, eBay CEO, 2004
By 2008, Jack Ma, CEO of Alibaba.com Inc., was in a position to consider how to fortify Taobao’s dominant position in China’s online consumer-to-consumer (C2C) market. Ma and his company had come a long way since May 2003, when they first launched the Taobao website. Back then, eBay China dominated the fledgling market, holding over 70 percent share. It had entered China with its acquisition of the start-up EachNet, and was actively building upon that company’s first-mover advantage. But by 2006, Taobao would overtake eBay China. As Taobao grew explosively, eBay China’s market share would fall dramatically and it would bow out, transferring its operations to a joint venture partner. 2 Although eBay would nominally continue to operate in China, it was no longer a concern in Ma’s plans for Taobao―which by 2008 held over 80 percent of the market. How had this upstart company overwhelmed the world’s most formidable player in the online C2C space? THE BIRTH OF CHINA’S ONLINE C2C MARKET 3 Online auctions got off to a slower start in China than in some of the world’s more developed economies. China had a low Internet penetration rate, lacked norms and laws to support online exchange, and had not yet developed the technological and financial infrastructures needed to 1
“eBay Expects Great Things of China,” CBS News, April 13, 2004, http://www.cbsnews.com/stories/2004/04/13/tech/main611598.shtml (February 6, 2008). 2 “eBay JVs with Tom Online,” People’s Daily Online, December 21, 2006, http://english.people.com.cn/200612/21/eng20061221_334655.html (February 1, 2008). 3 Unless otherwise noted, this section is based on information from “EachNet.com,” GSB Case No. SM-91, https://gsbapps.stanford.edu/cases/detail1.asp?Document_ID=2810. Xiaoqu Luo and Mi Feng prepared this case under the supervision of Professor William Barnett as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2010 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: firstname.lastname@example.org or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.
Taobao vs. eBay China IB-88
facilitate online auctions. Any firm wanting to succeed in China’s online C2C space would need to overcome these obstacles better than its competitors did. China lacked norms and laws regulating online behaviors and preventing online fraud. Bo Shao, founder of EachNet.com, explained: “In the U.S. if you place a bid, it’s a contract, and by law you need to fulfill that bid if you win the auction. That’s very clear. People would be afraid of getting sued if they did not abide by that contract. In China people don’t care. ‘I place a bid, I don’t want it anymore, tough luck.’” In 2002, a survey conducted by China Internet Network Information Center found that 13.9 percent of online buyers had the experience of not receiving goods they had paid for. This problem also introduced the possibility of legal liability for online auction firms. Early start-ups in this space argued that they should be treated like a telephone company, so that they would not be held liable for the misbehavior of users. Unlike the U.S., where most users...