By Danni Long, Zhuokun Liu, Enyu Fan, Zihao Liu
The exponentially growing E-Commerce aroused the concern of Internet tycoons: Alibaba, eBay, Amazon, etc. Capital rushed into this burgeoning industry, which changes people’s lives unprecedentedly. Under this big circumstance, E-Commerce companies develop and innovate gradually. Stepping into the 21th century, the application of big data within E-Commerce goes further and further. In this paper, Taobao as the representative of E-Commerce will be discussed in detail. Furthermore, Amazon will be the extension of the topic.
Taobao was established in 1999 based on Hangzhou, China by Ma Yun with his group, and now becomes China’s largest network market and trading platform (Alibabagroup.com, 2016). For the 2015-2016 fiscal year, Alibaba Group achieved over RMB 3 trillion in annual GMV and the revenue over RMB 100 million (Alibabagroup.com, 2016).
As a revolutionary form of trading, online trading has made many things entirely different as they used to be. And there are basically two types of online stores these days, company-based and platform-based. As you may understand from the names, company-based type of firm has a structure more like a supermarket, except it is online, while the platform-based type of firm serves no more than a platform, where individual store owners who joins the platform handle the products. This difference can lead to drastic and various consequences and give each type of firm unique trade-offs. In this part of the blog, the strength and weakness of Taobao, the biggest platform-based online store in China, will be analysed.
Taobao has four advantages in terms of being an online website to shop: Exclusive way of payment between sellers and buyers, lower prices of products compared with physical stores, a broad source of its products, and the ability to target advertise using big data.
Soon after the Paypal became a subsidiary of eBay, Taobao invented its own version of PayPal in 2003, namely ZhiFuBao, to make the online transaction easier for the consumers. Also, since many people at that time are unfamiliar with buying goods online, to encourage them, Taobao implemented a “money- guaranteed” way transaction, in which the customer will be payed by the original amount if anything went wrong with the product they bought. This was to encourage people to accept this new way of shopping while also to try to attract more people to shop. On the side of the sellers, Taobao claimed that it will stay free for 5 years starting from its existence for anyone who is willing to open a store. Due to these two reasons above, after 20 days in 2003 when Taobao was found, there were already ten thousand registered users online. By now, in September 2016, Taobao officially has over 439 million active buyers online.
As shown in this graph. Even though the total number of active buyers is 439 million, the rate at which the number of active users is growing is negative.
Now here is the reason why a exclusive measure of payment is beneficial even though Taobao does not charge a fee. Taobao operates as an intermediate agent between the buyers and the sellers, which means that until the customer receives the product and confirm it, the money payed by the customer will not reach the sellers. This means that in the time period around 7 days, the money is temporarily being held by Taobao. Also, as its tool of payment ZhiFubao(Abbv. ZFB) became more and more widely used, the majority of the physical stores in first, second, and third tier cities treat equally the transaction from ZFB and cash equally. This fact further extends the time period which users keep their money in the ZFB. For example, if you are and store owner online in 2016 and you just received the money from a product you sold 7 days ago, you are not very likely to transfer the money to your bank as much as you would if you were in 2008. Due to the fact that the money in ZFB is equally expandable anywhere as cash and cashing out to bank as a transaction fee. This way, you might even never cash out your money on ZFB until you spend it all. In some areas in many of the top two tiers cities, you can just bring your phone with the ZFB software and keep your cards and wallets at home. This phenomenon of the popularisation of ZFB further increases the time period for the money to be held by Taobao indefinitely. With all this money, Taobao can have a great revenue by even just putting it in the bank and earn interest rates.
Using big data, Taobao was able to calculate how much money to store in fixed terms in banks or do other investments to maximise its profit. An additional information, the total value of the transaction done on Taobao and other online shopping platforms belonging to the same mother company as Taobao is 4.639*10^11 U.S. dollars.
