Alibaba Taobao (The Complete Guide 2019)

Alibaba Taobao (2019)

What is Alibaba Taobao (2019)

Taobao created yet another miracle on the day known as the 11.11 Shopping Festival in China on November 11, 2013. On that one day, Taobao and Tmall transacted close to 35 trillion RMB in business.

 

This was nearly two times the volume of transactions conducted on the same day one year earlier when the total came to 19.1 trillion RMB. The 2013 figure represented a new milestone in the history of China’s Internet-based retail sales.

 

If the 2012 figure could be regarded as the start of the dismantling of traditional retail business, the 2013 figure of 35 trillion RMB could be seen as a key moment in the process of transforming traditional sales into e-commerce.

 

Based on the unique characteristics of the Internet, the new economic model of e-commerce was beginning the actual overthrow of traditional commerce.

 

As an industry that arose like the rising sun, this was not the first time e-commerce had been regarded as a new force for absorbing large numbers of employees. More and more merchants were setting up business on Taobao, which, on the surface of it, seemed a very desirable thing.

 

However, like the bursting of the information technology (IT) bubble a few years earlier and like today’s financial crisis, if an industry cannot find a path to sustainability, if it lacks the constant renewal of innovation and vitality, the vision of prosperity remains a far-off dream.

 

Right now, for example, the merchants on Taobao are complaining more and more about how hard it is to do business. Even though these grassroots entrepreneurs often come up with astonishing ideas and sales strategies, competition is intense in this market.

 

Many fresh ways of thinking might well get buried by such competition and disappear before you know it. Inside Alibaba, one of the long-term topics of discussion is how to unleash the entrepreneurship of these merchants and also how to make use of this initiative.

 

Taobao University, the Tmall Vendors Training Department, and a number of departments within Alibaba, including the department for developing vendors (bringing them to maturity), spent considerable time and effort on this.

 

Taobao University

Taobao University

As yet another 11.11 Shopping Festival swept over China like a heat wave, Taobao and Tmall grew another year older. From the day they were established, these two dynamic websites showed a great affinity for attracting business.

 

A number of grassroots brands had made use of the Taobao platform to grow into large businesses and open up their own territory. A number of traditional crafts, such as dying and embroidery, also found loyal customers on Taobao and created a unique kind of adornment.

 

Given increasingly segmented lines of business in China, the innovators of all kinds of unusual and intriguing endeavors found a place to ply their wares on the Taobao website. The creativity of shop owners was allowed a full range of expression.

 

Not only did Alibaba constantly stay at the forefront of innovation, but it also mobilized tens of millions of grassroots entrepreneurs to do the same. It built a free and easy “cradle of creativity” for innovators to do their thing.

 

One might well ask how it was that tiny grassroots peddlers could manage to find business opportunities in the context of fierce online competition. How could they then build themselves up to real strength?

 

What secrets lie behind the legendary stories of so many Internet companies—what are the tricks to being successful, the paths to innovation? How can other potential vendors, lacking experience and yet full of the desire to try, find a way to survive in the stormy turbulence of e-commerce?

 

In this blog, we get closer to an Alibaba that is not well known to outsiders. We look at the kinds of efforts that Taobao’s online customer services providers put into helping grassroots entrepreneurs.

 

We look at what kinds of experiments these entrepreneurs try, what kinds of successes they have, what challenges they face, and what setbacks they have endured.

 

Taobao University: Serving As Incubator for Training New Vendors

store owners

“Unleashing the entrepreneurship of store owners” is easy to say but not so easy to do. A myriad of products is now flooding markets. Products that declare that they are innovative by just sticking on a new label are simply gushing forth.

 

Consumers see such marketing ploys as “Our shop has one of a kind …” or “Custom made for you …” or “Made to order,” and what started out as interested curiosity turns into a kind of numbness.

 

Meanwhile, the real breakthroughs, the success stories, such as frozen food sold via the Internet and ethnic clothes made to order also have faced all kinds of bottlenecks and problems.

 

They have had to deal with raw materials, logistics (handling and shipping), marketing, and everything else. Alibaba is highly aware that innovation is not just a matter of having a good idea and not just a matter of carving out an innovative path.

 

It is more a matter of turning these new things into successes. Taobao University, which is described next, teaches vendors how to turn innovative ideas into reality.

 

Taobao University is a training department within the Alibaba Group that provides services specifically to vendors on the Taobao platform. It is positioned as an educational platform.

 

It provides professional training for vendors who are currently operating websites on Taobao as well as vendors who want to start a business but do not have experience.

 

From starting out with the most basic operating training on e-commerce, it has gone on to conduct offline training tours around the country, visiting 50 cities with a team that includes the most successful sellers on the net.

 

It also has gone from being a completely free public good, providing primary training, to positioning itself as an increasing high-level professional service that receives compensation.

 

After nearly 10 years of growth and development, Tao-U, as it is called, also has gone from training supply-chain logistics and transaction credit procedures to preparing people for a more strategic approach to growth.

 

Throughout this process, Taobao University has consistently held to its core mission: helping the world make money rather than making money off the world.

 

Its reflexivity is extremely powerful. It develops itself by constantly thinking about the needs of vendors.

 

It is like a patch of very fertile soil that nurtures the growth of tens of millions of e-commerce entrepreneurs and that then witnesses their miraculous successes, one after another.

 

The Source of Taobao University

e-commerce businesses

A famous line in Tang Dynasty poetry describes the effects of a gentle spring breeze that passes over the land, putting all the pear trees in bloom in the course of one evening. This elicits comparison with the many e-commerce businesses that sprang up in China at the turn of the twenty-first century.

 

A profusion of “shops” appeared on the Internet selling everything from women’s fashion to low-cost household electronics to high-cost luxury items.

 

They emerged and then hoped for a business like sunflowers facing the sun. The soil that nurtured these things, however, kept a very low-key and humble attitude. The name of this patch of fertile soil is Taobao.

 

Many people view Taobao as being akin to Wangfujing in Beijing in that it relies on its premier location. It has the advantage of occupying a unique space all by itself.

 

In fact, just as Wangfujing needs the plans of designers and the cleaning services of a host of sweepers, Taobao also needs designers to help it with the platform that supports the online operations of merchants. It needs their acutely sensitive creativity to constantly adjust its functionality.

 

Wangfujing, located in the center of China’s capital city, may have a constant flow of people, but it also still has the underlying precision of excellent management and standardized rules. Every day, Taobao’s network carries traffic that amounts to tens of millions of visits.

 

Without a highly refined set of standardized systems, all those large and small, new and old storefronts would be pouring the blood of their efforts to increase traffic out into the sand.

 

Meanwhile, as everyone knows, when e-commerce was just beginning, traditional branded enterprises kept firmly to their offline mode of operations. As a result, they were not fast enough to catch the wave of Internet sales. The large numbers of online storefronts came from the most simple and unadorned ideas of people at grassroots levels.

 

To use the words of highly qualified Taobao staff, going from 10,000 to 1 million may not have been such a hard thing to do for these grassroots shops, especially given the overall prosperity of e-commerce in that period. Going from 1 million to 100 million, however, began to make store owners feel that perhaps they lacked sufficient experience and professional knowledge.

 

They began to feel that their heart was in the right place, but they did not have everything else that success requires.

 

The question for Taobao then became whether or not to accept the cold logic of the market. Should Taobao allow micro entities to go belly up, especially if they had no way to realize their own potential by themselves?

 

Or should Taobao “borrow a ray of light” and serve as a lighthouse for them, guiding their passage, showing them how to break through bottlenecks and bravely keep moving forward?

 

The Taobao platform chose the latter course of action. In June 2007, a department called the Vendors Training Department emerged to meet the needs of the time. This was the precursor of Taobao University.

