Alibaba's Taobao CDC & the Creation of an Entrepreneurial Ecosystem - Harvard University
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Alibaba’s Taobao
& the Creation of an Entrepreneurial Ecosystem
CDC
Tarun Khanna
September 10, 2017
© 2018 Tarun Khanna
• Daily Show
– http://www.cc.com/video-clips/zkwq3h/the-daily-
show-with-jon-stewart-billion-dollar-baba
• 60 Minutes
– https://www.youtube.com/watch?v=zLZNvCDgfUA
© 2018 Tarun KhannaInspiring Trust
• Visualization of website
• Trustpass
• Wangwang
• Alipay
• (Yu Bao/ ultimately Ant Financial )
© 2018 Tarun KhannaTrust
• Origin
– Many SMEs have no way to evaluate the trustworthiness of
their trading partners
• Jack Ma, in “Tech in Asia”, March 2013
– “In the U.S., e-commerce is what I call the dessert – it’s
supplementary to the main business because the infrastructure
for doing business is already so good. It is very difficult for e-
commerce in the USA to grow, to develop, to surpass the
traditional side of business. But in China, because the
infrastructure of commerce is bad, e-commerce becomes the
main course.”
• Jack Ma @ WEF, Davos 2015
– “For e-commerce, the most important thing is trust”
© 2018 Tarun KhannaTrust contributes to Surplus Creation
• Remember, Adam Smith in Theory of Moral
Sentiments, 1759
• Markets cannot exists without fairness,
altruism, and trust
• Most decisions are made through a back-and-
forth between ‘passions’ and an ‘impartial
spectator’ (think long-term planner coupled
with conscience)
© 2018 Tarun KhannaDeveloping Ecosystem in Rural China
• Taobao Villages
– https://www.cnbc.com/video/2014/09/16/how-
alibaba-helped-this-man-out-of-poverty.html
What problem is a Taobao Village trying to solve?
© 2018 Tarun KhannaInstitutional Voids
Transaction Facilitator
Credibility Enhancer
Information Analyzer
Aggregator
Adjudicator
© 2018 Tarun KhannaBack to our Case Question:
招财进宝
zhāo cái jìn bǎo
© 2018 Tarun KhannaCosts of triggering Mistrust
User reaction
• Outrage from sellers in reaction to fees on
priority listings (tens of thousands of negative
messages)
• Why
– Hidden service, violates promise to be free
– Technical issue with pay-for-performance
contracts
• Merchant misuse: bid hi on keywords, but then list
products at hi prices. So buyers brought to website
without paying fees
© 2018 Tarun KhannaTaobao’s Response to User Outrage
• Taobao asked their customers!
– WangWang is key here
• Benefit of communication with users
– 60% voted against keyword pricing, especially
small vendors; 40% voted for it, sellers pursuing
differentiated offerings
• So zhāo cái jìn bǎo discontinued
© 2018 Tarun KhannaNew Monetization Model
Taobao Mall
• New B2C ‘Mall’ as solution
– Established Vendors enter mall with a small fee
– Smaller vendors can stay on traditional C2C
platform
• Remember that Wangwang gives information
about how to target sellers appropriately
• Taobao breaks even six months about Tmall
introduced
© 2018 Tarun KhannaTaobao and Tmall
Fast Forward to today…..
• Taobao
– Dominated by small businesses and individuals
– Gross sales generated in qtr ending Sept 2015: $69 bn
• Tmall
– Browse and Shop for higher quality items (Olay face creams and Burbery
coats)
– Gross sales generated in qtr ending Sept 2015: $43 bn but growing faster than
Taobao sales
• Focus on brand consciousness among increasingly well-
off Chinese has led Alibaba to seemingly bet on Tmall
going forward
• Where do the brands come from?
– Tmall Global links American brands to “digital China” (e.g.
