Alibaba's Taobao

9-709-456

REV: JULY 30, 2009

FELIX OBERHOLZER-GEE JULIE WULF

Alibaba's Taobao (A)

In early 2008, the Hangzhou-based Alibaba Group operated China’s leading online marketplaces: Alibaba.com, an international business-to-business (B2B) exchange that assisted small and mediumsized Chinese enterprises in finding overseas trading partners; Alibaba.com.cn, the company’s B2B site for domestic trade; and Taobao, a B2C and C2C exchange for Chinese retailers and consumers. The group also ran a web portal (Yahoo! China); an online-payment service provider (Alipay); and a marketplace for online advertising inventory (Alimama). By 2008, Alibaba Group had captured about one-half of B2B e-commerce in China. The group’s quickly growing consumer site, Taobao (淘宝, “hunting for treasures”), had attracted particular attention after it managed to displace the once dominant eBay, the world’s largest consumer marketplace. After spending hundreds of millions of dollars trying to defend its presence in China, at the end of 2006, eBay management cut its losses and shut its site, acknowledging Taobao’s appeal among consumers and retailers.1 With a market share among C2C players of 84% in 2007, Taobao had become China’s leading consumer e-commerce marketplace, facilitating transactions valued at RMB 43 billion.a By spring 2006 it had become apparent that Taobao was pulling away from its closest rival eBay. However, the company had little revenue because it offered its services free of charge. In a first move to test a monetization model, Taobao launched a value-added service called Zhao Cai Jin Bao (招财进宝, “bringing wealth and riches”). The service let sellers bid for keywords, ranking paid listings ahead of free listings and collecting a fee when a transaction relating to the paid listing was completed through Taobao. As the company rolled out Zhao Cai Jin Bao, the executive team waited in suspense. Would the service be a success? Had Taobao chosen the right way to monetize its...