What India can learn from success story of Alibaba-owned marketplace Taobao

Taobao
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When it comes to e-commerce success stories around the world. It is hard to ignore China-based Alibaba, be it business-to-consumer (B2C) or consumer-to-consumer (C2C) segment.

It has given birth to eight subsidiary businesses. And the story we are going to discuss today is of, Taobao, one of the subsidiaries and C2C e-commerce open marketplace. An open marketplace is where the e-commerce company does not hold any inventory, logistical infrastructure, or warehouses.

The rise of Taobao, which allows merchants to list their products on its platform, is an astonishing story.

While it surely originates and tells coming of an age tale of evolving Chinese internet and economy, it has far-reaching lessons for the world of e-commerce, particularly India- as it is touted to be next big market.

Started in 2003, Taobao opened a gate for all retailers, from vegetables, groceries to pharmacies, sweets and bakeries, and many more. It primarily caters to medium and small merchants.

It engaged consumers through personalised and highly relevant content from merchants. Its free listing offer to sellers, website features and designs made it an instant hit among retailers.  

By 2005, it carved a niche for itself in the Chinese market. While its competitor eBay China could not grow further, leading it to a shut down after three years of its operations, Taobao’s market share rose to 59 per cent.

Business Model

The Taobao business model primarily has an advantage over its competitors owing to free setup feature for merchants and stringent quality measures for the listed products. It generates revenue via commission and a suite of advertising services.

With the rise in numbers of users, in 2010, Alibaba Group launched the Mobile Taobao app to transition its flagship C2C shopping platform to capture additional and more interactive opportunities in mobile commerce.

According to Chris Tung, Chief Marketing Officer at Alibaba Group, the youth-led Taobao rise, as more than 70 percent of buyers are between 20-30 age group. We want to keep them engaged through improved overall user experience, he said.

With scale, Taobao has also changed from a single C2C network market to a comprehensive retail circle including C2C, group purchase, distribution, auction, and other e-commerce models.

Growth and Business

In following years, it splits into- Taobao Marketplace (a C2C platform), Tmall.com (a B2C platform; then called Taobao Mall), and eTao (a search engine for online shopping).

In two years of its operations, Tmall became eighth most visited website in China. In 2016, Tmall has grown into China’s largest B2C trading platform, with a market share of 57.5 per cent.

Meanwhile, Taobao also launched an independent search engine called eTao.

Today, the Taobao platform supports millions of entrepreneurs across China with unparalleled levels of user engagement across e-commerce, digital media, travel, social and local services. According to its website, it has 150 million daily active users on Mobile. The internet retail market claims to have a 70 percent annual growth since 2009.

Taobao growth
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At present, the marketplace has around 500 million registered users, and the number of online products per day has exceeded 800 million.

During Chinese online shopping carnival (November 11) in 2012, Taobao did $3.06 billion worth sales in a single day, creating 2.068 million direct and full employment opportunities.

The growth provided additional promotion services to Taobao B2B business such as website design (100 RMB per month), customer service (100-200 RMB per person/month), industry analysis (300 RMB per month), customer drainage (200 RMB per month) and so on.

Later, Taobao introduced a cluster of rural e-tailers within an administrative area called Taobao village. Through the village project it claimed to have created more than 300,000 rural jobs and the villages now cover 70,000 rural producers. It provides them similar goods as enjoyed by its urban counterpart.

In short, Taobao villages business is transforming villages into towns.

Now, it is numero uno e-commerce firm in China with 607,707 monthly UVs, according to iResearch.  GMV of China’s online shopping reached 6.1 trillion Yuan in 2017, up 29.6 per cent from last year. Taobao is in a dominant place, taking 74.3 per cent of the whole online shopping GMV.

At present, China has 772 million Internet users, which is 55 per cent of its population, according to China Internet report 2018. It has 717 million smartphone users out of which 527 million users use mobile payment.

Indian attempts to replicate Taobao’s business model

In India, Snapdeal and Paytm have been attempting to replicate Taobao model.

Paytm founder Vijay Shekhar Sharma had launched Paytm Mall (a mobile application-based marketplace) where small and medium businesses connect directly with customers. It has also been charging very less commission to attract more merchants towards its platform.

Snapdeal has also been aiming to be Taobao of India even though they had little success with Shoppo. With Snapdeal 2.0, its co-founders Kunal Bahl and Rohit Bansal eye to cater to small merchants.

So far, the consumer-to-consumer business model has not proved successful in India. Previous attempt by eBay, which entered in 2004 by acquiring Baazee.com, failed as it had to exit the business after getting acquired by Flipkart in a fire sale.

According to experts in the industry, one of the major challenges in this model has been that top ten sellers get around major chunk (about 20 per cent), whereas rest have to be content with just 5-10 per cent.

Meanwhile, there is an opportunity for Indian e-commerce startups to scale to the next level.  

With around 500 million internet users, the Indian e-commerce market is expected to become worth $200 billion by 2025. China managed to create rural e-commerce boom with the help of the local language applications built by eCommerce platforms including Alibaba and others.

Here, India can learn alot from Taobao model.

Indian villages desperately need low-end manufacturing units to create jobs for youngsters who have little interest in farming. What’s needed is infrastructure plus marketing and financial linkages that enable rural entrepreneurs to start small-scale industries.

If followed in India, the Taobao route can indeed also help create millions of rural jobs.

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