 

The Future of Taobao University

 Future of Taobao

From the day of its inaugural ceremony, Taobao University has always positioned itself as being a platform. However, Tao-U personnel say themselves that the platform as it exists today is a little like functioning under the planned economy.

 

That is, Tao-U itself analyzes what it thinks the market needs. How does it know? Generally speaking, it does so by the following several channels:

 

1. It knows what the market lacks (needs) via new training demand, as generated by advances in science and technology. For example, every time a new e-commerce operating tool is launched, there is a corresponding need to know how to manage this tool.

 

2. It knows what the market needs via changes in the demand for training in line with changes in production relationships.

 

For example, a normal online store may have one fairly singular goal when it first starts out, namely, to make money. Because of this, training must focus mainly on operations, advertising, and sales as the core subjects.

 

Once that store reaches a certain size, however, the owner may decide to do a retail business, set up a retail store, and enter into the next stage in growing its e-commerce business, so he or she then needs a higher level of training.

 

3. It knows what the market needs when changes in what consumers focus on drive changes in the demand for training. In the realm of the Internet, the way in which changes in consumer behavior drive business changes goes without saying.

 

For example, platform designers might be able to deduce the psychological needs of consumers by reviewing what consumers search for and what programs they mainly watch; these designers then guide vendors in trying to match what vendors provide with what consumers need and want.

 

4. It knows what the market needs by the kinds of questions that are asked in training sessions.

 

 For example, fairly high-level vendors may raise demands that are highly targeted, including supply-chain training, training in e-commerce branding, and so on, but demand generated by this path is relatively smaller. As online courses constantly improve, most vendors will be able to find the courses they need.

training programs

In developing training programs in the future, the platform will focus more on the needs that vendors propose themselves. Only by truly paying attention to the difficulties being faced by grassroots operations will the program be able to unleash their entrepreneurship.

 

Only by exchanging places with them and thinking as they think, standing in their shoes, will the program address the problems and resolve them, and only then will it make the whole endeavor a success.

 

Some people ask how Alibaba can have survived and prospered through all these years, having weathered the bursting of the Internet bubble, eBay’s declaration of war, and other challenges.

 

How can it keep its head up and look to the future? Alibaba firmly believes in what it is doing. It believes that being simple and straightforward leads to being great.

 

In a materialistic society that is immersed in the worship of money, Alibaba holds to its earliest belief, which is return e-commerce to commerce. Each challenge that the company takes on and overcomes is not just for show and certainly not for the sake of public officials.

 

The company’s intent is to create fertile e-commerce soil for servicing the “little trees” so that they can grow and prosper themselves. The core value concept of Ali-people—trust—runs through every action the company takes. As Ali-people say, the process of arriving at the trust is far harder than the results of achieving trust.

 

Only by gaining the trust of ever more people, however, will the company and our society has any kind of force that propels it onward and upward. In the eyes of Ali-people, each satisfied smile of a customer, each sincere word of praise, each result, each time things go as expected brings an enormous sense of accomplishment.

 

Ali-people are most glad when they can help customers improve, whether that is in small ways to increase immediate sales or in larger things such as establishing brands. The customer is core—this is what has helped Alibaba to come through hardship and see real success.

 

Maturing of the University

successful business

Seedling Stage: 2003–2007

The early period of Alibaba and the Taobao platform did not actually have many elements to it that were original inventions. In 1995, when founder Jack Ma set up China’s “Yellow Pages,” he imported the e-commerce model of the United States.

 

Later, Alibaba’s highly successful business-to-business (B2B) business, which was listed on the Hong Kong Stock Exchange, was still, to a large degree, simply localizing a model copied from elsewhere.

 

The birth of the Vendors Training Department was something Taobao did to reduce the distance that still separated China from America’s level of e-commerce.

 

In 2003, at a time when 100 or more titles on e-commerce could be found in bookstores in America, books on the subject in China were extremely narrow in focus and mostly were limited to textbooks or educational material.

 

In 2003, when eBay’s homepage was alive with the ads of major international brands, inside China, frontline brands still shrank from the idea of appearing on Taobao.

 

They did not want to set a foot in these waters. In that same year, all kinds of Internet sites were up and contending with one another. Finally, in order not to let the opportune time pass by, still in 2003, the precursor of Taobao University, the Vendors Training Department, finally declared its existence.

 

“If you want to be innovative, first copy others.” This realization was something Alibaba had practiced for many years as an innovative company. Between 2003 and 2007, the Vendors Training Department remained at a fairly preliminary stage of development. A team composed of only four people was responsible for everything it did.

 

To start out, the team selected store owners who had the particular prowess of one kind or another and asked them to describe their experience for everyone’s benefit.

 

The team was able to find vendors with whom to exchange information on all aspects of the business, including sourcing goods, photographing products, marketing operations, logistical management, customer service, and transaction security.

 

For the first few years, the Vendors Training Department trained eight lecturers. They came from the cutting edge of the market and had developed their own set of ways of doing things that covered all links in the production ecosystem. For example: How could one predict sales volume over the near term so as to have adequate stock on hand?

 

From small things, such as servicing details, to larger things, such as operating rules and regulations, everyone talked about their own successes, and everyone had a good time.

 

Meanwhile, Taobao staff who were designing the actual platform saw how these “children” (Taobao vendors) helped one another and found it hard to express their delight.

 

Growing Stage 2007

Growing Stage

Taobao realized an annual turnover volume of 43 billion RMB in 2007, and mainstream products began to be sold on the site that same year.

 

The Taobao platform seemed to have taken some of the wind out of the sails of Target and Walmart. Also in 2007, the Vendors Training Department executed an extremely courageous maneuver.

 

It had always remained behind the scenes, but now it emerged and took a team of Taobao’s most proficient vendors on an offline training tour, stopping at 50 cities around China.

 

The members of the team put up notices on bulletin board services (BBS) describing the locations of the training sessions and the qualifications of their lecturers.

 

Once vendors learned about this, they crowded into the sessions. Each of the 50 sessions was totally full. In some cities, where the room was fairly small, attendees spent the entire time standing, drinking in the lessons with rapt attention.

 

The passing along of knowledge, the enlightened understanding, the sharing of experiences, the infectious nature of the enthusiasm all put a kind of magic wand into the hands of these grassroots store owners.

 

Once the evenings came on and they returned home to wave their wands ever so lightly over their own work, the products on their online shops began to glow.

 

Still in 2007, when the sale of actual goods was enjoying a high tide, traditional forms of training also began to be affected by the spring breezes of e-commerce.

 

At the time, many cities were holding training sessions on the Windows operating system, five-stroke typing training, and computer-aided design (CAD) drafting.

 

These offline training sessions lacked a systematic approach and could not be scaled up, but the market demand for them was enormous. Clear-sighted people recognized a business opportunity.

 

They decided to incorporate skills-based training into the training systems of e-commerce. This idea galvanized the development of a large amount of skills-based training. The mutually stimulating effect among industries also proved infectious.

E-commerce

E-commerce is a very young industry, and it relies on the Internet, with new technologies as the core content. Supply and demand follow the market, while all cutting-edge, fashionable, popular things can see their reflection in the realm of e-commerce. Meanwhile, those engaged in e-commerce are mainly young people who are themselves up with the times.

 

In early 2007, some students from colleges and institutes in Jiangsu, Zhejiang, and Shanghai began to explore the idea of starting their own Internet shops. Without any place to store the goods, they stuffed them into their own bedrooms and along the halls of their buildings. Despite the tough conditions, they found a way to survive.

 

This exploratory kind of self-directed operation was not the way to grow to any kind of scale. Nevertheless, this group of college students was able to build some outstanding stores.

 

At the time, most e-commerce stores simply were lucky to meet with the needs of the times. They did not put too much thought into their own sales strategies and operating methods, but somehow or other they made money.