The second advantage of Taobao is that it is able to provide goods and services at a lower price than most of the physical stores could. The reason being, as mentioned in the previous paragraph, the absence of rental fees for anyone who wishes to open a store online. Therefore, the cheap price of products have also became a part of the reason why Taobao attracted so many people. Comparing with the rent of a merely 40m^2 store on the edge of a second tier city, which is 4500 RMB, 415 Euros, per month, the goods and products on Taobao can achieve a much lower price while maintains its quality comparing with the goods in physical stores. Taobao surely doesn’t let go of any consumer surpluses, it charges for extra services like advertisements, customised homepage, etc. Even though charging for extra services leads more profit to the company, it also create drawbacks which lead to unhealthy competition. This will be discussed further in the weakness section.
On top of that, since Taobao is a platform where all of its products are coming from different people from different place, the products it provides varies drastically. There are, of course, the supermarket type of products like clothes and sofa, and many other daily used things. To ensure the quality of these kind of products that are low in individual values but are high in demand, there exists a related website to Taobao with higher barriers to entry to sells these things. There are, also, many strange and weird things that you can find on Taobao.
Like same kind of toy you played 12 years ago.
Or some Powerbook G4 keyboards in Arabic and Danish.
(8 Euros each)
On here you can basically find legal object you desire, and most of them are affordable.
The utilisation of big data technology on Taobao is very interesting. Every time you looked up something it will automatically show you several products that have been looked up by the people who check the product you are checking now. Following this pattern, if product A is browed the most among A, B, C, and D as target advertisements of product ö, A will appear more frequent and at better position among the targeted advertisements. Even though there is not an accurate data to show the effect of this target advertisement, I have bought some adaptors and mousepads last time when I purchased a laptop.
Now here are the drawbacks. There are two main drawbacks of this type of platform-based online store: the inability to absolutely control the quality of the products, no safe way to evaluate individual store, and overt competition.
Due to the structure of Taobao, it is destined to be a place where some products with bad quality will sneak in. These is no quality check lines for products on Taobao. The products go straight from the seller to the buyer through the transportation of an express company. This has lead many sellers to send out products that are either different or inferior than the products that customer have actually demanded. The only mean of checking quality on Taobao is through random sampling. Occasionally, a quality check personnel will order a particular product from a store and give it an evaluation. However, due to the vast number of stores there exists on Taobao, it is just not possible to check every product from every store before they are being sold. Also, even if a store is forced to shut down, the owner could simply borrow the ID and photos from a relative or a friend to reopen his/her business under another person’s name. There is simply no absolute stop to this. This is way Taobao attempted to reduce the fake product rate to minimum by introducing the customer evaluation system. However, this system has lead to the other drawback. In 2012, Taobao’s mother company, Alibaba, established a online shopping website with a prerequisite of 13,684 2016 Euros to reduce the number while enhancing the quality of stores. Since then, the fake product was almost non-existent on the new website.
Evaluating a store is something anyone can do as long as a product is purchased from the store by that person. The person can then rate the store and leave a comment about the quality of its product. This makes everyone has the power to evaluate the store, but has also lead the abuse of this power by the vicious few. There are groups of people, who are referred by medias and store owners as “Internet water army”. They work in two directions. They can either be paid to evaluate highly on a store, or they can be hired to deliberately dismay the quality of a store. These people have caused tremendous unfairnesses and unhealthy competitions online and are resented by many people. However due to their anonymity and the lack of corresponding law, non of any has been punished.
The Opportunities and Threats of Taobao
Stepping into one of the world’s largest online shopping platform, Taobao faces many opportunities and threats in the future. Nowadays, Taobao has established several trends to attract customers shopping online. Particularly, the Single’s Day—China’s largest online shopping day—is considered as a huge success of Taobao. This year on Nov. 11, its turnover achieved over 15 billion dollars, resulting in an increase of 32.37% compared to the last year (Qin, 2016). Just like the Black Friday, the Single’s Day gradually changes people’s shopping habits.
- Explore new market possibilities
Having laid the foundation where the Single’ Day brings huge success, Taobao can take internationalization into consideration. After the Initial Public Offering (IPO) of Alibaba Group, Taobao officially stepped into a new development era. People around the world would see this newly rising power within E-Commerce.