Costcos found it much easier to open a storefront on Tmall
global than create its own site) © 2018 Tarun KhannaEmerging strengths and some
vulnerabilities
• Strengths
– Mobile commerce. Taobao smartphone app dominated
JD.com smartphone app 86%:5%
– (1/3 of Alibaba’s orders come from smartphones)
• Weaknesses
– TMall has had mixed success. It has raised fees and lost
some vendors even in mainland China
• Traffic on Tmall Global is a fraction of that on Alibaba's other
marketplaces: The site ranks No. 311 out of about 3,500 in terms
of popularity in China, while Alibaba's Taobao and mainland Tmall
sites rank Nos. 2 and 5 respectively
– Taobao loses in several verticals to Dangdang in books and
to JD.com in electronics
© 2018 Tarun KhannaAlibaba and JD.com
• Remember Amazon ultimately beat eBay. What
about JD.com and Alibaba? (JD.com is following more
of an Amazon model)
• JD manages its inventory and logistics and can enforce
quality much better, a ‘fact’ it has emphasized successfully
in competing with Alibaba
• JD.com: Taobao’s tolerance of counterfeits takes price
competition to an extreme extent and chases away quality
from China
© 2018 Tarun KhannaWestern and Equivalent Chinese Social Media Site
© 2018 Tarun KhannaBAT and their closest U.S. Counterparts
For FY2017 in millions of U.S. dollars, except employees
Market
Capitalization as
Total Revenue Net Income of 12/31/2017 Employees
Alphabet Inc. (Google) 110855.00 12662.00 729458.19 80110
Baidu, Inc. 13034.10 2812.64 81323.60 39343
Amazon.com, Inc. 177866.00 3033.00 563535.05 566000
Alibaba Group Holding Limited 22987.09 6343.22 442426.07 50097
Facebook, Inc. 40653.00 15934.00 512759.01 25105
Tencent Holdings Limited 36540.80 10990.21 489725.78 44796
Source: Standard & Poor's Capital IQ, accessed 8/29/2018
© 2018 Tarun KhannaThe BAT Trio
of the (mobile) internet
• Baidu (think search and Google), Alibaba (think
mobile commerce on internet, and Amazon) and
Tencent (think social media and Facebook) are
the ‘big 3’ traditionally staying in their own
sandboxes
• But emergence of mobile internet has caused
them to rush into each other’s territories
– Alibaba Group’s launch of Yu’e Bao, money market
fund, caused Tencent and Baidu to follow suit
– Similar land grab with entertainment content
© 2018 Tarun KhannaAlibaba and competition in financial
services
• Alibaba and Tencent own banks, insurers and
wealth management products and have
invested in on-demand services, so need
access to mobile wallets
• Ongoing clash in mobile payments
© 2018 Tarun KhannaAlipay & Ant Financial
• Alipay morphs into Ant Financial
• Alibaba does NOT own Alipay, the controlling
shareholder is Jack Ma (& colleagues). Alibaba
gets 37.5% of profits of Alipay (~10% of Alibaba’s
profits come from Alipay currently)
• Proposed IPO of Ant Financial delayed
– Guesstimate of market value ~$100 billion
© 2018 Tarun KhannaWhat can derail Alibaba and Jack Ma?
• Megalomania
• Governance
© 2018 Tarun KhannaJack Ma, megalomaniac?
• “If banks do not change, let’s change the banks”
…..to disrupt inefficient state-run banking system
– Fund launched by Alipay, Yu’e Bao, drew in $100
billion (maximal interest rate on 1-year term deposit
in banking system 3.3%; with Yu’e Bao get double that
and immediate access
– Banking arm MYBank competes with Tencent
Holdings’ online bank WeBank
© 2018 Tarun KhannaJack Ma, megalomaniac?
• Healthcare
– Multi billion $ attempt to create an online pharmacy giant, and
a Healthcare IT enterprise
• Another ‘small’ problem to tackle
– Environmental degradation
• And if that isn’t enough, control over media?
– Alibaba is “the biggest entertainment company in the world”
because of millions spend time on its sites looking around
– Purchase of video streaming, movie ticketing, crowdfunded film
production, and buying Hong Kong’s South China Morning Post
© 2018 Tarun KhannaWhy did Alibaba list in New York, not
Hong Kong?