 

Wang Jiaying, who sold wrapping paper, said that he did not need to worry about sourcing goods because a relative of his sold paper cartons. He simply registered his shop online and began to do business. However, as more and more people began to participate in e-commerce, this became less feasible as a business plan.

 

Solitary efforts generally meant that the abilities of these sole proprietors did not match their ambitions. Sourcing goods from relatives could not become a widespread business practice, and it definitely was not a long-term strategy. Because of this, Taobao’s role in assisting these vendors became all that much more important.

 

In schools that teach professional skills, such as commercial and industrial institutes, students are taught a certain basic curriculum in such things as marketing and business operations, but this is seldom put to use in any practical application. Given this, Taobao again initiated a quite marvelous practice.

 

It decided to link up with institutes of higher education and provide students with practical training, what the company called “the last kilometer.”

 

Starting in 2007, Taobao cooperated with various schools and institutions of higher education in Jiangsu and Zhejiang Provinces. The company appointed a vendor training professor with top-line experience to teach the professors in the school and help them to enrich their courses with case examples.

 

This helped to blend theory with enlightened practice. In addition, the company provided an actual battleground for students. In actual drills, the company sharpened their capabilities and the quality of their work. The original training, which had been adapted to the Internet, was now localized and based on teaching in schools.

 

The year 2007 was a milestone for Taobao University’s own growth. The training team, like the proverbial Lushan Mountain, wreathed in clouds, had not been too willing to show its own face.

 

It now came down to the grassroots level in person and began to meet with vendors face to face. What had originally been a fairly wild and undisciplined form of training used the e-commerce platform to become a more standard track.

 

The original mode of operating by feeling for the stones as you cross the river, using college graduates as representatives of grassroots entrepreneurs, now became professionalized training. In this year, the fertile soil of Taobao University spurred the emergence of one after another and group upon group of superlative e-commerce enterprises.

 

Opportunities and Challenges Coexist: 2008

Opportunities

In 2008, however, e-commerce began to face unprecedented challenges. First, in the early part of the year, a rare snowstorm blocked all the roads, so shipping was harder than ever before. It was impossible for customers to get the goods they ordered, and public confidence in e-commerce dropped sharply as a result. 

 

On the one hand, the team dealt with an unending stream of natural disasters. On the other, it witnessed an unstoppable wave of “informatization.” In 2008, transaction volume on the Taobao platform almost doubled compared with the preceding year, reaching more than 90 billion RMB.

 

In the same year, in order to meet the rapidly expanding demand for its services, Taobao University brought its offline training to an end and formally launched an online training system that centered on an Internet-based curriculum. To this day, members of the Taobao University team are proud of this innovation.

 

Why choose to set up a highly refined online training system? The answer relates to the primary characteristics of e-commerce. Taobao vendors sit at a computer all day, handling orders and transactions, and it is sometimes hard for them to grab a block of time to go attend a training seminar.

professional expertise

Second, vendors have varying levels of education and professional expertise, so a standardized offline training program is a somewhat low-efficiency approach. Finally, it is not cheap to hold offline training in terms of renting space and finding the time, and the number of people who can be trained at each session is limited.

 

Faced with these challenges, the Taobao University team came up with its own way to deal with the situation.

 

First, the team published books and materials relating to e-commerce. In the past, educational materials in the market relating to e-commerce focused on the theoretical side and even then were limited in quantity and variety. They simply did not meet the needs of readers.

 

After 2008, Taobao University published 50 or 60 titles on e-commerce to make up for the lack of case studies and practical experience described in existing materials. Second, the team set up an online educational system.

 

They videotaped a variety of curriculums that were divided up by both subject and degree of expertise and made these available for free to the outside world. At the time, 40,000 people-times received training every day. Third, they set up a training program aimed at each job description in e-commerce.

 

For example, they provided information on what a shop owner might need to know and what each member of the staff might need to know given that the caliber and capabilities of different people would necessarily be different.

 

In designing its curriculum, Taobao University was highly attentive to different administrative levels. Starting in 2008, Taobao University, therefore, began to move in the direction of providing systematic training, making a smooth and easy pathway for the increasing numbers of vendors on e-commerce.

 

2009: Collaboration with the Higher Educational Sector

Higher Educational

The year 2009 was a year of invention. The training curriculum for enterprise-level e-commerce began to scale up, supplementing the original basic-level curriculum.

 

At the same time, Taobao University began to cooperate with 20 institutions of higher education in the Jiangsu-Zhejiang-Shanghai area.

 

Together they set up base areas for an internship. Simulating an actual work environment, they trained students in all the various aspects of the business, including photographing products, warehousing, logistics, and online transactions. The institutions working with Taobao University authorized credit for the courses.

 

For example, students of the Zhejiang Yiwu Institute of Commerce and Industry took courses over the holidays and then got credit for them. These base areas were well received by both teachers and students alike.

 

In the past, e-commerce training had been rather mysterious and unreal because students were not able to participate directly in e-commerce activities. 

 

As people with any experience in the business know, the main thing to avoid is having overly high ambitions and not enough practical experience. One of the clearest examples involves packaging and logistics.

 

At the end of the day, there are three main determinations you have to make when it comes to packaging and shipping. First, how much material you use for the packaging. The more you save on materials, the lower your packaging costs.

 

Second, the toughness or durability of your parcels. Since goods get knocked around in the process of shipping, you want to avoid loss due to damage as much as possible. Third, the speed at which things get shipped.

 

Labor costs are a production cost that must not be overlooked nowadays. Because of this, the more efficient your shipping processes, and the lower the labor costs per time unit, the lower your production costs.

 

If our classmates grasp these three things and work accordingly, they will recognize where they need to improve their performance. They can target their problems more specifically and improve results.

 

Lessons such as this in packaging and logistics were given the name “the last kilometer.” They were intended to enable the classmates to move out of the campus and into the world—to go from theory to actual practice and transition from studying to working. In 2009, Taobao University trained some 150,000 students.

 

The Year of Reform: 2010

Taobao University began an e-commerce MBA program in 2010. As we all know, in terms of academic disciplines, the field of e-commerce is regarded as being an emerging industry, and in the early period of this new profession, there was no such thing as a master or a Ph.D. degree in the subject.

computer sciences

Most people entering the profession came from such fields as computer sciences, software engineering, electrical engineering, and so on. They were not at all versed in e-commerce itself and were not adequately specialized in this one topic.

 

The MBA program was set up to provide e-commerce entrepreneurs with systematic training in such things as enterprise management, human resources, operations, marketing, and planning.

 

This was aimed primarily at Taobao vendors whose businesses were already fairly well established.

 

Taobao’s business was becoming more impressive by the day, but the team inside Alibaba faced a dilemma. When the Taobao platform was just being started, a tremendous diversity of what was now regarded as the “old vendors” joined up, and these old-timers were now feeling a certain amount of pressure from the newcomers.

 

Back at the beginning, these old-timers cast their seeds into the fertile soil of Taobao, and it was a result of their efforts as well that this fertile soil became prosperous. In a sense, they had contributed to the founding of the new nation with their loyal service.

 

However, even as Taobao prospered, whether it was as a result of their own limited capabilities or for other reasons, these old-timers were no longer the most shining examples within their particular industries. On the contrary, they were facing considerable attack from the new e-commerce generation.

 

As designers of the platform, the Alibaba team now had to decide whether or not to have some kind of internal protection that opened a backdoor for these earlier operators.

 

The alternative was to remain impartial as a third-party provider. Alibaba decided to focus on setting up standardized operating procedures that could thereby preserve the long-term health of the ecosystem. In this choice between feelings and rationality, Alibaba did not allow itself to be swayed by emotion.

