Introduction

In recent years, China has set off a boom of E-commerce, our daily life more or less have the
relations with it. According to CNNIC (China Internet Network Information Center) report, the
number of shopping on the Internet has reached to 30 million. In past several years, the consumerto-consumer (C2C) markets of China have experienced rapid growth and competition becomes
much fiercer. Among those E-business websites, Taobao gradually makes itself a well-known Ecommerce website and becomes the leader who exceeded eBay in one short years time.

Reason for choosing Taobao

In May, 2003, Taobao website was established by the world largest B2B site-Alibaba and it
provides a great platform for millions of Chinese people who prefer to do shopping online, based
on Alibabas market experience and service capabilities of B2B. Taobao built the leading domestic
net-market and the personal transaction net-community, by its flexible operating trade. And its
action has influenced the whole industry, even the entire Internet can be seen from the rank of
ALEXA in 2004, Taobao has reached 18th in the world. The success of Taobao in such short
years time most depends on its effective business strategies, including operation strategies and
service strategies.

Analysis of External Market Environment

1. Macro Market Analysis
According to the CNNIC, China has the worlds largest Internet population today. Internet
penetration in China was 22.6% at the end of 2008, slightly above the global average (21.9%).
And the rapid growth of the Internet population is boosting the developments of E-commerce in
China.
2. Customer Analysis
In 2008, C2C transaction in China has accounted for over 90% of total transaction share. As the
shopping behavior of people is changing, more and more Chinese people prefer to online
shopping, especially the youngster aged generation.
3. Competitor Analysis
As mentioned, C2C transactions dominate Chinas online retailing market. Exhibit 1
demonstrates the percentage of main Chinese C2C players. Market concentration of Chinas
online retailing market is high with Taobao, capturing 83.6% of market share in 2007. Paipai
(8.7%) and EachNet (7.7%) were the distant second and third.
Among those C2C players, EachNet is the most competitive one in Chinese C2C market before
Taobao. EachNet had been founded in 1999 and the founder intended to emulate eBays success in
China by adapting the eBay model to some of the unique features of the Chinese market. In the
initial years, EachNet proved to be a big success. Yet, by the end of 2006, eBays dreams in China
appeared to be on the verge of collapse. By early 2006, TaoBao had emerged as the leading C2C
and B2C auction site in China. Although Ebay has local site in China too, its inability to adapt to
Chinese local needs led to its failure.

Business Model
The main business model of Taobao is online auction. Taobao provides a new business model
which is free of charge business model which intend to attract consumers at first then make profit
later. Besides, it also creates a platform that allows buyers and sellers to communicate easily.

Strengths and Weaknesses

The biggest strength of Taobao is that it introduced the free-of-charge business model.
Moreover, Taobao also provides buyer-seller communication embedded in C2C platform (Instant
Messaging) which is trust and negotiation. Furthermore, Taobao also learned from global models
and adapting them to local preferences like payment system Alipay. Overall, Taobao has a better
understanding of local e-commerce culture and what do Chinese consumers really want.
Taobaos largest weakness is fake goods and deceptive sellers. But by introducing a comments
and scoring system, Taobao is increasing protection for both buyers and sellers.

Taobaos successful strategies

1. Capturing the market by No Fees
In order to create brand, Taobao made a plan that it wouldnt receive any charging transaction
fees and listing fees in the first three years. I think this contribute mostly to its success because
only allows users to get real benefits in online transactions, and then there will be more loyal
network dealers.
2. Building the shopping platform by associating with strong enterprises
On April 5, 2004, Taobao announced an alliance with the Chinese Internet portal 21CN and
launched a big shopping site. The two parts will give consumers more Services over the channel,
E-mail, messaging, and market activities.
On April 12, 2005, Taobao and Sohu (sohu.com) announced a strategic alliance. The alliance of
the two big sites makes a full realization of the complementary advantages and the sharing of
resources.
3. Service Strategies
Alipay is a particular secure payment service focus on online transaction. It is a service which
temporarily keeps the money of the purchase before the buyer confirms to receive the purchases.
In my opinion, it increases the security of delivery and gain more credibility from customers as
well.
Besides, the Taobao Wangwang also provides a comfortable platform for buyers and
consumers to communicate and negotiate.

Conclusion
Generally speaking, the reason why Taobao can succeed is depending on its developing strategies
which can be well catering for Chinese consumers. In the early age, Taobao quickly attracted the
majority of users through free strategy. And its features of Taobao Wangwang and Alipay make
Taobao become the forerunner of Chinas E-commerce websites.

Exhibit 1

References
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http://www.academypublisher.com/proc/wisa09/papers/wisa09p459.pdf ; (2009.11.21 )
2. Turnover for Taobao.com soars;
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)
3. ;
http://p4p.cn.yahoo.com/041119/2/1lu.html; (2009.11.21 )
4. China Social Media: Taobao.com http://www.littleredbook.cn/2009/05/11/china-social-mediasnapshot-taobao/; (2009.11.22 )
5. Strategy, Innovation & Design;
http://idealandofydy.blogspot.com/; (2009.11.22 )
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http://www.chinadaily.com.cn/english/doc/2005-02/16/content_416724.htm; (2009.11.22
)
8. China Internet Network Information Center;
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