• On paper, HK seems even stricter, eg no dual class
shares allowed, whereas that’s what Jack Ma wanted
and got in New York
• But New York has other ‘brakes’ on the ‘high speed’
governance
– Short sellers
– Aggressive Media (Jon Stewart show)
– (Entrepreneurial) Lawyers and Litigious culture
– Independent judiciary and prosecutors going after white
crime recently
• It’s the Ecosystem that matters
© 2018 Tarun KhannaHow Powerful can you get in China?
• China Raps Alibaba for Fakes --- Accusations of Lax
Enforcement Date to Before Record IPO; Company
Blasts Government
– By Carlos Tejada 29 January 2015 The Wall Street Journal
• Since then, mutually conciliatory noises have resulted in a détente
• When Alibaba bought SCMP, Hong Kong press expressed dismany
that it would compromise SCMP’s editorial independence since
Alibab would ultimately be conciliatory to the CCP
• Can the CCP be complacent about an entity that engages directly
with 500 million users? Open question …..
© 2018 Tarun KhannaSummary
What is Alibaba’s BIG Innovation?
• Overcoming institutional voids
– “In the U.S., e-commerce is what I call the dessert –
it’s supplementary to the main business because the
infrastructure for doing business is already so good. It
is very difficult for e-commerce in the USA to grow, to
develop, to surpass the traditional side of business.
But in China, because the infrastructure of commerce
is bad, e-commerce becomes the main course.” (Jack
Ma, in ‘Tech in Asia’ March 2013)
• How? Overcoming trust deficit in China
• Alipay, Trustpass, Wangwang, Yu’e Bao
• Building fabric for entrepreneurship © 2018 Tarun KhannaWho captures the surplus?
• Entrepreneurial Team led by Jack Ma
• Small business users, individual consumers
• Investors?
– Unclear.
• But not an army of service providers
– Migrant labor hired to deliver packages for example
© 2018 Tarun KhannaAmerican Political Science Review Page 1 of 18 May 2013
doi:10.1017/S0003055413000014
How Censorship in China Allows Government Criticism but Silences
Collective Expression
GARY KING Harvard University JENNIFER PAN Harvard University MARGARET E. ROBERTS
Harvard University
We offer the first large scale, multiple source analysis of the outcome of what may be the most
extensive effort to selectively censor human expression ever implemented. To do this, we have
devised a system to locate, download, and analyze the content of millions of social media
posts originating from nearly 1,400 different social media services all over China before the
Chinese government is able to find, evaluate, and censor (i.e., remove from the Internet) the
subset they deem objectionable. Using modern computer-assisted text analytic methods that
we adapt to and validate in the Chinese language, we compare the substantive content of posts
censored to those not censored over time in each of 85 topic areas. Contrary to previous
understandings, posts with negative, even vitriolic, criticism of the state, its leaders, and its
policies are not more likely to be censored. Instead, we show that the censorship program is
aimed at curtailing collective action by silencing comments that represent, reinforce, or spur
social mobilization, regardless of content. Censorship is oriented toward attempting to forestall
collective activities that are occurring now or may occur in the future—and, as such, seem to
clearly expose government intent.
© 2018 Tarun KhannaScience, 6199, 345: 1-10, 2014
Reverse-engineering censorship in China:
Randomized experimentation and participant observation
Gary King, Jennifer Pan, and Margaret E. Roberts
Abstract: Existing research on the extensive Chinese censorship organization uses
observational methods with well-known limitations. We conducted the first large-scale
experimental study of censorship by creating accounts on numerous social media sites,
randomly submitting different texts, and observing from a worldwide network of
computers which texts were censored and which were not. We also supplemented
interviews with confidential sources by creating our own social media site, contracting
with Chinese firms to install the same censoring technologies as existing sites, and—
with their software, documentation, and even customer support—reverse-engineering
how it all works. Our results offer rigorous support for the recent hypothesis that
criticisms of the state, its leaders, and their policies are published, whereas posts about
real-world events with collective action potential are censored.
Podcast
http://c778316.r16.cf2.rackcdn.com/SciencePodcast_140822.mp3
© 2018 Tarun Khanna© 2018 Tarun Khanna
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