Elise Lin BUS 550

Background Overview Macro and Micro What made a difference in China eBay vs. Taobao: business strategies and technologies Comparison in the capital market Conclusion

1995:Pierre Omidyar founded eBay, an online marketplace for buyers and sellers 1998: listed on NASDAQ 2002: acquired for $1.5 b 2002: started strategic alliance with in China 2005: acquired for $2.6 b Voice Over Internet Protocol (VOIP) eBay’s headquarters in San Jose Growth Strategy: acquisition

Source: Internet World Stats

First Mover Advantage

1999: EachNet was founded by two Chinese entrepreneurs, American- trained MBAs inspired by eBay’s success 2001: EachNet held 90 % of China’s Internet C2C market 2001: EachNet started to charge listing fees to sellers 2001: eBay approached EachNet 2002: eBay acquired EachNet for $180 m (record high in China) 2002: eBay Japan struggled 2004: eBay China officially moved onto eBay’s global platform eBay considered China to be the company’s second most important target market, after the U.S.

C2C (Taobao) B2C Cloud computing Internet portals Shopping search engine B2B third-party online payment platform

Source: Alibaba Group’s headquarter in Hangzhou, China 40% 20% 30% 2% (Ma and managements)

1999: Alibaba was founded in Jack Ma’s apartment 2002: Alibaba grew to be the leading B2B Website in China 2003: Taobao was founded again in Jack Ma’s apartment 2004: Alipay was launched 2008: Taobao Mall, a dedicated B2C platform, is introduced to complement Taobao’s C2C marketplace 2010: Taobao Mall launches a new independent web domain, Tmall.com 2011: Taobao broke into three separate companies, Taobao Marketplace, Tmall.com and eTao 2012: Tmall.com changes its Chinese name to strengthen its positioning as a source of high-quality, brand-name products

Centralization -- Too globalized, not localized enough 2005: Jack Ma: eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose–but if we fight in the river, we win. Less innovative and integrations in technology(IT systems) Arrogant, over-confident 2004: Cobb: viewed Internet C2C as eBay’s primary expertise, and did not think that it could be matched by its competitors in China

eBay changed the Chinese operation to match with eBay global (listing categorization, interface styles and technologies) Taobao : categorizes as the typical structure of a local department store eBay created a regional layer, eBay Asia in Korea eBay Moved servers and the maintenance to Silicon Valley Pricing changed : insertion fees, final-value fees and features fees : 3% of the transaction as the service fee : no fee Inflexibility to respond to the customer Chinese customers complained

Sources: eBay

Source: Tmall

eBayTaobao Payment Services 1. An Fu Tong by EachNet (2004) 2. PayPal by eBay (2003) Alipay (2003) Payment descriptionsAn Fu Tong: Alipay + PayPalSecure buyers Response from customersCustomer confusionCustomer trust Corporate responseEmphasized 2 distinct systemsAlipay available to merchants beyond Taobao Relationship with key government Encountered tight control of financial service providers Ma and his team had longstanding relationship with China officials Integrations of IT systemsLack of integrationIntegrated delivery service requests into Alipay’s user interface Result21% of its users use payment services 79% Competing in Technology Services (IT systems)

eBayTaobao Marketing Strategy Spend heavily in marketing campaigns Grassroots approach (bulletin board services) Main website had exclusive agreements with all major Chinese websites “Ants way” to response (Strength in numbers) Ma: “eBay may have deep pockets, but we will cut a hole in their pocket.”

Categorizes similar to local department stores Integrated an instant messaging service into each seller’s webpage Customers perceive Taobao as informal and friendly No fee policy and secured Alipay service discourage customers from doing offline trasactions AliWangwang:

Source: yahoo finance

NASDAQ China Shanghai Composite Index

Nowadays it is important for corporations to go global, but key strategies have to be considered: Centralization vs. decentralization (empowerment, globalized) Potential issues from growing through acquisitions (cultural conflict, IT integrations…) Are you ready for the target market (Alibaba failed in Korea) For contemporary companies, how to find the IT FIT that can go along with the company culture and the external environment is a key to success How to generate the revenue (revenue streams) in order to gain substantial competitive advantage in the market

In the case eBay and Taobao, which company did eBay acquire? a.EachNet b.EveryNet c.Baidu d.Tmall

In the case eBay and Taobao, why did eBay in China have only 21% of its users use their payment services? a.Taobao had first mover advantage b.eBay China’s payment system constantly crashed c.Customers confused about multiple payment systems d.None of the above

In the case eBay and Taobao, why did Chinese customers complain about the eBay China’s availability of service? a.eBay China’s servers were overloaded by too many users b.Maintenance was done on California time schedule c.Hackers attacked eBay servers d.Government censorship in China

Q & A National Aquatics Center, Beijing, China Beijing's Bird's Nest stadium