 

The team coolly and decisively opted for the latter choice—setting up more objective, complete, scientific operating procedures on the platform by which all shop owners, large and small, would be treated with the same respect as long as they abided by the rules.

 

Those who most understood how to do business would be the ones who obtained the greatest rate of flow.

 

Taobao University undertook another major reform in 2010, which was to bring an end to the era of free training. It began to charge for a portion of its curriculum. Meanwhile, the platform began to transition from being a cost center to becoming a profit center. The team has its reasons for coming to this decision.

 

First, the willingness of students to pay for training was the most direct way to judge the quality of the training. If the training was inadequate, no matter how inexpensive it might be, it would not result in growing demand in the market.

 

On the contrary, if the training was truly useful to e-commerce operators, they would be quite willing to pay for it because it improved their own results.

 

In taking in fees, the pressures on and motivations of Taobao University itself would change, and the drive to succeed would become stronger.

 

Second, the importance of the training link in the ecosystem of e-commerce operations affected not only the caliber of shop owners and their degree of professionalism but also the sound operations of the entire ecosystem.

 

If everything were free, the entire ecosystem would fail to draw in more participants. From a long-term perspective, this would be detrimental to the growth of the industry overall.

 

The Organization of Taobao University

Organization Taobao

How were the teachers themselves produced?

Once the precursor to Taobao University was set up in 2003, the training team continuously amassed experience and materials in the course of offline and online training. Eventually, these materials were organized into a full curriculum with sets of lectures, classroom materials, videos, and so on.

 

The first lecturers were sourced from among normal vendors on Taobao. Each lecturer was outstanding in his or her own operating category and had garnered considerable experience in the business.

 

Taobao University provided the training curriculum to these primary-level lecturers and asked them to become familiar with standardized training content so that they could become qualified.

 

Naturally, these people were not selected at random. They had to be excellent communicators, had to have a strong desire to share knowledge, and had to have a clean record in terms of not violating any business rules and regulations. Only then were they qualified to serve as Taobao lecturers.

 

In addition, Taobao University also provided opportunities for vendors who were confident of their own operating systems.

 

Any such vendors who wanted to be lecturers could bring their own internally generated materials and training systems to Alibaba.

 

They had their own case studies and course materials and often could be the source of new micro innovations. These lecturers were called enterprise-level guides, and they were mainly responsible for Internet-based courses aimed at enterprises.

 

How Were the Capabilities of Lecturers Evaluated?

Lecturers

Giving a person a fish is not as good as teaching him or her how to fish. Giving a person a fish is easier, however, than teaching a person how to fish. How does one judge whether or not a lecturer has what it takes?

 

Taobao University adopted a democratic method of evaluation. In their initial classes, potential lecturers would be graded by more experienced lecturers and older students.

 

If their marks were not up to a certain level, they would stop being qualified to do the further teaching. Listen to the voices of the students and let the students decide on the teachers constituted the core philosophy of Taobao University.

 

How Were the Main Topics Selected?

After training courses were fully online, it was possible to see which courses were best received and then to select the ones that had received the highest number of hits. This allowed the university to discover which subjects were of most concern to shop owners.

 

Periodically, Taobao University would send questionnaires to students, asking for their opinions on courses. The students would suggest topics that might be needed and thereby elicit responses from lecturers willing to share their experience.

 

How to Incentivize Having Vendors Come to Share Their Experience?

Experience

Reading this, you might wonder why Taobao’s store owners would be willing to share their experiences. Weren’t they worried that they would starve as teachers if they taught everything they knew to their students?

 

On this subject, the members of the training team felt that openness and sharing were the bedrock of the Alibaba platform.

 

These tenets had been part of Alibaba’s core values from the beginning. Any entity that entered into the ecosystem of e-commerce could only make its own business prosper by a full personal understanding of these principles.

 

In addition, unlike the offline competition, the size of a shop or the location of a shop was not a limiting factor in online competition. Each brand had equal opportunity when it came to conditions under which it was to compete.

 

The desire to communicate on the part of each Taobao store was extremely strong. Especially when e-commerce was just beginning, each Taobao store had a strong sense of being “out there alone.”

 

If stores in the same line of business did not communicate with one another, they could easily begin to feel that they were alone out there in the fight.

 

As time went on, they would lose the urge to be competitive and innovative. As a result, these stores welcomed the Taobao University method of sharing and communicating.

 

People dealing in the same types of products, in particular, would form their own communication circle. Not only did this help to grow their own business, but it also enriched their lives —as they say, it killed two birds with one stone.

 

What’s more, online business often did not entail any direct conflict of interest. People did not try to hold back when they were sharing information. Over time, this created an extremely beneficial learning environment.

 

In point of fact, the team in the Vendors Selling Department had absolutely no experience themselves, but team members were highly acute in analyzing the characteristics of online business as well as the psychological needs of vendors.

 

They were able to create a comfortable and engaging environment for vendors. Naturally, Tao-U itself had its own set of methods by which to motivate vendors.

Such methods included the following:

 

1. The team allowed anyone to study for free if they themselves were willing to share their experience. This was a principle to be followed. Any lecturers who made particularly large contributions were given a course that was fee-based.

 

This was a bonus for voluntarily sharing their experience with others. As the English author Subona has said, “When two people give each other an apple, each one is left with just one apple in his hands.

exchange ideas

But when two people exchange ideas, each has the ideas of two people in his mind.” The more people share ideas, generally speaking, the greater is the harvest. Based on this incentive system, Taobao University attracted hundreds, if not thousands, of vendors into the system to serve as lecturers.

 

2. Offline training courses continued to be popular with vendors, and the reason was that, like CEO training in the MBA programs in China’s more famous schools such as Beijing University, Tsinghua College, Fudan College, and Jiao, people came there to study, but even more important, they used this platform to broaden their connections with the community of other CEOs.

 

They traded experiences, learned things, and made friends. Taobao University organized a similar kind of platform and provided the opportunity for vendors to get to know one another, all in the interest of spurring the growth of e-commerce.

 

3. Other than certain specialized courses for which a fee was charged, Taobao University did not charge vendors any miscellaneous fees at all, such as membership fees. To this day, the fee-based courses make up only 20 percent of the total. The concept of having a very low barrier to entry is quite intentional.

 

It provides an opportunity for those who truly intend to improve their operations. When the Vendors Training Department was set up, the various management costs in its budget were covered directly by the Alibaba Group.

 

After the higher-level courses began charging fees, any profits that were earned by this were put into operating costs.

 

From start to finish, Taobao University has been regarded as a transmitter of education. Its primary purpose has never been to make a profit. If enterprises are to grow, the heads of those enterprises must first grow themselves.

 

Maintaining this philosophy is what enabled Taobao University to motivate more and more vendors to participate enthusiastically in “circles” for common prosperity and growth.

 

The Primary Core Reason for the Success of Taobao University

Success

As the saying goes, when you do not have a gourd at hand to copy and you want to draw a gourd, all you can do is go one line at a time.

 

Without the slightest kind of blueprint to serve as a reference, the members of the Taobao University training team made the “soil” of the Taobao platform ever more fertile with each passing day.

 

From sowing seeds to watering to pruning to harvesting, Taobao University supported anything that would help the “seedlings” grow.

 

The thing team members look back on most proudly today is that they were unafraid to create new things. The team did not define any rules or regulations but instead allowed vendors to grow freely so that each member of the Taobao University team was willing to experiment and to make breakthroughs.

 

In this department, the key performance index (KPI) could not really be quantified. The efforts of the team led to an enrichment of the entire Taobao platform and its millions of vendors.

 

The team itself felt that Tao-U was a department created for the benefit of all, so the source of their happiness and sense of accomplishment came from the sound growth of each and every vendor.

