Taobao adopts new model

17 June 2011

BEIJING: Taobao, one of China's leading ecommerce platforms, is transforming its approach and structure in a bid to provide more "sophisticated and customised services" to shoppers.

Alibaba, which owns Taobao, has announced plans to split the country's premier consumer-facing internet retailer into three separate divisions.

These will take the form of Taobao Marketplace, its peer-to-peer auction hub, Taobao Mall, officially representing brands like Dell and Uniqlo, and eTao, an online retail search property.

"Over the past two years, search, social networking and ecommerce have witnessed disruptive changes catalysed by the development of open platform and social trends, while countless new companies have popped up," Jack Ma, Alibaba's ceo, wrote to employees, the Wall Street Journal reported.

"[We have the] aim of offering better and more comprehensive infrastructure services that will contribute to the development of Chinese ecommerce."

The new tripartite model was argued to reflect the evolving habits and needs of Chinese netizens, growing both in numbers and digital literacy.

"Significant change has taken place in customer demand," said Na. "We need to offer consumers more sophisticated and customised services."

This strategy may also be a precursor to an initial public offering for Alibaba, of which Yahoo holds around 40% and Softbank claims 33%.

"We won't rule out the possibility of taking Alibaba Group public in the future, as a way to reward our employees and shareholders who support and continue to believe in us," said Ma.

Taobao was launched in 2003, and generated 400bn yuan in revenues across 2010 as a whole.

Research firm Analysys International estimated that Taobao delivered 71.6% of ecommerce transactions in the first quarter of 2011, a decline from 73.8% during the previous three months.

Analysys International also predicts business-to-consumer sales via this route should grow five times over, to 650bn yuan, in the next three years.

In this segment, Taobao Mall boasts a 31.3% share, ahead of Beijing Jingdong Century Trading, parent company of 360buy, on 10.2%.

Taobao's ascendancy in this arena has hampered major operators like eBay, which shifted its Eachnet auction site into a joint venture with a local partner,, in 2006.

Since then, eBay has prioritised facilitating transactions between Chinese brands and shoppers living outside China, and now yields $4.4bn from such activity per year.

"Things are still structurally very difficult in China because nobody makes money," said Jay Lee, senior vice present, Asia Pacific, for eBay.

"China is more difficult than all other markets because there are strong local players and the internet landscape is not entirely open to foreigners."

Alongside long-standing issues relating to governmental censorship and industry fragmentation, the large number of start-ups attracting investors has complicated matters further.

"Over the past year it has been a free-for-all for funding, which has made the need for economically rational behaviour disappear. That is not a market we have to be in," said Lee.

Edward Yu, chief executive of Analysys International, similarly suggested the present structure of the Chinese online retail sector was far from sustainable.

"At the end of the day, I don't think China is a big enough market … It doesn't have space for more than two or three Amazons," he said.

Data sourced from Wall Street Journal, PC World, Financial Times, AFP; additional content by Warc staff