Taobao: An Underdog Story

21 Jul

By Gordon Chu | Tuesday, July 21, 2009

I love underdog movies. Watching Rocky Balboa struggle up those courthouse stairs and throwing his hands in the air in victory, how can you NOT be rooting for him in epic fight with Apollo Creed. Here’s the man who wasn’t born into a whole lot of money or had much luck, but made his way up the boxing ranks for the fight of his career by sheer determination and grit. This is what movies are made of. This is what glory is made of.

I digress – perhaps I got too misty-eyed thinking of Rocky movie(s), but we get the point. Underdog stories are a fan favorite and certainly translate between the silver screen and the business world.

Taobao (Chinese version of eBay) versus eBay is a classic David and Goliath story. In one corner, there’s eBay. With a near $25 billion market cap, no question that eBay is the Goliath of this story. It practically has a monopoly on the online market and you know it’s big when the company’s name unofficially becomes a verb (Just ‘eBay’ it online).

On the other corner, we have Taobao. I’d be lying if I said that Taobao started off with modest roots because it actually was birthed from Alibaba, one of China’s largest online companies. But, for argument sake, if you compare the two companies and where they were several years ago, Taobao really was microscopic in comparison.

eBay entered the market in 2002 with pretty ambitious goals. Meg Whitman (former CEO of eBay) toted China to be THE market in 2005 as the anchor to the company itself. And when eBay bought 33% sake of Eachnet (now de-bunked China online site) for $30M, no one argued that eBay was serious about China. In one swift acquisition, here comes eBay that now owned nearly 90% of the market share in China.

Taobao entered the market in 2003. A subsidiary of Alibaba, Taobao was the first legitimate competitor to eBay but without the deep pockets, without the marketing force, and without the know-how of the vast experience eBay had brought from the US. However, in two years’ time, Taobao did the unthinkable – it eclipsed eBay’s market share and became the leader in online auctions in China. Today, Taobao has over 100 million registered users and has around 70% of the market share in China.

So, where did eBay go wrong? Or, rightfully, what did Taobao do right? I wished there was a climatic Rocky-esque training session that Taobao undertook, but the real answer comes from smart, practical, and logical business 101. What eBay had thought were strengths, were actual barriers for growth; and what Taobao had as a start-up, were what makes it what it is today.

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