 

From offline concentrated training to online direct transmission of courses, from selecting lecturers to establishing methods of evaluation and motivation mechanisms, in the early years, every step that Tao-U took was challenging to itself as well as an astonishing and courageous invention.

 

Naturally, just as Alibaba ran into turbulence and setbacks as it grew, Taobao University did not always have smooth sailing with the proverbial wind at its back.

 

Because the critical emphasis of each business period and each year was different, and because the energy of the team was, after all, limited, it was unavoidable that some projects had to be abandoned along the way or passed on to other enterprises.

 

For example, basic training is now performed by a specialized training company, whereas Taobao University focuses exclusively on enterprise training. Frequently, it is disappointing to have to give up something.

 

But the willingness of “Ali-people” to do this, to be selective over many years, to break out of constraints, and to constantly innovate, is precisely what has allowed them to stay at the forefront of the times. Their status as frontrunners has never changed. 

 

The Theory Behind E-commerce Training

 E-commerce Training

The growth of e-commerce faces a potential bottleneck. This occurs when consumer demand grows too fast for vendors’ ability to keep up with it or to keep up with the changing sensitivities of the market itself.

 

The fundamental task of Taobao University is to ensure that vendors do keep up with the pace via all kinds of training. What is the most rational and effective way to do this?

 

In theory, the team responsible for training should first clarify the purpose of and subject matter of training in advance, before creating materials. E-commerce training should combine the realities of all levels of experience as it proceeds.

 

It should apply different types and models of training for different levels of training and for the specific interests of different vendors.

 

From the preceding descriptions, it can be seen that such specialized training relies more on having first-line successful vendors share their experiences, their market analyses, and their self-evaluations through the use of internal exchange and a gradual accumulation mode of training.

 

These successful vendors, that is, training teachers, are the core strength of the entire process. They are responsible for guiding students, recommending this or that advanced concept, analyzing this or that problem in e-commerce operations, and recommending solutions.

 

The form that training takes at Taobao University elicits a tremendous interest among students and generates results based on direct perception. In the training process, the teachers can monitor the responses of students and make adjustments in the training “climate.”

 

In the course of accelerating technology development and the great enthusiasm for e-commerce, training can effectively improve the technical levels of vendors as well as labor productivity.

 

Training offsets a portion of the depreciation of labor capital because it helps students to use new technologies and equipment. The theory of human capital provides the theoretical framework for the role of training in enhancing labor productivity. 

 

Tmall’s Department of Merchant Operations

Merchant Operations

Taobao is famous for handling a million different kinds of goods. Tmall, on the other hand, is famous for handling the best of the best.

 

It is Asia’s largest business-to-consumer (B2C) platform and the apex of China’s e-commerce. Tmall has assembled most of the name-brand products of both China and the rest of the world under its roof.

 

The key to the ongoing sustainable growth of e-commerce is the sound functioning of the entire chain of the e-commerce ecosystem. As everyone inside Alibaba knows, success does not lie in any one specific link.

 

The question becomes how to improve the management, operations, and functioning of the entire e-commerce system to create an even better space into which e-commerce can grow.

 

Tmall’s Department of Merchant Operations came into being to satisfy this need. This is a training team with considerable depth. It has its own lecturers as well as senior vendors who serve as guides in helping with business development.

 

The core of the team is the Tmall Top Team. Its members apply a combination of both online and offline three-dimensional training methods.

 

The aim is to provide a highly effective training platform that can improve the operating capacities of merchants and their business results.

 

Tmall’s Department of Merchant Operations does not have that many people in it—the Tmall Top Team is run by only 4 members, the training department has 20 members, and the development system has 7 or 8 members—but it is this team of not even 40 people that guarantees the smooth operation of the entire ecosystem.

 

What Is the Tmall Top Team?

Taobao Mall

The Tmall Top Team is composed of the top 200 merchants that make up the Taobao Mall, i.e, Tmall. This group is graded according to three criteria: (1) sales volume, which is the main criterion;

 

(2) the degree to which brands are famous, with brands being divided into international brands, first-line domestic brands, and second-line domestic brands;

 

and (3) offline influence (e.g., some companies may be rather nondescript online but have considerable influence as well-known traditional brands with a solid base of the buying public).

 

These things are fairly good indicators of the potential that the company might have online. In combining these three criteria, Tmall’s Department of Merchant Operations selects companies that meet certain requirements and asks them to participate in setting up a top team.


For Whom Does the Top Team Devise Strategic Plans?

Strategic Plans

As first-line companies, members of the Top Team have a wealth of Internet store experience. They are familiar with the operating rules and regulations of Tmall. Because of this, when the team sends out guides to train other stores on Tmall, the results are similar to the Vendors Training Department of Tao-U.

 

The difference is that Tmall’s team focuses on how to grow specific businesses, whereas Taobao University is focused more on developing a particular industry.

 

The members of the Top Team are the most outstanding among the 80,000 “stores” on Tmall. As such, this team is also responsible for devising strategies for the Tmall platform itself. Tmall’s wireless presales project and its online-to-offline (O2O) project have been the fortunate recipients of the team’s expertise and recommendations.

 

To give an example, in designing project procedures, Tmall’s Department of Merchant Operations invites members of the Top Team in to discuss plans. It elicits their desires and needs with respect to what they hope the platform can provide them in the way of services.

 

A plan that includes perhaps 20 to 30 items is drafted before the group meets again for further discussions. The Top Team is seen as being a consultant for the Tmall platform, as well as being the back-end support behind the release of new endeavors to the industry.

 

How Does Tmall Persuade the Members of the Top Team to Share Information Without Holding Back?

Tmall’s commercial environment

In comparison with Taobao, Tmall’s commercial environment is more complete and sound; that is, Tmall provides a more environmentally protective ecosystem. As an environmental protector, Tmall’s Department of Merchant Operations has the function of sweeping away obstructions, eliminating bugs, and formulating rules and regulations.

 

It is only because of the incredible efforts of this team that consumers can buy things on Tmall essentially without any qualms—they know that they will not be buying fake or watered-down goods.

 

Because Tmall has consistently regarded the e-commerce industrial chain as a complete ecosystem, its vendors quite naturally have participated in its construction.

 

This applies particularly to the deeper levels of more specialized areas, where Taobao’s online customer services providers do not get involved. This deeper level of participation requires explicit considerations in terms of sharing information.

 

Does sharing hurt the interests of commerce? According to the head of the Department of Merchant Operations, the actual experience of online sharing does not, in fact, lead to the condition paraphrased as “having the teacher starve once he or she has taught all he or she knows to the students.”

 

One key feature that distinguishes online operations from offline operations is the different nature of competition. The openness and transparency of the Internet age are making all operating plans of e-commerce platforms more open and transparent.

 

For this reason, if only 1 percent of merchants share and 99 percent do not, things cannot remain hidden for long. What’s more, trust and sharing are Tmall’s and Taobao’s core tenets. They are the foundation of the entire ecosystem in which every vendor participates.

 

Will the Tmall Top Team Lead to the Matthew Effect?

Merchant Operations

Even though the Top Team is a consultant to Tmall’s Department of Merchant Operations, it is not some kind of autocratic dictator.

 

Any potential project or plan must go through a long process of discussion and exchange before it actually comes together and gets implemented. Only when the entire body passes on it is a project actually put into motion.

 

Moreover, the internal team at the Tmall platform has the final say on any project waiting to be implemented. This team ensures that there are no potential problems. The Tmall Department of Merchant Operations is itself the most important key to the gate.

 

The Matthew effect refers to the way the strong get stronger and the weak get weaker in any development process. In fact, though, as a platform, Tmall has never intentionally favored any single vendor or any group of vendors.

 

Both large and small vendors participate in project discussion meetings, and voices from all sides have an equal opportunity to be heard and considered.

