This case deals with the competition of dominant position in China’s online market between domestic player Taobao and global internet C2C service leader eBay. EachNet was copyed from eBay’s business model. As it confronted the difficulties raising capital, eBay entered China with its acquisition of the EachNet in 2002. The previous Chinese operation was changed significantly to align it with eBay worldwide systems including listing categorization, location of servers, pricing, structure of leadership. Ma, the founder of Alibaba. com Inc – the leading B2B website in China by 2002, realized the serious threat from eBay.
Taobao was launched secretly until July 2003 when Ma thought it was ready to compete with eBay China. In the various competitions, Taobao took over eBay’s market share gradually. Firstly, eBay approached advertising through investing heavily in its marketing campaigns and sighing exclusive contracts with almost all major Chinese website On the contrary, Taobao took advantage of BBS and posted messages to introduce Taobao to Internet users.
Secondly, Taobao’s entirely no-fee model helped itself won a significant number of eBay China’s users.
Thirdly, management of Taobao launched an integrated payment system, Alipay, within three months in 2003. In addition, Taobao also provided value added services like escrow services for buyers, discounted prices to users. Compared to the high efficiency of Taobao, eBay launched Secure Pay in Oct 2004, and Paypal, even later, in July 2005. Worse still, PayPal was prohibited from offering international transactions and flexible credit services. Furthermore, the partnerships between Taobao and Sohu/MSN China raised its profile.
Meanwhile, eBay successfully got Global Resources as partner.
The problem of counterfeit merchandise also brought out big burden to eBay while Taobao faced no such bind. There are other factors making eBay failed in China. The complexity of eBay’s global platform severely dragged down the speed of decision making in its China operation. Different maintenance schedule also harmed the technical performance. As eBay China’s performance continued to decline, eBay corporate quietly decreased integration between EachNet and global platform. eBay opened another site, fully integrated into its global platform but EachNet focused on domestic C2C.
So far, Taobao seemed to have the resounding victory over ebay. Aware of threat of entry: The new entrant would desire for the market share. eBay failed to read its rival’s signals when Taobao acknowledged the affiliation between Taobao and Alibaba, sowing the seeds of business hazard in future. eBay could have had a research of existing and potential rivals, evaluated the market capacity and then made corresponding strategies to avoid the threat. Advertising: Capital requirement for eBay’s strategy to cooperate with major website is remarkable and exclusive advertising contracts had limited lifespan.
Taobao’s approach to BBS allowed them to attract customers in a sustainable way. eBay could have tried different ways to approach customers, not just simply copied from US market. No-fee model: Customers are price sensitive and the switching cost from eBay to Taobao is little so that power of users and threat of substitutes are strong. The fact that eBay announced quality service did not help much to retain the users. eBay could have tested more customer behavior, balanced the global revenue and addressed free service temporarily to compete with Taobao for market share as eBay had strong financial background.
Payment system: Unfortunately, due to the restrictive government policies, eBay was unable to launch its payment system in time. The time difference of launching payment systems provided Taobao the first mover advantage and AliPay was rapidly adopted by users. The obstacles for international transaction inevitably blocked most of global users to pursue business through eBay China.
This situation resulted that eBay China could not fully utilize its international resources and user base to compete. Bay should have had an overall understanding of Chinese government policies especially to foreign companies and examined the problems of current payment system before entering China market. Partnership: The restrictions on international transactions from Chinese government still seemed to be a big obstacle to its business although eBay won the global partnership. Internet link to foreign website are sometimes forbidden also. eBay could have offer better trade off to potential partners, like MSN, to extend their business relationship from US to China.
In my opinion, eBay should continue developing its business in China. eBay should focus on the B2B and B2C international trading in near future, targeting those big wholesaler and manufacturer, and medium size enterprises who are willing and have the capability to expand the business and establish their own brand globally. eBay can help them display their products and company logo on the website in different countries and make revenue by charging the fees for their advertisement. Otherwise, eBay can provide free trial period varing from 6month to 2 years and training to the credit users.
As long as they grant more profit through eBay global platform and establish the relationship with oversea big customers, they will be less sensitive to the fee allocation in future. On the basis, eBay need to negotiate with China bank and government to solve the transaction problems or establish joint venture with local business. It is also possible for eBay to treat other similar business platform as potential cooperator, like Taobao, by helping their credible sellers to expand business worldwide and share the profit. Suggested sustainable revenue model
Small amount of listing fees can be incurred. Free trial period varying from 6 to 18 months can be provided depending on seller’s qualification. Allocate sellers into several levels based on the total transaction amount monthly and charge differently for online shop rental, technical service, storage fees, etc. Establishing a reward system for credible and longer users with high rating, by reducing their particular fees. Transaction fees sounds not reasonable to both sellers and buyers. Users may switch to other payment system to lower down the cost. Advertising fees can be charged.