1. BUS 550 The Contemporary Firm Jose Colon CSUCI
Taobao vs. EBay China
BUS 550
The Contemporary Firm
Jose Colon
CSUCI

2. Agenda The Beginning of China’s Online C2C Market
The Rise of EachNet.com
EBay in China
Alibaba’s Taobao
EBay's Exit from China
Questions

3. Online C2C Market in the Early 2000’s
China
United States
Low internet penetration
Lacked regulation for online exchanges
People are not afraid of being sued
Issuing banks did not accept c.c. from other cities
Undeveloped Credit System
Credit Cards accounted for 1% of consumer spending
High internet penetration
Online exchanges regulated with contracts
People are afraid of being sued
Credit Card were accepted throughout the nation
Developed Credit System
Credit Cards accounted for 25% of consumer spending

4. Addressing its Shortcomings
China:
Began accepting online credit card applications
Established credit verification companies
Created a single card processing system for all banks (2002)
Results:
Internet usage increased from 14 million (1995) to 490 million (2002) users; in 2008, usage reached 1.6 billion users
Online shopping increased; the volume of C2C transactions increased from $56 million (2001) to $7.3 billion (2007)

5. EachNet.com Background: Founded in 1999 as an online auction house
2001: held 90% of China’s online C2C market
Challenges faced by the company:
Users reluctant to complete transactions online- in person
Transactions were concentrated in a few large cities
China lacked an efficient delivery system
Needed to find a way to earn revenue

6. Solutions EachNet.com:
Trading Booths- workshops; demonstrated how to complete transactions online, create user accounts and upload pictures
Established a cash-on-delivery system (U.S.- COD)
Partnered with large banks to encourage credit card usage
In order to address and minimize online fraud, the company:
1) made it difficult to artificially inflate ratings
2) investigated cases of reported fraud
3) required ID verification when creating a new account
Raise capital by charging listing fees and commissions

7. EBay in China Background: Founded in 1995 and went public in 1998
Global leader in online C2C services
1999: the company began to expand outside of the U.S.
2001: expanded operations into 17 markets around the world
2002: exited Japan’s market and acquired Eachnet.com which was then fully integrated into eBay’s global platform
EachNet.com’s acquisition enabled eBay to enter China
CEO Meg Whitman: “China can be eBay’s largest market on a global basis… We want to do everything we can to maintain our No. 1 position.”

8. Alibaba Background 1999: founded as a B2B website
2002: leading B2B website in China
2003: recognized eBay’s acquisition of EachNet.com as being a serious threat to its market share and launched Taobao
Problem to solution:
Alibaba would use Taobao as C2C website to compete with eBay and to address a small business market that lacked the distinction between businesses and consumers

9. How Taobao Crushed EBay
Aligned itself with the two the companies responsible for kicking eBay out of Japan: Softbank Capital and Yahoo!
Rather than using heavy marketing and exclusive contracts, the company took a grassroots approach and utilized bulletin board services (BBS) online
For the first five years, the website’s services were free
Struck deals with leading logistic companies in China

10. EBay Being Crushed Cont.
Competitive Advantage: “A Sense Of Community”
Encourage online interaction- full contact information such as phones numbers and personal web pages
Categorize goods to reflect Chinese Department Stores
Established long-term, secure relationships with government officials and cooperation with banking industry leaders
AliPay: Taobao’s version of PayPal (PayPal was rejected)
Escrow services- held buyer’s money during transactions
Provided insurance for buyer’s in case of fraud

11. Nail in the Coffin
AliPay was made available to merchants not using the website
Partnered with China’s MSN shopping channel and one of China’s leading portal websites, Sohu
Only operated in the Chinese market to avoid fierce legislation
More flexible and faster in responding to customer complaints
2008: to generate revenue and further crush eBay, the company launched Tmall.com as an online B2C market
2007: eBay exited China’s market
2013: China’s largest e-commerce website
2014: 78% of China’s market share by revenue- $9.8 billion

12. Questions
Cultural capital is the wealth of knowledge than an individual has for a specific culture or set of cultures. Can cultural capital be considered a competitive advantage for businesses?
In terms of global uniformity, did eBay impose too much of its culture versus adapting to China’s culture?
Where eBay failed, Taobao prevailed. How important is it to have longstanding and secure relationships with individuals that can potentially affect your business?

13. Multiple Choice What two companies crushed eBay in Japan?
Softbank Capital
Yahoo!
a and b
None of the above
2. What did AliPay offer to buyers?
Escrow services
Logistic services
Fraud insurance
a and c

14. Multiple Choice Cont.
3. Taobao’s “sense of community” does not focus on which of the following:
Encourage online interaction
Provide poor customer service
Categorize goods to reflect Chinese department stores
Establishing longstanding and secure relationships with government officials and cooperation from with banking industry leaders

15. Works Cited