Communications of the ACM

Virtual extension

Why Ebay Lost to Taobao in China: The Glocal Advantage

By Carol Xiaojuan Ou, Robert M. Davison
Communications of the ACM, January 2009, Vol. 52 No. 1, Pages 145-148
10.1145/1435417.1435450
Comments

Consumer-to-Consumer (or C2C) electronic commerce involves electronically-facilitated transactions between consumers through third parties.⁹ In China, a number of C2C platforms have emerged, such as eBay (China), TaoBao and PaiPai. TaoBao, established in 2003, has quickly assumed a dominant position in this market, underlined by the December 2006 decision by eBay to quit the C2C market in China altogether,^4,8 merging its China operations with those of telecoms provider TOM Online. In China, C2C platforms encourage buyers to contact sellers so as to build up the necessary trust and confidence to engage in online transactions, as well as negotiate product, financial and logistical details. In this article, we focus on the way C2C platforms compete and in particular how buyers are stimulated to be both aware and trustful of sellers through buyer-seller communication channels.

Following this introduction, we present brief case descriptions of TaoBao and eBay (China). These descriptions are supplemented with information gleaned from interviews with active buyers and sellers from these two platforms. The significance of the competitive issues is then the focus of discussion, where we also draw in the literature on awareness and trust. Finally, we suggest how the C2C market is likely to develop in China.

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TaoBao

TaoBao (www.taobao.com) founded in 2003, is a wholly owned subsidiary of Alibaba, China's leading e-commerce company. As a C2C trading platform, TaoBao has the highest number of product listings, the highest volume of transactions (RMB43.3 billion in 2007, with a C2C market share of 83.9% in China) and, with 80+ million registered users, the highest penetration rate among the 253+ million Internet users in China.^a Alexa^b ranks TaoBao as the 47^th most visited Web site globally, 5^th in China. TaoBao uniquely indicates the online status of all sellers with a bi-polar coloured icon and Tao-Bao's internal search engine enables buyers to list only those items whose sellers are online (see Figure 1). This means that a prospective buyer can check if a seller is online, and if so, can use TaoBao's integrated IM system, WangWang, to contact them. Wang-Wang is an embedded, pseudonymous communications tool, sharing TaoBao's user-ids, and so is the default IM system for all TaoBao users.

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eBay

eBay (China) (www.ebay.com.cn) was the China arm of the U.S. headquartered eBay. Acquired in 2003 from EachNet (founded in 1999), this was the first mover in the Chinese C2C sector. Until late 2006, eBay (China) and TaoBao were regarded as key rivals, though since December 2006, with eBay's decision to quit the C2C arena in China, that situation has changed dramatically. EBay (China) is now ranked by Alexa as 49,474th globally and 2,438 in China. eBay (China) attempted a comeback, relaunching its EachNet site, but Alexa's figures indicate that this has not succeeded, as EachNet is currently ranked 6,920th globally and 586th in China, with a C2C market share of 8.7% according to CNNIC. While the functionality of TaoBao and eBay (China) is similar, there are some notable differences. For example, eBay (China) does not indicate a seller's online status, for instance. Also, although Skype is linked into eBay (China), it has to be downloaded and installed as a separate application. Furthermore, not many users have Skype IDs: we randomly surveyed 500 sellers in 10 categories and found that only 24.6% had a Skype ID listed. For those sellers who do have a Skype ID, there is no indication as to their online status, and in fact, of the 24.6% who do have a Skype ID, only 5.4% were actually online when we checked during the evening peak trading hours. Most buyers will therefore have to use email to contact sellers (email addresses are provided) or else leave a message on an online message board that eBay (China) provides.

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Interviews with Chinese C2C Users

In order to assess TaoBao and eBay (China) from the user perspective, we interviewed 10 users of these two platforms, focusing in particular on the interface differences between the platforms, as well as the communication channels and their importance for successful transaction completion. We report these interviews in Table 1.

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Discussion

The interview data reveals that buyers have a strong preference for being able to locate online sellers so as to communicate with them immediately about potential transactions. They also prefer that the communication channel be embedded within the C2C platform so they don't need to switch among different IMs. Both of these two features are currently provided free-of-charge by TaoBao in what we term an integrated C2C model. eBay (China), in contrast, operates a disjointed model, with no indication of a seller's online status and limited opportunity for buyers to contact sellers immediately online. Rather, they have to use non-integrated channels such as email and Skype. This approach is consistent with eBay's other international operations.