- Strengthen the cooperation with government
Not surprisingly, the success of one enterprise in China is mostly determined by its relationship with governments. Without strong cooperation with Chinese government, the company with no support from local authorities would have a development ceiling, which is fairly common. However, the success of Taobao implies that it has a solid and friendly relationship with local government, where it can also be sponsored in terms of economy and policy by the government. For the next stage, keeping the current cooperation and putting forward would be the important one that Taobao should consider.
- Global Competitors
More and more E-Commerce companies have realized the importance of China’s large market. For example, Amazon started to use various discount strategies to attract people. During the Black Friday, Amazon China made a free shipping fee sent from other countries, and it also decrease the shipping fee largely from Japan. Under the circumstance, people have more choices and thus have a broader view towards the world. Taobao should exploit its original advantage, making its advantage further and stay unique from other companies.
- Counterfeit Goods
Despite the fact of Taobao’s huge success, it needs to do more to avoid countless knockoffs at its shopping platform (Chu & Burkitt, 2014). Many customs complain that they spend a lot of money but get a fake one in the end, and most time they have no solutions to protect their rights. In this case, Taobao should tighten the goods control in order to eliminate counterfeit goods appearing at the platform, otherwise customs will continue to be cheated.
Amazon, as the largest Internet-based retailer in the world by total sales and market capitalization, is our another example of E-Commerce. Amazon is founded in 1994 by jeff Bezos, starting as a online book store, later expanding to sell DVDs, videos, food, toys and by drewing third party sellers to the web, nowadays it is literally selling everything you could image. Though E-Commerce is all over the world now, it is still such a new subject since it only exists 20 years, and for most of us, we are just stepping on first foot on it. As a pioneer in e-cOMMERCE, Amazon is our aimed object for swot-analysis.
(Note that Amazon has grown much faster than the entire U.S. e-commerce market, meaning that the company has actually increased its market share by taking it from competitors.)
- High input and valuation on technology development
The technologies are aiming at improving customers using-experience and maximizing customers’ interest. For instance, algorithm A9, which put in a simple way, avoided repeated and messed information by organizing search-related subject and picking out then ranking them all one the screen; Fire Fly, which people could scan the product then direct order it online; CRM and information system,which records data on customer buyer behavior, enables them to predict customers’ behavior pattern; Kiva Systems, mobile robotic fulfillment systems which shorted the delivery time by database in system, etc.
- Low cost structure
By only selling online, Amazon doesn’t incur any cost related to running physical retail outlets, which are usually very high. Amazon constantly invests in both additional fulfilling centers and existing centers to enable a reduction in order fulfillment times and shipping costs. These time and cost savings result in lower prices that are passed on to consumers. Comparing to Warmart, Amazon beats it on most products (Boomerang Commerce, 2016).
- Good reputation
Amazon’s return policy, its concise 1-click checkout design, its short-time amazon delivery, its own warehouse.ect , all of them make customers feel safe and being taking in good hands, which leads to customers’ loyalty.
On the one hand, as an international company, basically covering 200 countries and regions, Amazon needs to take local e-commerce related to law and policy, and local culture into account when it starts a whole new market. Those factors higher cost of the market entrance. Second, it may have a hard time entering a new country if there already exists a local but similar function E-Commerce company. In China，Amazon(china) take 1.3% of the marketing share, and Alibaba takes 61.4%，even Alibaba was started only one year ahead of Amazon entering China.
On the other hand, Amazon operates in near zero margin business models that have severely dented its profitability and even though the company has high volumes and huge revenues, this has not translated into meaningful profits for the company.
With fast development of big data application in E-Commerce, online shopping companies should explore more possibilities towards future. Regardless of the fact that many opportunities need to be found out, threats and competitions are still spreading around the world. Companies can better exploit its characteristics that can be separate with others. E-Commerce will still be the prevalent topic in the next 10 years.
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