John Wu recently came to speak at one of the events in Silicon Valley, and had a few insights on how Alibaba got to where it is now. It was a long speech–probably a bit overhyped by Chinese-American community–but a few points are worth repeating.

Unlike similar American concepts, Alibaba worked in big part due to a unique Chinese business environment; with millions of small business striving for international exposure, John & Jack were able to get margins (1 Million users/businesses registered within the first 3 years) not usually seen with B2B markets. With such a huge user base, and staggering 10M page views a day, Alibaba always had a simple income alternative: ads. And of course it also helped that they were based in China and certain “aspects” just come at much lower costs here/there. As John mentioned, they had 200 engineers within the first year - yes, no doubt those 200 are much less efficent in comparsion with the Valley’s talent, but 200? Lesson learned: it helps to build companies on a cheap.

Now enough of Alibaba, I personally found the talk about TaoBao a bit more interesting. TaoBao, as you know is a C2C market place similar to eBay, and was launched by Alibaba as a subsidiary. However at the time eBay was the dominant market player in Chinese Internet and few were able to compete with it. Yet, TaoBao now takes over 70% percent of the market and eBay is just a big loser with huge expenses on billboard advertisements (they are all over China’s subway system).

So what were those key aspects that made TaoBao successful (other than better local relations with business/government community)? My take on it is:

• Final price on items - i.e. middle class in Chinese hates auctions–they’ve got too much of bargaining on the street
• SB2C - if eBay gets most inventory from small businesses, TaoBao does even more so
• Escort Service - TaoBao provides protection for Chinese buyers by putting hold on the payment
• No commission - to this day, TaoBao avoids charging fees for transactions; while eBays fees are just not feasible due to much lower retail fees (unlike U.S., China has many small retail channels, thus small business don’t always have to lobby Wall Mart to get in)
• eBay’s Global Vision - they tried to integrate Chinese local market with eBay’s global version - from my experience, it still works like a car on water; and who in his right mind would want to buy something from China for $1 just to spend $30 on shipping? There are export/import businesses for that…

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