 

Moreover, the main line of thinking for any project is not to protect any given enterprise or the interests of any large companies but rather to initiate new ideas.

 

Tmall has already made a deep impression on the minds of consumers as a superlative brand in itself, which is of crucial importance. To give the simplest example: if a consumer happens to purchase fake goods from a Tmall store, he or she generally becomes less upset about the thing itself than about the reliability of Tmall.

 

Tmall’s own trust is cast in doubt. Because of this, whenever any small vendor on Tmall runs into problems, it influences everyone, large and small alike. This leads to a decline in sales volume for all. Consequently, large commercial merchants are quite willing to help smaller vendors, whether out of self-interest or public utility.

 

They are happy to enable smaller vendors to create better conditions for themselves. As the protector of the environment, the Department of Merchant Operations will not intentionally adorn (decorate) the environs of any particular merchant, whether large or small. Instead, it ensures that each view on the platform is as beautiful as can be and is displayed to its best advantage.

 

Tmall’s operations are guided by the principle of creating positive competition because in e-commerce the general rule is that when one person wins, all win, and when one loses, all lose. Each vendor is a link that cannot be dismissed in the e-commerce ecosystem.

 

Only if all vendors are focused on innovation will the entire body at large be innovative. And only if the entire body advances can condition be created for the progress of each individual vendor.

 

Online Training Systems

Online Training

The entire online curriculum system of Tmall can be divided into three levels. The first is for basic merchants, a market segment that includes mainly new stores that have joined Tmall within the past three months.

 

This basic curriculum is broadcast in rounds and involves mutual interaction and communication among the new participants.

 

The second is for specific categories of storefronts, with Tmall giving online training that applies specifically to those categories. This training supports the development and growth of all categories with relevant cases, data, and models to follow.

 

The third provides training on special topics, depending on the industry or matrix within which the merchants operate. Tmall invites experts and outstanding merchants in certain lines of business to deliver courses on such topics.

 

Cases of Very Creative Tmall Stores

 Tmall Stores

Huashengji is the brand name of a company that makes Tang Dynasty–style clothing. Its entire process, from design to selection of fabric to dying is imbued with Chinese aesthetics.

 

The resulting products do not blindly follow Western trends in fashion, nor do they completely copy the original style of ancient clothing. Each aspect of the clothing, each stitch and thread, is marvelously inventive. 

 

These garments may not have an enormous market, but they enjoy a highly distinctive position in the market, one that calls to mind the national traits at the heart of the Chinese people. Huashengji is at the forefront of a movement by which commerce sparks cultural development.

 

Tmall has a number of other clothing brands that hark back to cultural themes. One calls for a return to nature and a self-sufficient lifestyle and is called South-of-the-River Clothing, Southern Style. This company advocates a return to ancient ways, to elegance and simplicity.

 

The market niche that these styles are positioned to attract is clothing for young women, but their unique quality also has the effect of expressing excellence within the Tmall Commerce City.

 

The dynamic way in which clothing has developed as a sales item on e-commerce has accelerated the arrival of an age of arts and culture in China. Uniquely Chinese elements are embodied in these brands. They display and revive the emotional appeal of art and culture via the medium of clothing.

 

Cherry: Forging a New Industrial Chain

Industrial Chain

Cherries are a specialty kind of fruit that was produced originally in the United States. The flavor of the cherry quickly deteriorates after the cherry is picked, however.

 

Because it is hard to estimate the market for such a specialty item, and because quality declines in the course of a long sales process, retailers are reluctant to carry the item, and sales figures traditionally have been disappointing.

 

Once e-commerce developed, however, a new marketing model was adopted for this fruit. While it was still on the tree, the fruit was sold via the Internet to customers who placed orders.

 

Depending on the order quantity already in hand, retailers then order the fruit from exporters. The moment it is picked, the fruit is shipped directly to consumers. This not only preserves its freshness but also avoids the high cost of warehousing.

 

Powdered milk from New Zealand has adopted a similar sales model. As soon as New Zealand’s fresh powdered milk is put on a ship, China’s e-commerce opens up channels for taking orders, and consumers begin to buy. The moment the powdered milk reaches China, it can be shipped directly to consumers.

 

Because of the existence of Tmall, people who enjoy eating specialty cherries and people who are worried about the quality of their powdered milk no longer need be concerned.

 

They no longer need to import powdered milk on their own. From the perspective of the food industry, therefore, the development of e-commerce has facilitated the marketing of high-quality goods.

 

Custom-Made Clothing

Clothing

Traditionally, having clothes made to order could take half a year before one received the finished goods. Going through e-commerce, however, and particularly through the consumer-to-business (C2B) platform of Tmall, the entire process can occur within 15 days. Say that a customer takes a fancy to something modeled in the weekly magazine Roman Style, for example.

 

She can order it online and receive the clothing within two weeks. In the past, companies would first model things in a flagship store as their marketing strategy and then shift the clothing into normal retail outlets. Finally, if it did not sell offline, they would offer it on the Internet. This way of thinking has been completely overturned.

 

The new method is a presales model of marketing that incorporates the back end of the supply chain. It radically lowers the costs of the enterprise while also giving customers more complete satisfaction.

 

Antszone—Setting Up a Highly Original Brand

Original Brand

Antszone is a brand of men’s clothing that harks back to a retro form of London style. To manufacture the clothing, the company uses only factories that produce for international luxury brands.

 

When the brand was being established, the company spent some 10 million RMB on digital marketing. The positioning of its target market niche is the fairly high end.

 

In contrast with traditional brands, it has its own clear-cut advantages because the requirements of the production and supply chain of traditional brands are quite demanding.

 

For example, they require the highest-quality materials and ease of selection while at the same time low warehousing costs, which puts many different parts of the supply chain at risk.

 

Antszone uses localized design rather than hiring expensive designers. This not only meets the needs of the market but also saves a large amount on labor costs. At the same time, the company cuts the piece goods by itself, which ensures the quality of the fabric and also saves on the high cost of having to directly purchase ready-made piece goods.

 

Slack seasons in the supply chain do not have too much of a negative impact on e-commerce. By positioning its products as low-cost alternatives, Antszone has the advantage in competing against major brands.

 

Tmall’s 90-Day Virtual Training

Virtual Training

Tmall’s Department of Merchant Operations plays the role of strategic planner and a high-level consultant to merchants on the platform.

 

Using statistical data on past transactions, the department can analyze the future development path of any given business and thereby assist in the growth of both new businesses and midlevel businesses.

 

Each entity that has either just entered or plans to enter the Tmall platform is placed in the test operations growth system of new merchants and participates in three months of training.

 

This training takes many forms. It includes the direct broadcast of audiovisual material, online curriculum material that can be self-selected, and offline interactions.

 

Class times are organized for 300 merchants at a time as an individual class. Each class has a class leader who is responsible for organizing all the operational links of the process and for providing individualized assistance to each class member.

 

Such assistance includes visiting the stores on a rotating basis and providing online advice, with different emphases for each stage of development.

 

In the first month of training, the emphasis is on the basic structure and the inner workings of the entity. This portion of the training includes deciding on product structure, pricing strategies, product descriptions, and design and display of the storefront.

 

The second month focuses on basic promotion “knacks” of the business and how to operate the storefront.

 

This includes the fundamentals of using selling tools, activity planning of the storefront, forging singular products, and interpreting basic data. In the third month, the knowledge community that the “professors” provide becomes enormous. Absorbing and digesting the information takes considerable time and effort.

 

After the course is concluded, Tmall’s Department of Merchant Operations organizes tests to measure results. Vendors who do not rise to the mark lose the opportunity to enter into and reside on the Tmall platform. This high barrier to entry allows Tmall to maintain its high level of excellence.

