Keso, China’s most widely-read professional blogger writing Playin’ with IT, offers his unique perspective on Chinese internet development. He was editor-in-chief at DoNews, and now runs 5G, a consultancy for Chinese web2.0 start-ups.
The following article has been translated from the original Chinese to English by BloggerInsight and is being reprinted with permission. It is a sample from a popular debate currently taking place in the Chinese blogosphere. This is the first in an ongoing series of “Chinese Web Insights”.
Taobao Is Toxic
Alibaba Group recently announced a campaign to promote entrepreneurship and employment through Internet. The company reached out to over a thousand colleges throughout China in order to encourage millions of graduates to start businesses on the Internet.
This campaign is going to make university students become businesspeople. I hope that is not the final aim of the “New Commercial Civilization” (referring to Taoboa CEO’s speech at the 2009 IT leader’s summit in 2009 on e-commerce). It is certain that Taoboa will continue to play a bigger role in the lives of university students. Taobao, no doubt, will continue to see more and more visitors and a rise in advertising income. But how much it will contribute to the employment of university students after they graduate is still a big question. Additionally, even if millions of university students become “businesspeople” on Alibaba, the verdict is still out on whether or not such a situation would be beneficial to preexisting businesses already faced with increased competition.
Theoretically, Taobao can provide infinite shops and businesses on the internet, which will make it an infinitely huge marketplace beyond all business entities and could be even larger than Walmart. The fact of the matter is that the social consuming abilities of Taobao are limited, that is, if you double the quantities of goods in Wal-mart, the sales won’t be doubled. If 9 out of 10 billion people are sellers, what good is that?
All sellers compete on price. A friend of mine was going to sell toys on Taobao. He was confident his products would be the cheapest since his source was one of the biggest toy companies in Guangzhou. He soon found that the same toy on Taobao at a lower price. Chief Operating Officer of Taobao, Zhangyong, once said “compared with the traditional sales channels, Taobao enjoys the advantage of price, you won’t be surprised if you find that prices on Taobao are 10%-20% lower than in elsewhere; with the same budget consumers can buy more on Taobao. So if customers are more sensitive about price, Taobao seems to have greater advantages.” Take mobile phone top-up card for example, if someone sells them for 99.5 RMB, why spend 99.8 RMB?
In some ways, however, I’d prefer to pay the “Apple tax”. After all, different price points provide different user experiences. The price of a product is not merely a sum of its components. Although price is important, it’s not the only consideration. I still remember the DVD player war in China years ago in which producers were constantly trying to outdo competitors on price. Chinese DVD players came to occupy 80% of the global market, yet none reached the higher echelon of becoming a recognizable global brand.
When price becomes the core competitiveness of Taobao businesses, they are destined to become low value-add and unsustainable. In the Taobao world, which university students are now encouraged to be a part of, your product’s quality and service quality means nothing. It baffles me as to why companies are encouraging university students to become traders who are slaves to the vicious cycle of purely price competition. I can’t understand whether the aim is to help the university students or to rip off them.
If the cruel pricing wars lead to the point in which price can’t cover costs, there would be counterfeit products all over the market. North Face jackets will be under 100 RMB and a bottle of Dior J’adore perfume would be 40RMB or less; would you be interested in purchasing these? Are you brave enough to buy it? If the sales price of milk is lower than its costs to bring it to market, what you are essentially drinking now is nothing but melamine.
On a business platform, if the growth rate of sellers is faster than the growth rate of its consumers, there will be an imbalance between demand and supply. Alibaba’s B2B business serves as a good example. Since the income of Alibaba is directly connected to the number of its suppliers, 70% of Alibaba’s staff are sales. Affected by the global financial crisis, exports contracted, and Alibaba had to promote price promotions in order to maintain the growth of suppliers (Alibaba customers). The problem is that the number of buyers will not be affected by the growth of suppliers. Demand would not grow steadily and might even decline because of the bad economic situation. If there is no significant increase in demand, but the supply was encouraged to increase substantially, no doubt these would lead to the rapid decline of sales for each supplier. Suppliers would then have to increase marketing costs in order to maintain the numbers. Of course, the platform supplier is now very happy because the increased marketing costs would become their extra profits. However, this would result in suppliers’ profit margins being squeezed even more. Once the marketing costs become too high, the model of the business platform will collapse.
Taobao is also facing the same problem. When millions of university students pour into Taobao, the purchasing abilities on this platform will not be increased, instead competition would be greatly intensified. With greater competition, many graduates drawn to the call of e-commerce by starting their Taobao storefronts with little money, work experience and credit would face the harsh realities of being a mere slave to price competition on Taobao. To make things worse, Taobao is now their livelihood.
Promoting e-commerce and entrepreneurship to China’s youth is a beautiful idea and also shows social responsibilities. I am concerned that only a fortunate few would be able achieve true entrepreneurship and employment through Internet, while the majority of the nation’s graduates would face the harsh realities of business on Taobao.
I’d like to warn all university graduates that Taobao is toxic and Alibaba has no antidote.
I actually disagree.
The infinite shops / finite consumers thing is partially true, but then again shops can also be consumers. Saturation point will be hard to reach even so. Not everyone wants to run an online shop you know!
