A multinational worth billions entersa market by buying a company who follows their platform and has 70% of themarket share and manages to lose it all in a few short years. This is whathappened to EBay as they entered China while they were having success allaround the world. How did this happen? This essay will go in-depth of how asmall start-up no-one imagined could compete with EBay managed to beat eBay.
AsEBay bought Eachnet and had 70% of the market share, no one could havepredicted that they would be losing it. Jack Ma after a visit to Japan decidedto start Taobao as a self-protective policy, Ma was worried that EBay wouldcome after Alibaba’s customers in the future so he decided to launch Taobao toeradicate EBay from the Chinese market. At the beginning, Taobao probablyseemed too childish to EBay, but Taobao was designed with the younger Chinesegeneration in mind (the generation more likely to use the internet). The lastlaugh however was Jack Ma’s as EBay failed and Taobao ended up with 80% of themarket share.
There are many reasons to why EBay lost to Taobao.One of the main reasons that is believed to be true is that EBay wasn’t free.Taobao was free to use. Neither Ma nor anyone from the management team gave adefinite timeline as to how long this “free period” was going to last. Taobaogot a quick start with its free listings and continued to gain momentum as moreand more users switched from eBay EachNet to Taobao.
However this is simplyfalse as Eachnet (before eBay acquired them) used to charge fees and as theystarted charging them it did not affect user loyalty. In fact, EachNet’sdominance increased after they started charging. (Christopher & Sherman, 2010)Many believe the actual reason of this loss was EBay implementing platformmigration.
The day of the migration, eBay China’s traffic dropped by half andthe local team lost the ability to a fast changing Chinese market. “It tooknine months to implement any major changes and nine weeks to even change a wordon the website as everything had to go through the headquarters technologydevelopment team” (Forbes, 2014) As EBay entered the Chinesemarket they signeddeals with major internet portals adding specific clauses in the deals whichprevented advertisements from competitors. Ma however did not mind this as heentered the market with Taobao; as a local knew that most small business ownerswould rather watch TV than log on to the Internet, Ma managed to get advertisementsonto most major TV channels . As Taobao was a local company run by localpeople, it had a much better understanding of local culture and designed theirwebsite according to local needs. They had an escrow service with AliPay and achat service (Wangwang) as they realised the normal Chinese person wasuntrusting of online sellers. They designed the website in the image of how alocal supermarket would be and used the names of popular novel characters. Allthese things were attractive to the Chinese people. Ebay on the other handforgot to apply Hofstede’s Theory of cultural dimensions and assumed theirbusiness plan that was working well in most western nations would work just aswell in a high-context culture such as China.
Taobao was more customer focusedand user friendly than eBay. With most users not sophisticated about auctions,the majority of Taobao’s listings were for sales. Taobao went on to improve itsservices and made them better for Chinese shoppers. It lined up logisticservices; it started guarantee programs. But while it is a huge success in termsof user numbers and transaction volumes, Taboo was yet to prove itself financially.Ma being under investor pressure has integrated a search engine into Taobao andcharges businesses for ads and for specific “key words” for their products sothey appear on top of the lists. However as it is a privately held companywhich doesn’t release its earnings it is hard to know if they make any profitor not.
Originally, eBay wanted to introduce its PayPal payment platform to Chinaright after it acquired Each Net. But the plan was delayed because ofgovernment regulations. According to an insider EBay’s mistake was asking thegovernment if they could use it. “Of course, no Chinese official would say yes.A local would do it first and ask later but eBay is a multinational.
Theyalways ask first”(Christopher & Sherman, 2010).So after working on their platform when PayPal finally launched in China, Taobaohad already launched its payment solution, Alipay, which was better designedfor the local market and was already starting to dominate the online C2Cbusiness. In hindsight, EBay’s top management failed to understand how differentcultures have different needs and that one size does not fit all. Jack Ma onthe other hand knew how the Chinese culture was and ended up using hisadvantage to beat Ebay even when no one believed he would be successful.