 

Naturally, once new vendors come onto the platform, they still go through an initial training period to help them acclimate to the environment more quickly. During this process, teaching guides go into more depth on how to connect up with other merchants in other countries.

 

They evaluate the stage of development that merchants have achieved and where any issues may lie, and then they come up with an overall plan to resolve issues and help merchants to move forward.

 

The Primary Merchant Training System

Merchant Training System

Tmall’s Department of Merchant Operations plants a development assistant into the Tmall back office or back-end platform for every vendor. This so-called development assistant is a transaction analysis tool that looks at historical data. Its main methodology employs data comparisons.

 

By comparing the data of a given merchant with data on other merchants, the development assistant uncovers the crux of issues and how to deal with them and then recommends appropriate parts of the Tmall training curriculum.

 

The data comparisons are constantly updated, so the degree to which knowledge is transformed into greater functionality is quite high.

 

Tmall’s Department of Merchant Operations now continues to move the merchant into deeper levels of operating procedures. The merchant’s growth model begins to be crafted for a more finely differentiated market niche, so different types of merchants follow different tracks of development. This allows the training curriculum to be more precisely targeted to specific needs.

 

At the same time, the online customer services providers of Tmall’s Department of Merchant Operations send out “Diagnostic Notices” on a regular basis to each merchant and provide feedback after the merchants have implemented any changes.

 

The merchants themselves evaluate whether or not the recommendations have been helpful. The enthusiasm with which merchants respond to feedback is what motivates the team in Tmall’s Department of Merchant Operations.

 

Primary-considerations merchant training is a training system that centers on what are called sectors. Tmall’s Department of Merchant Operations needs to link together all categories of sectors and, on a periodic basis, design guidance classes for primary considerations.

 

Merchants are specially grouped according to characteristics, and their conditions are evaluated so as to move their training in the direction of “platformization.”

 

This then allows for the resolution of a much greater number of similar issues. The primary-considerations efforts of Tmall’s Department of Merchant Operations are focused in this direction.

 

The Top Assault Team is the highest-level “business institute” to conduct skills training within Tmall. This team brings together the most outstanding talent, including visual designers and people engaged in marketing and promotion, clothing-profession managers (CPM), back-end and customer services managers, and so on.

 

People who serve as lecturers in this institute are all highly experienced category professionals. For major vendors who sell well-known brands, Taobao online customer services providers also provide onsite services to encourage and establish long-term strategic partnerships.

 

Differences Between Tmall and Taobao

Taobao platform

The Taobao platform currently services a massive number of vendors, that is, on the order of 6 to 8 million. The industry categories included in this community are highly diverse, and there are thousands of variations on how to develop more finely segmented industry categories.

 

Because of this, the platform itself is like a loosely organized free market with a relative lack of supervisory control and guidance. In contrast, Tmall has consistently held to the principle of concentration. The Tmall platform services around 80,000 vendors and is positioned to guide extremely important brands toward markets.

 

First, Tmall places a strong emphasis on restricting the number of product categories and on quality control. When too many of a given category of goods appear on the platform, the platform itself intervenes to prevent large numbers of similar vendors from engaging in low-end price competition.

 

Second, Tmall absolutely will not allow for counterfeit or watered-down goods. The moment it discovers any kind of inferior product, it dispenses extremely severe punishment.

 

This is one of the primary ways in which Tmall’s Department of Merchant Operations serves as a guardian of the environment and fulfills its responsibility to help merchants grow.

 

Taobao’s Department of Vendors Development

Vendors Development

Like Tmall’s Department of Merchant Operations, Taobao has a Department of Vendors Development. In Taobao, this is actually also called the Department of Vendor’s Operations.

 

Using the terminology of its highly qualified staff, what this department aims to do is cultivate an environment that is most suited to the survival of grassroots shops.

 

The idea is that in times of increasingly fierce competition, such as today, vendors first have to find a way to survive before they can begin to talk about innovation. Only then will they have enough real strength to innovate.

 

Taobao’s Department of Vendors Development includes the following six main divisions: basic services, transaction services, tools services (such as decorating the shop, placing illustrations, and so on), evaluation services, quality-control (standardization) services, and notification services.

 

Each division handles its own duties and puts its efforts toward helping Taobao vendors survive and grow.

 

It is not hard for those who frequent the Taobao site to have the sense that

 

Taobao is increasingly chaotic, with new sites popping up like mad. On the eve of the 11.11 Shopping Festival in 2013, each individual category of goods had dozens and sometimes even hundreds of shop brands from which customers could select products. A multiplicity of products aims to incite consumers to buy.

 

As with promotion events, marketing efforts are highly creative and successful. One can flip open any Alibaba Research Institute data report and see that batch after batch of statistics reports good news.

 

By June 2014, the number of vendors in the category of annual sales of under 100,000 RMB had increased by 60 percent, the number of vendors with sales between 100,000 and 1 million RMB had increased by 30 percent, and those with over 1 million RMB in sales had increased by 33 percent. Now at the single-million level, a double-million sales target plan on Taobao can be expected soon.

 

In May 2012, Taobao had 5,964,460 online vendors. Once the site was reformulated, publicly announced figures disappeared forever, but in the course of interviewing Taobao staff, we learned from internal sources that the current number is now around 8 million.

 

Given that the platform embraces everything, it is impossible for Taobao to be as refined and as strict as Tmall.

 

It cannot have a handle on each and every vendor that either intends to reside on the platform or already has taken up residence.

 

The Department of Vendors Development in Taobao, therefore, has to formulate rules and regulations that are more universal and flexible in how they are handled, as well as being more human-oriented.

 

That is, the department has to provide services that are aimed more at typical shopkeepers. It also has to “wash out” single traditional products that are redundant in order to enable those that are truly creative to prosper and to allow the truly innovative vendors on the Taobao platform to grow.

 

In 2012, Jack Ma emphasized two points in a speech at China’s National E-commerce Conference. First, he said that Taobao would be reducing intermediary links and allowing vendors to have direct contact with channels.

 

Second, he said that the company would be training 1 million vendors with an annual sales volume of over 1 million RMB.

 

This is where the double-million plan came from, as mentioned earlier. In January 2013, as Jack Ma had confirmed that he would do several months earlier, he decisively split up the Alibaba Group into 25 separate business groups.

 

This second reorganization of Alibaba’s structure elicited widespread guessing on the part of the outside world.

 

Did Jack Ma’s so-called reduction in the number of intermediary links indicate that Alibaba was going to be delegating authority further down the line, that is, relinquishing some control? Was the reduction of the role of third-party platforms going to lead to a rebuilding of trust between buyers and sellers?

 

Would supervisory regulation of stores be stricter or looser? What was Taobao hiding when it dreamed up this series of reforms? Given the massive number of vendors, was Taobao really intending to release control, allow for more freedom?

 

Let us move closer to the Department of Vendors Development, which is so intimately connected to the growth of entrepreneurs, and see what it all means.

 

What Is the Department of Vendors Development Up To?

Vendors

Located in the International Building on West Lake in Hangzhou, the Department of Vendors Development occupies more than half of one entire floor.

 

As Ali-people move briskly through the halls, there is always a race to grab an empty conference room. The heat of the action is not any less than the heat of a scorching summer day.

 

It is still July 2013, still half a year away from the 11.11 Shopping Festival. Members of the Department of Vendors Development are already discussing their plans.

 

They are coordinating the participation of various vendors, formulating price regulations, and handling a myriad of major and minor details.

 

In accepting an interview, Fei Qing mentioned that the kinds of things the department has to handle are so diverse and multitudinous that it is almost impossible to sort them out minutely, but their ultimate goal is the same as that of Taobao’s vendors—to set up a “high-efficiency, environmentally protected” ecosystem. 