What I’m seeing is already on Taobao is differentiation. It is possible to sell for higher than your competitor on TaoBao, you just have to add value, whether perceived or otherwise.
This is the same for any vendor anywhere though.
There are a number of examples of things that were slightly higher than others, but I purchased from that vendor because he did something extra to persuade.
This can be either quality of info – one vendor took photos of his product vs fakes, and showed how his was real, and what to look for. For some things fakes are fine, for others less so.
Others had plenty of good product shots, plus videos of product in use etc. They were slightly more expensive, but i could see what i was getting clearly.
Also consumer ratings are important. If a vendor sells thousands of one type of product, and his feedback is good, guess who i’m likely to use…
Still others do great jobs at promoting their product in a unique way. Check this vendor “i hate you” over at 56minus1 for an example.
http://56minus1.com/2009/04/i-hate-you/
I have to say I liked this post from Keso. I was pleased to see Internet companies were trying to be responsible for social issues, but should step into these Uni students’ shoes.
I’ve talked to a couple of students in Shanghai, they actually felt the same way that Keso described, there is no so called ” starting your business” environment on Taobao, pricing competition seems to be the only thing matters. They don’t feel comfortable to live on infinite shops on Taobao for sure.
I think Lawrence above brings up some good points about budding or potential differentiation in a competitive virtual marketplace like Taobao. While price competition is definitely vicious (not just on Taobao but in China amongst Chinese businesses overall), I’m more willing to suspect that many of these students who don’t feel comfortable with starting a business on Taobao actually just don’t have enough business instinct or experience to take such an possible entrepreneurial option seriously. Many, not all. That said, I probably wouldn’t recommend recent graduates to seriously consider setting up a virtual shop on Taobao as some sort of alternative to pursuing traditional job opportunities. Such an option is something those who already have the passion/interest for business will discover and investigate on their own.
Wow. Both the story and the quoted article are almost unreadable. They haven’t been edited. You can’t just scan them for a second and get a rough picture.
Why on earth did EastSouthWestNorth reference this blog garbage?
Wow, great job swinging for the fences, insulting both BloggerInsight and Roland Soong at the same time. Haters, they are everywhere.
Amusing as your knee-jerk reaction is, the chap above has a solid point.
“through Internet” (twice)? Hello, definite article -wherefore art thou?
“Taoboa” (this also occurs twice) – I actually thought this was a subtle pun. But no, it was complete laziness and lack of editing – how long does it take to read through the article just once before you click ‘post’? Seriously…
Actually, his main complaint was that the translation was so unreadable he couldn’t just scan the entire thing easily enough to get a rough picture, as he ostensibly feels entitled to.
I don’t think my response about him insulting both BloggerInsight (for translating) and Roland Soong (for seeing past the few spelling errors and grammar mistakes to still recommend this post) by calling this “blog garbage” was a knee-jerk reaction. I just don’t think the mistakes made the post that unreadable, or unreadable to the point where I couldn’t actually engage with the subject-matter presented. I also didn’t think the mistakes made this post “blog garbage” or make me wonder why Roland Soong recommended it. Given the amount of spelling and grammatical mistakes present on Soong’s website, I wonder if this guy would be bitchin’ all the time there if Soong actually allowed people to make comments?
This can actually be a stepping stone for the young entrepreneurs. Setting up an online business is one of those “easier” alternatives. Minimal capital is needed, only for those you are going to sell.
Anyway, as harsh as it may be deemed, it is not expected that everyone who trots into eBay (for example) is swimming towards success.
I think the Taobao thing is great.
We designed and made our own product (Fridge Magnets to help foreigners communicate in Chinese – http://liurl.cn/eu ) using Taobao for sourcing suppliers.
My Chinese staff were skeptical, but so far we’ve done ok.
We’re actually going to be selling some of our own stuff on Taobao now (we decided it was easier to make our own store initially – costs were less than Taobao’s charges), and our own success has led us to add more of our own products, that we’ll be selling on Taobao also soon.
My staff have also opened their own small stores selling stuff too subsequently. While not students, they did have to see my example worked before they were persuaded to give it a try.
If Taobao is going around the country assisting students with this, thats a great thing.
Not every product is mass made or has to be.
We’re concentrating on stuff we design ourselves (mostly).
T-Shirts, Mousepads etc are easy to make in small quantities, and sell online. Doing something cool and unique is good.
Having an outlet to sell it is even better.
Tabao isn’t toxic, its an enabler.
Lawrence / http://www.iwantone.cn
What I think also. It really depends on the entrepreneur executing his or her idea.
I interviewed a number of students with Taobao shops in Dec 2008. One was very successful while the others were minimally successful. The one who was very successful was a brilliant designer and businesswoman. She did not sell her clothing for the cheapest price. Her customers were willing to pay more for her opinion, which she expressed in her ads, her designs, which she commissioned herself, and her good service. The other students I interviewed were finding it useful to learn how to source products, play with designing their own logos and writing their own copy, and promote their brands through social events and forum postings.
I came away feeling very optimistic about the future of Taobao as a platform for small-scale entrepreneurialism among college–and even high school–students.