PGDM 2013-15

ALIBABAS TAOBAO ANALYSIS REPORT

Submitted by Group 8:
Mayank Kumar (1302-084) Nikhil Garg (1302-090) Nikhil James (1302-091) Prashant Gupta (1302-105) Rahul Gupta (1302-113) Rahul Panthri (1302-114) Rajeev Tibarewal (1302-116) Ravi Kumar (1302-120)

1. What was Alibaba groups motivation for diversifying into the consumer business with the launch of Taobao? Does this make sense? A. Alibaba groups motivation for diversifying into consumer business with launch of Taobao came primarily from the rise of eBay in Chinese consumer business. Jack Ma, the founder of Alibaba, had carefully observed the American firms rise in China after it acquired EachNet which had 85% market share in B2C / C2C market. Jack was particularly concerned that growth of eBay may lead to competition in B2B space due to the fact that a large number of consumers in China have entrepreneurial ambitions which in turn lead to very less difference between B2B and B2C / C2C markets. Yes, this does make sense given the reputation of Alibaba as an established player in the B2B segment of online retail which helped SME (small and medium size) companies in expanding their business online. Alibaba already had experience in handling the Chinese business culture and had developed online payment processing service of Alipay which further aided Alibaba diversify. The other factors which provide for diversification motivation into consumer business are: Large population of internet users (513 million users in 2012) High growth prospects of online retail market High technology growth rate in China Rapid economic growth of Chinese GDP

The above factors along with the eBay factor provided for strong motivation for Alibaba to diversify in B2C / C2C markets which turned out to be successful and eventually made Alibaba market leader in this segment as well. 2. How did Taobao beat eBay? The following factors lead to Taobaos success in Chinese C2C market: The main reason for eBay to lose its market share was its decision to moves its technology platform from China to the US in October 2004. The growth of EachNet dropped by half due to the mistake in migrating EachNet users onto a common US-based eBay platform. The EachNet could not adapt to the fast-changing China market. The slow policy implementation make the company make insignificant market reaction.

In May 2003, Alibaba aimed to expand their market share in C2C market. It aims at making Taobao as a new online shopping destination for Chinese, while EachNet, eBays company in China, was busying in the global operation plan. EachNet need to make profit through receiving the listing fee and the transaction fee while for Taobao, all are free.

Nickname Taobao appealed to Chinese audience and suited the character of Chinese business context. Deep understanding of Chinese consumers and vendor business behavior and consumption habit helped them with accurate sales projection. Alipay is an online payment services founded by the Alibaba group. It provides a secure way for the customers and sellers to complete the e-commerce transaction. It allows the online customers and seller to make the online payment or receiving the payment. Such secure transaction tools as well as feedback process proved constructive instruments for generating trust between sellers and buyers, which in turn engender sustainable transaction increment.

The free of charge strategy nurtured and secured large loyal and incremental customer base

3. Should Ma implement Zhao Cai Jin Bao? Why or Why not? Zhao Cai Jin Bao is the service introduced by Jack Ma to monetize Taobao on the C2C Platform in China. This service let the sellers to bid for keywords, ranking paid listings that were ahead of free listings and to collect the money when some transaction took place between the sellers and buyers through Taobao. But According to us Ma Should not implement Zhao Cin Jin Bao. The various factors that support our statement are enlisted below. 1. Absence of free service: Earlier due to the presence of free service many vendors were associated with Taobao. But after three years in the e-commerce market many can complain that this new approach desecrated their guarantee of free service.

2. Ambiguity of its functionality: Whether Zhao Cin Jin Bao will work or not is a big question. There is very less possibility that companys revenue will i ncrease even if the seller uses this product. 3. Demographic Behavior: Local Population of China is in reality very perceptive to charges and pricing policy. 4. Negative word of mouth publicity: Every community has good and bad individuals. In the public forum negative emotions spread very rapidly that can affect the image and thus overall business of Taobao.

SWOT Analysis
Strengths It was the second largest Chinese retailer Very popular as it provided its services free of charge Understood the Chinese culture and had a strong understanding of Chinese consumers which included over 55 million consumers Friendly website 84% market share

Weaknesses Increasing disputes and frauds between buyers and sellers Not generating large revenues with the current business model The trading models of Taobao are easily being copied

Opportunities Moving towards other Asian countries with their services Capitalise on the increasing demand of e-commerce

Threats Increasing competition Resources being consumed by competition resulting in price war