ISBN 978-952-5726-00-8 (Print), 978-952-5726-01-5 (CD-ROM) Proceedings of the 2009 International Symposium on Web Information Systems and Applications

(WISA09) Nanchang, P. R. China, May 22-24, 2009, pp. 202-205

Analysis on the Successful Strategies of Taobaos E-Commerce

Yang Lixia 1, Liu Xun 2
College of Arts, Hebei University of Engineering, Handan, China Email: claireyang123@yahoo.com.cn 2 College of Mechanical Engineering, Hebei University of Engineering, Handan, China Email: cnliuxun@yahoo.com.cn
AbstractThe improvement and the development of internet technologies have triggered the rapid development of E-commerce applications since 21st century. A number of E-commerce sites have been rising in China. But with the bursting of the bubble economy, most sites have been eliminated. As a new site with holding the idea of localization, the successful strategies of Taobao are worth our thinking and emulating. This paper mainly discusses Taobaos success and its inspiration to the development of the domestic E-commerce. Index TermsTaobao, E-commerce, successful strategies
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Taobaos successful experience is worth emulating by the domestic enterprises. II. ESTABLISHMENT OF TAOBAO

I.

INTRODUCTION

With the rapid development of the Internet, Ecommerce attracts more and more attention and becomes a focus as a business body engaged in the production and operation mode. Although the specific conditions of different countries based on the forecast of world economic development, governments are all paying more attention to the development of E-commerce. Ecommerce has become a new driving force for economic growth. Businesses of all sizes in all sectors are using the Internet in many different ways - to work with partners and suppliers, for procurement, for internal activities such as knowledge sharing and new product development, and much more. E-commerce in general can be divided into Business-to-Business and Businessto-Consumer. Besides, there is also Consumer-toConsumer, which is a fast developing pattern. In recent years, China has set off an upsurge of Ecommerce, our daily time more or less have the relations with it. According to CNNIC (China Internet Network Information Center) report, as of June 30, 2006, the number of Internet users in China reached 123 million, ranks second in the world. The number of shopping on the Internet has reached to 30 million, and the proportion of paying on the net has been increasing annually. Experts believe that the risen trends of the number of the Internet users and the people shopping on the net will make the Internet Shopping Mall into a new round of business battleground. Since 2000, the domestic Ecommerce transactions on the site once reached 100. As it is known, there are eBay, Yabuy, Coolbid, and so on. But with the bursting of the bubble economy, most sites have been eliminated. Through constantly enriching its contents and services, Taobao gradually makes itself a well-known E-commerce website and becomes the leader who exceeded eBay in one short years time.
2009 ACADEMY PUBLISHER AP-PROC-CS-09CN001

In May, 2003, Taobao website was established by the biggest commodities trading site-Alibaba which invested one hundred million, and it provides a great platform for millions of Chinese people who prefer do shopping online, based on Alibabas market experience and service capabilities of BtoB (business to business). Taobao built the leading domestic net-market and the personal transaction net-community, by its flexible operating trade. It also provides online business services to millions of members in the world. Taobao had become the largest E-commerce trading platform over our country since it was established one year ago, and became the largest E-commerce shopping centre in Asia since the next year, and its action has influenced the whole industry, even the entire Internet. It can be seen from the rank of ALEXA in 2004, Taobao has reached 18th in the world [1]. From the following graph, 2007 CtoC (Consumer to Consumer) Market Data in China, it shows that Taobao totally occupies 83.6 percent [2].

III.

