How Taobao Saved Alibaba

How Taobao Saved Alibaba

 

Internet technologies have entered virtually every corner of the world and every segment of society. In particular, online shopping has become one of the most popular internet applications.

 

In September 2014, the NYSE saw the listing of Alibaba, a Chinese business group headed by Ma Yun. Although many large firms have successfully been listed on the NYSE, Alibala’s feat has shocked the world with its unbelievable performance. The price of its stock tripled in less than three days, and as a result, Ma Yun became the richest man in Asia. This has led many to seek the main reason behind his incredible accomplishment.

 

Alibaba made little progress in its first years. Because of a lack of money, the firm was established in Hangzhou, a relatively inexpensive city located in the southern region of China，instead of Beijing or Shanghai. In the beginning, most of its funds came from foreign investors. With their help, Alibaba shifted its focus to business between companies, that is, B2B. Because Alibaba was the first company in China to do so, it was able to successfully attract investors. Soon, some member companies began wholesale business through Alibaba, reaping substantial profits because of lower prices and faster delivery. As a result, Alibaba’s revenue grew slowly but steadily. In 2000, Goldman Sachs, one of the largest investment banks in the world, invested $5 million in Alibaba. At the time, Alibaba was not well known in China because most people were not familiar with the Internet. However, Goldman Sachs made the investment because Alibaba was the first Chinese company to enter internet business. That is, Alibaba had no competition and thus could grow unimpeded by competitors. After this investment, Softbank, another global giant, invested about $20 million in Alibaba. However, it was Taobao that played the pivotal role in changing Ma Yun’s fortune.

 

Taobao is currently the largest online shopping website in China. Ma Yun discovered the great potential of online shopping across China and realized the inherent limitation of B2B, that is, a limited number of potential customers. Given this realization, he established Taobao, a company focusing on C2C and B2C. As a result, Taobao saw a 10-fold increase in its customer base. In the early stages of Taobao, few people were willing to shop online because of risks associated with products and services offered by unfamiliar companies, including those related to quality and delivery. To change this perspective, Ma Yun guaranteed a full refund to any unsatisfied customer for any reason. This catalyzed the explosion of online purchases. In only a year, Alibaba became the largest internet company in China. And over time, Alibaba was able to reduce the foreign stake in the company through its soaring profits.

Taobao enabled Alibaba to make profits that could never be realized without C2C and B2C business lines. Taobao’s customers represent a sixth of the world population, ensuring Alibaba’s sustained success.

 

Taobao has been the clear key to Alibaba’s success.

 

Tim Shao Qinglai