Furthermore, when the interviewees were invited to compare the interface design of TaoBao and eBay, it was generally agreed that the former is a 100% indigenous platform. WangWang is perceived to be a typically Chinese product, designed by and for Chinese people. In contrast, eBay (China)'s Web site has a more international feel, replicating the international eBay model in China, without significant adaptation to the Chinese context. Our interview data indicates that direct communication is a must before online transactions can take place in China. For C2C users, the business model of online transactions is not a purely transactional one. Instead, it encompasses another critical step - communication, which is necessary if trust is to be built between buyer and seller. Usually the communications cover product availability, whether the seller can offer a discount, size, color, delivery terms and payment methods. Given the "extremely high risk of fraud in China" (interviewee comment) and given buyer desire to reduce uncertainty, the embedding of an IM in the C2C platform enables such pre-transactional communication and so facilitates the development of buyer-seller trust.

The importance of these findings should not be underestimated. In the Chinese context, it is critical that buyers be in a position to trust sellers before engaging in transactions. This trust is necessary given that concerns about security and the potential for fraud are paramount, not to mention the lack of a well established legal infrastructure to protect online transactions.⁶ Indeed, in China there is a propensity to distrust unknown others,⁵ such as those that one encounters in the context of C2C transactions. In this respect, it is useful to consider the theoretical construct of swift trust, first suggested by Meyerson et al.³ in the context of temporary, zero-history work groups who need to work together with minimal opportunity to develop a trust-based relationship. We suggest that buyers and sellers in the virtual C2C context also need to develop swift trust in order that they can develop sufficient confidence to engage in financial transactions online. Indeed, the evolution of buyer-seller trust over time can usefully be depicted in a multistage process (see Table 2), with an initial state of ignorance evolving through one or more higher (or lower) stages.

While reputation systems (which essentially rate the reliability of sellers) are important contributors to this trust development, we argue that they are insufficient - a Chinese buyer will much prefer to build up a relationship based on (swift) trust with a seller, not merely view others' ratings of a seller, in order to develop sufficient confidence to engage in a transaction. In order to build that swift trust, some form of direct communication is critical, hence the importance of embedded communication systems. TaoBao's success in the C2C market appears to be founded not only on the explicit indication of a seller's online status, but also on the embedding of WangWang directly into TaoBao. A buyer is thus able to identify a seller as being online, and to contact the seller, without leaving the TaoBao platform to use other tools.

More importantly, a comparison of TaoBao and eBay (China) suggests that a key determinant of TaoBao's success is its free-of-charge business model. Over the last four years, TaoBao has successfully developed a critical mass of buyers and sellers, spiralling from a small sized new-entrant to a very large and dominant player in the marketspace. Although TaoBao is planning to charge fees for Alipay users,^c the change of business model is not anticipated to have a negative impact on TaoBao's position as market leader because the users have already been locked in, as indicated by our interviewees.

Nevertheless, on March 13^th, 2006, PaiPai, another new entrant with the same business model and Website design as TaoBao, joined the marketspace. PaiPai has already won a slice of the C2C market, building on the success of QQ, the first instant messenger in China, and the mature QQ community. According to Alexa, PaiPai is now ranked as 326^th globally^d and 39th in China. Its entrance has raised the level of competition in the C2C marketspace and further increased the turbulence of this environment.

This comparison of the major players in the C2C market in China is instructive for a number of reasons. First, it is apparent that TaoBao, as an indigenous Chinese platform, has been able both to enter the C2C market successfully, and indeed to push out an existing major competitor. We suggest that it has done this by adopting a giocal perspective: learning from global standards (such as those practiced by its rivals) and adapting them to local preferences (i.e. reflecting the specific characteristics of the Chinese context). We assert that there is a critical need for a greater appreciation of local values and characteristics: to ignore them means to plan for failure. As one Beijing-based Western commentator has opined, "The road to Internet riches in China is paved with corpses of American giants, and the body count continues to grow."⁴ The need for Chinese buyers to communicate directly with sellers in order to develop trust that will underpin later transactions cannot be denied.⁵ Companies that wish to succeed in their e-commerce ventures in China must pay attention to local cultural norms and preferences in their interface design, customer relationship management facilities and business models if they are to realise the fabled riches.^1,2 TaoBao has done precisely this and so it is no surprise that it has, for the time being, won the C2C battle.

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