TAOBAOS SUCCESSFUL STRATEGIES

Taobao can be the top of E-commerce market in just two years, people may think it lies on the characteristics of the Internet economy, but the most important is its effective business strategies, including operation strategies and service strategies. A. Operation 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
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listing fees in the first three years. Taobao believes that only allows users to get real benefits in online transactions, and then there will be more loyal network dealers. With this belief, Taobao captured the market rapidly and took more than 60% market share in two years. Free is a huge investment, it reduces the threshold of personal transactions and protects the interests of both sides [3]. 2. Strengthening the comprehensive cooperation with banks On October 27, 2003, Taobao and Zhejiang branch of ICBC (the Industrial and Commercial Bank of China) signed a comprehensive cooperation agreement, which is a guard against default and fraud. It reflected the integrity of online transactions and payment. The mode of payment and settlement on the online bank was born. This is a new mode which puts the bank intermediaries into the Internet and E-commerce, and it creates a precedent on the national credit guarantee cooperation. The introduction of this service has greatly increased the users confidence on the credibility of online payment, and it also laid a solid foundation for business development of Taobao. 3. 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 two sites will share their large active user groups, and work together to promote the progress of E-commerce in China. The alliance of the two big sites makes a full realization of the complementary advantages and the sharing of resources. 4. Establishing an identifying secure trading platform In July 2004, Taobao reached an agreement with the Ministry of Public Security, to build a "national citizen identification number enquiry service centers", which provides a more secure trading environment for Taobao. Taobao will submit the registers information to the Ministry of Public Security, and after the center checked, the results will be returned to Taobao. Those who seek to use false identity information to deceive the bad elements will reveal the prototype. Taobao has also strengthened its illegal violations of the crackdown, when doing the cooperation with the authoritative departments. This cooperation has greatly enhanced the popularity of Taobao. B. Service Strategies Before Taobao invested in the Chinese market, the builders made a full investigation. They found two major characteristics when Chinese people bought things: they see the goods first, and then cut the price: they have a strong suspicion on online payment. In fully understood
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these two issues, Taobao launched the corresponding tool Taobao Wangwang and Alipay, which become Taobaos own features. 1. Taobao Wangwang Taobao Wangwang, as a communicate tool, provides a convenient platform for buyers and sellers. By using Wangwang, they can make a discussion on the quality and price of commodities; by using Wangwang, they cannot only communicate with each other, which enhance the confidence between both parties, and they can also participate in various high-quality activities of members. Taobao Wangwang makes more convenient and timely communications between buyers and sellers. That attracts more players for Taobao. 2. Alipay Alipay is a particular secure payment service focus on online transaction. It was built up through Taobao making a union with ICBC, ABC (Agriculture Bank of China), CCB (China Construction Bank), and many other domestic financial institutions. By using it, Taobao is as the credit intermediary. It is a service which temporarily keeps the money of the purchase before the buyer confirms to receive the purchases. The using diagram of Alipay is below [3]:

IV.

PROPOSALS FOR THE DEVELOPMENT OF THE DOMESTIC E-COMMERCE

With constantly enriching the contents and services, Taobao gradually makes itself a well-known Ecommerce website and becomes the leader who exceeded eBay in one short years time. Taobaos success has brought many proposals to E-commerce in China. A. To Enhance E-Commerce Awareness of Businesses and Consumers The basic one to operate E-commerce is innovating the public concepts [4]. This is a step-by-step process.

Through the analysis above, it can be seen that there are significant advantages on consumers, communications and other costs of E-commerce. However, as a new thing, compared with online shopping and traditional shopping, the recognition is not very high to many businesses and consumers. The development of E-commerce in China will bring unprecedented opportunities to the economy. It is good for participating in international competition, and it also can improve the international competitiveness of domestic enterprises. Therefore, it is important to enhance E-commerce awareness of businesses and consumers, to innovate public concepts, and even to gradually implement the awareness and concepts into the economic development. Firstly, it is necessary to strengthen the E-commerce propaganda to raise the social and public awareness of electronic commerce, to eliminate the strangeness and mystery, to enhance their sense of responsibility. In addition, it is also necessary to guide the vast number of consumers to change the traditional shopping way that seeing is believing, and shopping habits, and to let people accept E-commerce surly. B. To Promote E-Commerce Instruments of Payment The payment security is the most important issue to develop E-commerce. As of June 2006, the number of users doing online transactions accounted for only 24% of the total. It is not just related to the traditional Chinese cash consumption. The key is that the safety of transactions is not guaranteed. Its easy to buy online, but difficult to pay online, these words become the most usual problem complained from the Internet dealers. At present, many E-commerce sites have launched their own online trading tools, such as Taobaos Alipay, eBays Escrow. However, because it cannot provide the traditional transacting documents, coupled with network hackers, many consumers feel discouraged on Ecommerce. Therefore, in order to develop E-commerce, the commercial payment systems must be improved, the level of bank e-payment must be enhanced. Firstly, in technical standards, it is necessary to establish a national unified payment gateway and secure certification center, and to make great efforts to international standards. Secondly, it is necessary to make legislation as early as possible. The laws should determine the qualification of Internet banks, prescribe the rights and obligations of online transaction and punish criminal acts severely. Then it will take online payment into a secure, predictable legal framework. Third, the government should appeal all commercial banks, intermediaries and all sectors of the community to participate actively. There needs to establish a set of suits Chinas national conditions of the credit system from the experiences of developed countries. C. To Construct a Standardized Logistics System Constructing a standardized logistics system has been one of the bottlenecks for developing E-commerce in China. China E-commerce lacks of complete and independent logistics and distribution system. It is
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difficult to control the quality of logistics, which makes E-commerce sites not control the after-sales service, so it leaves a chance for fraud. Nowadays, most courier companies in the market are too small, their business scope is limited, and most of them operate without union. Adding the shortage of unified standards and price standards, the quality of the services cannot be improved. E-commerce trading platform should build high credibility, independent large-scale logistics union in the future. Only do this, it can embody no distance transacting online, and can effectively reduce the fraud and loss of customers. More important is to control the market by rational and efficient integration on logistics resources. E-commerce sites can also cooperate with other companies in some areas, by using the postal delivery system or other transports of goods. For example, Taobao cooperates with Yuantong Express, ZhaiJisong, and other logistics companies. Currently they are trying to resolve the plight of logistics and distribution. However, because there still have problem on their cost, service quality, the cooperation needs to be improved yet. Therefore, to break out distribution bottlenecks, first of all, needs to strengthen the integration construction of the logistics. It should break the existing protected areas and the fragmented structure of the logistics. It also should eliminate the boundaries among internal departments of enterprises, to achieve the integration of capital, logistics and information. Secondly, there must build logistics information system for E-commerce requirements. It is necessary to strengthen the internal information system construction of logistics system, and gradually to achieve E-information operation of their internal management. Logistics enterprises should make customer satisfaction as their center, to enhance the customers efficiency and reduce costs of circulation. D. To Improve the Relevant Policies and Regulations on Electronic Transactions E-commerce occurs in the virtual world, so it brings challenges on peoples consumptive concept, ethics, and code of conduct. It also has an influence on the legal issues, such as on tax collection. There has not yet promulgated Electronic Commerce Act, which may make a bad influence on the healthy development. It is extremely urgent to build a climate and environment for the E-commerce development in China [5]. On April 1, 2005, start of the Peoples Republic of China Electronic Signature Laws is the milestone in the development of E-commerce in China. It has removed the legal obstacles of e-signatures during E-commerce and other related areas. On April 18, 2005, Self-regulated Services of Online Trading Platform was implemented. The business standards coordinate the relations between trading platform and social supervision. Subsequently, the Peoples Republic of the 10th Five-Year Plan proposed developing E-commerce positively, stressed establish the sound E-commerce infrastructure, legal environment, certificated system of credit and safety, and build a safe, convenient on-line payment platform.

