China: eBay vs. Taobao
eBay and Taobao, a heavyweight bout that had all the makings to be an epic battle. eBay had the height, weight and reach advantage, Taobao had the technical prowess and the home ring knowledge.
On paper, eBay had the stamina to go fifteen rounds, but they heard the ding of the first round bell and began throwing punches wildly. When the eighth round came they were gassed, throwing wild haymakers with not an ounce of core insight.
Taobao finished with a swift left hook, leaving eBay with a nasty concussion and the gruelling ‘what if’ for years to come.
What went wrong?
eBay entered the Chinese market in 2002. At that time Alibaba, headed by Jack Ma, had supported Taobao with a $12 million investment.
Taobao was a small company helping small and medium sized businesses sell their products. They were consumer-centred and charged no listing or selling fees. They also focused on instant buy items compared with eBay’s heavy focus on auctions.
Due to the low cost of a lot of the items on Taobao, this made sense.
They battled it out and both attempted to secure a long term market share. However, by late 2006 the fight was over and Taobao had claimed a staggering 69% of the market, eBay — who started with 80% — had dwindled its share to 29%.
On December 20th, eBay’s then CEO, Meg Whitman, made her way to Shanghai to announce their withdrawal from the fight.
eBay assumed they could apply a model that had been so successful in the west — they had successfully entered 19 markets — and apply it to China without adapting it. This assumption provided the foundation for several failures.
- Sending a foreigner to do a locals job
eBay entered the Chinese market and sent two foreigners; one as their CTO and the other as their general manager. Neither of which spoke the language or understood the culture. This decision resulted in too much money being spent in the wrong areas for too long.
- Advertising
The market these two companies were competing for was small and medium sized businesses and individual consumers. eBay decided to advertise on buses, in cabs and on the internet. Alibaba chose to advertise on TV.
- Cell phone savvy vs. internet savvy
eBay’s service was predominately desktop based. Taobao offered mobile voice and instant messaging services for buyers and sellers to interact, eBay did not. At that time, 300 million people used mobile phones compared to 90 million using desktop computers.
- Payment adaptation
eBay applied their online payment system that had worked well previously. However, understanding that online debit and credit purchases were not yet the norm, Taobao created Alipay which would combat this issue by allowing the end consumer to deposit money and replenish bank accounts easily.
The takeaway
Taobao did a phenomenal job of knowing their customer and understanding their needs. eBay perhaps relied on their previous success to do the heavy lifting, which proved to be there demise.
Keeping the humans you’re designing for at the centre of your work will pay dividends. The battle outlined above is a shining example.
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