China, 23rd Jul 2024 – The dawn of AI-powered e-commerce is both an opportunity and a challenge for everyone involved. After a long absence, Jack Ma, the visionary founder of Alibaba, has reappeared with a new strategic plan for Taobao. As with his previous predictions—from the rise of e-commerce to the advent of new retail—his latest vision of AI-driven e-commerce aims to bring about a transformative innovation in the industry. However, unlike in the past, this time there are no precedents to follow or sufficient data to validate the strategy.
Taobao’s current situation is markedly different from its golden days. According to a report by Goldman Sachs, Taobao and Tmall’s market share plummeted from 66% in 2019 to approximately 44% in 2022, a decline of nearly one-third in four years. By the end of last year, Pinduoduo’s market capitalization had surpassed Alibaba’s, and content-driven e-commerce platforms like Douyin (TikTok in China) and Xiaohongshu (Little Red Book) were rapidly rising, exposing Taobao’s vulnerabilities.
For a long time, Taobao’s growth was synonymous with the expansion of China’s e-commerce sector. Being the earliest and largest player, it mirrored the changes in consumer markets and public demand: before its mobile-centric transformation, Taobao was celebrated for its extensive product range, efficient search capabilities, and product optimization. With its mobile transition, Taobao expanded its domain with platforms like Tmall Global for international shopping, Tmall Special for low-end products, and Taobao Xinxuan for quality-focused items.
However, by 2024, despite the development of self-researched tools and the acquisition and integration of various products, Taobao’s ecosystem has grown unwieldy. Internal competitions, strategic iterations, and organizational adjustments have not yielded new growth trajectories but have instead resulted in a bloated platform. The rapid increase in employee numbers has added management challenges, forcing KPI (Key Performance Indicator) adjustments to the forefront.
The Hidden Worries of the Golden Era
One of Taobao’s most iconic battles was ousting eBay from the Chinese market with a no-service-fee strategy. At the time, the domestic e-commerce landscape was largely undeveloped, consisting mostly of small enterprises and individual sellers. eBay, though the largest global e-commerce platform, could not match Taobao’s local market insight under Jack Ma’s leadership.
During the PC era, Taobao built a comprehensive ecosystem, with a market share once exceeding 90%. It provided a one-stop-shop experience, including payment, logistics, credit evaluation, marketing, and data analytics services. Unlike its early competitors like EachNet and Dangdang, which failed to sustain, Taobao’s innovative consumer experience eliminated the need for third-party constraints, making it highly valuable at that time.
Jack Ma’s vision was to make Taobao a platform for e-commerce, not just an e-commerce site: an open platform integrating financial and logistical resources with collaborative partners. This was in stark contrast to JD.com’s strategy of focusing on supply chain and self-operated logistics, which, though slow, eventually built a sturdy foundation.
Capital operations led to the segmentation of Taobao into Taobao, Tmall, and Etao, catering to C2C, B2C, and search-guided shopping models, respectively. As the industry evolved, Tmall’s market share rose, and Etao faded, reflecting a shift from price comparison needs to quality assurance and self-operated logistics, spearheaded by JD.com’s marketplace.
With the advent of mobile internet, the e-commerce battlefield shifted dramatically, signaling the end of the PC-centric e-commerce era. Under the leadership of Daniel Zhang and Jiang Fan, Taobao’s mobile transformation began, maintaining the old genes of the previous era: an obsession with an all-encompassing ecosystem driven by the absolute control of traffic.
This focus on traffic led to the proliferation of various internal products designed for traffic acquisition, while external platforms like Mogujie and Meilishuo served as commission-based traffic sources for Taobao. This strategy reaped significant market dividends but entrenched Taobao in a traffic-dependent profit model.
The Rise and Fall of Taobao’s Short Video Endeavors
In 2016, then-CEO Daniel Zhang set community and content as Taobao’s future directions, emphasizing user engagement as a crucial metric in the mobile internet age. Taobao launched live streaming, Taobao Headlines, Ask Everyone, and Taobao Community, promoting influencer-driven economies to foster fan communities.
Despite promising beginnings, Taobao’s short video project faced challenges. Initially rolled out shortly after Douyin’s launch, Taobao’s short video channel, Yingxiang Taobao, and other video entry points struggled to gain traction. Internal initiatives like Luoke, a short video app launched in 2018, did not manage to replicate Douyin’s success, highlighting a strategic misstep in balancing content and commerce.
The Struggles of Taobao Live
Taobao Live’s inception in 2015 predates its short video efforts. Despite early successes with celebrity collaborations and top influencers like Viya and Li Jiaqi, Taobao Live’s growth was limited compared to Douyin and Kuaishou, whose algorithm-driven ecosystems allowed for more significant user engagement and viral content.
In response to rising competition, Alibaba launched “Taobao Deals” (later known as “Taobao Special Edition”) in 2019, aiming to tap into the lower-tier market dominated by Pinduoduo. Despite initial success, the initiative faced internal resistance regarding resource allocation and profitability, illustrating the complexities of balancing strategic priorities within Alibaba’s vast ecosystem.
The Core Issue: A Strategic Stagnation
2018 marked a turning point for Taobao. Despite its strong market position, Alibaba’s response to emerging competitors like Pinduoduo was slow and often dismissive. Alibaba’s focus on premiumization and consumption upgrade, evident in projects like Taobao Xinxuan, neglected the potential of lower-tier markets that Pinduoduo effectively captured.
As Alibaba continued to prioritize high-margin, premium markets, its reluctance to aggressively penetrate lower-tier markets created opportunities for competitors. The subsequent launch of Taobao’s “100 Billion Subsidy” campaign and the Taobao Special Edition app highlighted a belated shift towards price-sensitive consumers.
However, internal friction regarding resource allocation and strategic focus hampered these efforts. The frequent changes in Taobao’s leadership, coupled with the company’s structural inertia, further complicated strategic coherence and execution.
As 2024 unfolds, Taobao faces a critical juncture. The transition to AI-powered e-commerce offers a fresh opportunity for innovation and growth, but also demands a reevaluation of strategic priorities and organizational agility. To navigate this transformative era, Taobao must reconcile its historical strengths with the emerging demands of a rapidly evolving market landscape, ensuring it remains a formidable player in the global e-commerce arena.
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