From these, there are significant achievements on the establishments of commercial policy. But it still needs to be improved because of the limitations of traditional legal system, the shortage of integrity and innovation. Judging from the current view, it is urgent to enact laws and regulations of e-commerce activities, including: on the aspect of time, place, signature, original contact, electronic instruments, there needs a corresponding law. it needs effective system of electronic signatures, referred to the scope of electronic signatures, attribution, and the use of electronic signatures and other effects. it needs E-commerce regulatory system. The national financial regulatory departments should enhance the supervision of on-line electronic transactions, and determine the scope and responsibility of formulating appropriate sanctions. it should formulate a unified principle of tax collection and management. V. CONCLUSIONS

In recent years, an upsurge of E-commerce has been set off in China. However, it is quite late to roll out market economy system in China, so the commercial environment, credit system, logistics system, and consumptive attitude, are all not very mature. To make domestic E-commerce develop fast, there must be wellformed national rules, popularity of E-business concept the establishment of modern personal credit system and the innovation of E-technology. ACKNOWLEDGMENT I wish to acknowledge all those who assisted in making my paper possible and a deep appreciation is expressed to my family for their never-ending support and encouragement during this process. Without their infinite love, I could not have reached the completion of my paper. REFERENCES
[1] CCTV, http://news.ccw.com.cn/mfr/htm2005/20050707_10aou.ht m, 2008.12.11 [2] iResearch.cn, http://news.iresearch.cn/Zt/76332.shtml, 2008.12.21 [3] Lu Ying, The comparison of C2C marketing strategies between ebay Yiqu and Taobao, Journal of Fujian University of Techonology, 2007.Vol 2. [4] He Yongming, Chinese C2C Websites: Their Existence and Development, Journal of Beining Union University (Natural Sciences), 2005. Vol 2. [5] Zhang Runtong, Electronic Business, Science Press, 2005 [6] Asia Business Media, Taobao is Bigger than Walmart, www.bsgasia.blogspot.com, 2007

Generally speaking, the reason why Taobao can succeed is depending on its developing strategies which can be well catering for our internal 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, and win a competitive predominance [6]. In addition, many companies only serve for most large or medium sized websites, but not for common media and advertisers. This group of small value is not worth mentioning, but Taobao, by providing personalized custom ad services, gathers the large number of these groups. That formed very substantial economic profits. For other E-commerce enterprises, it is also very worthy of reference.

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