SubscribeCOO of Taobao Talked About How Taobao Tackles E-Commerce Challenges in China
Zhang Yong, COO of Taobao.com, talked about the general market environment of online shopping in China, business of Taobao, its challenges and strategies in an interview with Knowledge@Wharton website.
According to Zhang,
After five years of development, [Taobao's] trading volume had reached RMB 43.3 billion (US$5.6 billion) in 2007. For the first half of this year, the number is RMB 41 billion, which is close to the annual volume last year. Basically, if you look at the growth rate over the last several years, it almost doubled every year: RMB 8 billion for 2005, RMB 18 billion for 2006, RMB 43 billion for 2007, and it is expected to exceed RMB 100 billion (US$16 billion) this year.
But online shopping penetration rate is still only 26% in China’s Internet users, versus 80% in the US, there are many people who are not familiar with the online purchasing process, and have concerns about payment safety issues and product quality. To tackle these challenges,
over the past five years, Taobao has not only set up a marketplace, but has also established a whole set of market trading rules and processes, including critical systems like a complicated credit rating system for both buyers and sellers. …… Our credit system is open to everybody, so everyone can see your track record. All people are making their purchasing decisions based on your credit rating and your track record. If you did not do well in the past, you will have trouble getting deals done in the future. ……
Meanwhile, in order to address the issue of quality concerns, we have been trying for the past several years to promote an initiative called our “Customer Protection Program.” Every shop that joins this program will have to pay a deposit for us to compensate buyers if any of them claim a loss. For example, for a shop who joins this program, we will place a notice on his store saying, “[If a] product [is] false, refund [will be] tripled,” so visitors will be more willing to buy stuff in those shops. These initiatives are all associated with economic benefits.
The other critical system is our online payment system. Just as eBay has Paypal, we have a unique payment solution named “AliPay”, something like an escrow account which perfectly eliminates buyers’ concerns about e-commerce. ……
Nowadays, many small e-commerce companies have directly adopted our AliPay system and pay a commission to us for every transaction done. Some big e-commerce companies will build up their own payment systems, with a same model and design. So far, we still have to use an escrow service in stead of direct credit card payments, which is a big difference from what eBay is doing in the U.S.
Mr. Zhang also discussed the culture of Taobao, impact of economic turmoil and other issues, please go to Knowledge@Wharton’s site to read the full text, and there is a Chinese version too.
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