Alibaba started dominating in China, simply enough, by connecting big Chinese manufacturers with big buyers across the world. Its business-to-business site, Alibaba.com, went public in 2007 (before going private again seven years later) to great fanfare. The site allowed business to buy everything from Chinese-made mopeds to blue jeans in bulk.
Alibaba’s advantage wasn’t hard to discern, and it remains the reason the Chinese tech giant’s IPO has been mentioned on every news site and TV broadcast for the past week: size.
Alibaba is just plain big, even by Chinese standards. Its marketplaces attract 231 million active buyers, 8 million sellers, 11.3 billion orders a year—and Alibaba is just the middleman. Unlike Amazon, it doesn’t host big inventories. It uses incentives for people to use its markets—not charging small sellers a percentage of the sale, for one— and keeps them coming back.
If you want a glimpse into how pervasive Alibaba is in daily Chinese life, take my experience. I moved to Beijing almost a year ago and quickly got tired of visiting small stores across the crowded, polluted city of 20 million people in search of new electronics, bathroom furnishings, and anything else my wife wanted. “You’re looking for what exactly?” my Chinese teacher asked me one day. With that, my wonderful new relationship with Alibaba began.
Alibaba’s original business-to-business model now is secondary to consumer buying. Chinese retail buying generates 80% of Alibaba’s revenue, and leading that group is Taobao, a sort of advanced eBay, with 800 million items for sale and the most bizarre selection of things you’ll ever find. (You could buy Harvard email addresses for $390, a boyfriend for $130 a day, and industrial 3M ear plugs for quiet studying for 30 cents.) TMall.com is Alibaba’s other big site, where you can find brand name goods from Nike and Unilever near the lowest prices, similar to Amazon.com.
What I have a hard time explaining to friends and family back in the U.S. is how China has leapfrogged traditional shopping—big-box retailers especially–in favor of online purchases on Taobao and a few other sites. In smaller towns than Beijing, where big retailers have not yet traveled, shopping online is shopping, and shopping is Taobao.
Amazon’s ease of use might promote binge-buying, but it’s got nothing on Taobao, which is just as easy to use (granted you read Mandarin, or have friends who do), usually includes free shipping, and includes candid reviews of a product’s quality.
Here’s a list of some of my recent purchases on Taobao for a sense of how extensive the marketplace is. Almost everything arrived a day or two after ordering with free shipping. I’m not even a big buyer, because I need friends to help me navigate the Chinese-language site. When I was searching my purchase history on my Chinese teacher’s iPad, who helps me buy stuff, I waded through about 10 of her purchases for every one of mine.
LIST:
iPad cover: $4.60
Fake Kindle-branded cover: $7.50
Christmas napkins: $2.50
A money safe (because China, annoyingly, is still a cash-based society): $35.70
Toaster: $9.50
Coffee maker: $11.20
Coffee bean grinder: $22.10
Plant fertilizer: $1.60
American-brand cat food (because my wife still doesn’t trust Chinese brands): $15
Vacuum plastic tube piece to replace broken one (for the exact same model): $1.64. $2.30 delivery fee for two.
Moped hand warmers for winter riding: $3
Moped helmets: $12 a piece
Two-wheeled cart to transport a 50-lb. moped battery: $4
Industrial chain bike lock: $11.80 Plus $3 shipping fee
Room fan: $9.50
HEPA filters for the room fan, to clean air where our top-of-the-line Swiss-made air purifier doesn’t reach: $22.90
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The promise Alibaba talks about, and why investors are valuing the company north of $160 billion, is its network effect— essentially, that when more people join, the more people buy, and the better it is for everyone including Alibaba.
The counterfeit problem seems mostly fixed because you either know you are buying fake goods on Taobao, or if fakes arrive, your money to the seller sits in escrow until you’re satisfied. If you’re not, you simply return.
Taobao is already engrained in Chinese life, and investors are considering the possibilities of monster growth to come for Alibaba because online shopping is still at relatively low levels in China, as the company points out in its IPO filing (49% of Internet users in China shop online vs. 74% in the U.S.). As more Chinese buy stuff online, Alibaba’s network should create more repetitive buyers like me.
Now, I can’t imagine life without Taobao.
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