 

People who like Taobao will easily discover that discounts are the “sharp weapon” of the great majority of small and micro vendors when they want to spur sales.

 

Certain brands that established themselves early on and are now of considerable sizes, such as Weidu Clothing and Qi Gege, do not practice discounting, whereas the branded flagship stores that first developed offline are also an exception to this rule.

 

The unending price wars of most vendors, however, not only force smaller entities to lower what are already quite low costs, but they also force new stores to confront tremendous risk. Everyone madly tries to make a quick hit by marketing specially priced packages of things and engaging in other sales promotions.

 

They hope to make money off sheer numbers of hits. As the number of vendors on the platform keeps increasing, however, using price alone to stimulate sales is not sufficient to keep a small vendor alive, let alone enable him or her to be profitable over the long run.

 

Online operations do not have to pay rent, but vendors nevertheless cannot expect much income if they do not promote their goods. Discounts and promotion fees lower the profitability of most of these online stores.

 

Everyone had told him that the clothing business enjoys explosive profits. Often, you can price a piece of clothing at two or three times your cost. If you look more carefully at the costs, however, you become dumbfounded.

 

In this business, average promotion fees take up 10 to 15 percent, and then there are the costs of warehousing rent and utilities and the salaries of staff, plus all the miscellaneous fees. If you cannot control your inventory rate to 10 percent or lower, then you absolutely are experiencing a loss.

business

As business on Taobao becomes harder to do and small vendors complain that they cannot survive, medium-sized vendors complain that they can survive but cannot make any money.

 

This is the kind of situation that motivates the team members of the Department of Vendors Development. Innovation and reform are not necessarily something one does intentionally. Instead, they are forced on one by the environment.

 

If the Taobao platform does not innovate, does not reform, does not listen hard to the voices of tens of millions of Taobao vendors, it will find it hard to realize any kind of long-term healthy growth.

 

As the saying goes, “The rising water can lift your boat, but it also can overturn your boat.” Behind the string of Taobao’s astonishing statistics is a host of problems and loopholes that have to be dealt with.

 

If they are not dealt with, and Taobao’s stores find one day that they have no place to “live safely and securely,” consumers also will find that they no longer have the fastest and most effective way on Earth to purchase goods.

 

In short, the great ship of Taobao looks terribly grand and mighty, but if it loses the support of its vendors, it is no more than a fragile reed floating on a vast ocean. It can be swamped by a wave at any time and go under.

 

The day vendors depart is the day the wellsprings of the company’s business dry up. To ensure sustainable development, it is imperative for Taobao to engage in innovation and reform. How this takes place then becomes the question.

 

The chief inspector of the Business Development Department, Zhan Lu, says that all the departments of the Taobao platform and vendors communicate with one another to varying degrees, but from a macro perspective, there is still the issue of whether the platform’s role should be one of control or just keeping things in order.

 

He feels that at the present time there is too much control and too little just keeping things in order. He feels that the company’s current perspective is not looking out far enough to the future, that there is too much emphasis on the near term and on short-term profits.

 

This is why reforming the rules of the game has now been put on the agenda at Taobao.

 

In announcing the reform that Taobao would be undertaking in 2013, the term loss of control came up. The reason for this was Taobao’s decision to gradually extricate itself from the nursemaid-type of management.

 

To cut the excessive amounts of money merchants were blindly paying to buy advertising positions, to curb the endless price wars, and to keep vendors from paying too much to improve their search engines, Taobao decided to undertake major reforms.

 

At the same time, relaxing controls over traffic (quantity of flow) and over rules and regulations represented almost a kind of suicidal behavior because it should be recognized that traffic is Taobao’s primary source of income at this stage.

 

The reason for putting such major determination behind carrying out these reforms can only be that Taobao had discovered its own inadequacies.

 

The goal of “reaching 2 million storefronts within three years” may at least be getting closer. By 2014, Taobao may reach 1 million storefronts, with each conducting an annual volume of over 100,000 RMB in business. At present, however, there are only some 400,000 storefronts.

 

The entire business plan of the Taobao platform will now focus on overall structure and the soundness of vendors, which will help to stimulate overall sustainable growth.

 

I myself believe that doing these things this year is pretty much the baseline. I hope that by revamping our awareness, we can accomplish things to buttress our position. The first step is listening closely to what vendors have to say.

 

On July 17, 2013, several dozen typical Taobao vendors gathered in a restaurant on Wener Road in Hangzhou, where they held two days of closed-session meetings.

 

They discussed new marketing strategies and ideas and tried to create effective channels of communication with responsible people in the Department of Vendors Development.

 

The Taobao platform may have provided them with an opportunity to found a company, but it did not create a whole set of diversified mechanisms that allowed them to grow.

 

Taobao’s Annual Report had pleasing growth statistics that relied on some of the stronger large vendors and on a constantly increasing stream of entrants into the vendor community, but were these new entrants truly seeing any growth?

 

The Economic Observer selected over 100 Taobao small and micro vendors for purposes of conducting a survey. The survey discovered that 90 percent of the vendors had been in business for fewer than three years, whereas 60 percent had been in business for fewer than two years.

 

Nearly 30 percent had been in business for less than one year. These figures clearly indicate that most entities in the “cradle” of Taobao are mere infants. It will take quite some time before they establish their own credibility and credentials. This presents new demands on Taobao as it seeks to help vendors grow.

 

Helping vendors grow is easy to say and hard to execute, however. Vendors are bound to take different routes as they develop, given their different sizes, lines of business, business concepts, and ideas on how to sell. One single department cannot handle it all.

 

As Zhan Lu explains, Taobao hopes that it can communicate more closely with vendors and understand their demands in three ways: (1) opening the channels for greater traffic, (2) setting up rules and regulations for transactions, and (3) conducting customer evaluations.

 

It then can undertake more individualized reform of its own services. Taobao is the cradle for entrepreneurs—particularly for those who exemplify the phrase “Small is beautiful.” Each new grassroots storefront manager setting up his or her shop on Taobao will face a host of difficulties as he or she develops.

 

This is particularly true in the “baby stage” of development, so the role of the cradle becomes that much more important.

 

For the short term, the Department of Vendors Development is focusing on several basic-type projects, including opening up (releasing) the appeals process of vendors’ basic rules and regulations, on fully rolling out the vendors’ basic authentication, and on integrating its operating platform with vendors’ basic products.

 

What Kinds of Things Is the Vendor Development Team Actually Able to Do?

Development Team

Zhan Lu says that there are three things the team should seek to accomplish in helping vendors to grow. First, the team should improve Taobao’s operating rules and regulations and clarify its appeals channels and its system of penalizing vendors for misbehavior.

 

As the saying goes, “Without a measuring device, you can’t measure the circumference.” Without any rules (measuring devices) on Taobao, one cannot know where the boundaries of proper behavior lie.

 

If Taobao intends to have millions of vendor-citizens living peaceably within its “kingdom,” it has to formulate laws for that kingdom. It has to reward good behavior, punish misbehavior, and make it very clear where the lines lie. Only an environment that promotes upright behavior can nurture shops that are creative and unique.

 

As it draws together the opinions of all vendors, therefore, Taobao also must constantly improve and refine its own rules and regulations. Otherwise, as shops increase in size, some dragons will unavoidably rise up among the fish.

 

Taobao has a kind of “tiger blocking the way” to such things as vicious price wars among vendors, as well as keeping them on track in terms of fraudulent behavior.

 

Because of this, in the second half of 2013, the team opened up an “Appeals Entryway” for all members that categorize misconduct into 12 different types.

 

Actions required before Taobao is able to initiate this appeals service include a whole series of actions such as training staff, setting up procedures, interfacing products, and so on, as well as setting up the actual mechanisms for making appeals. Handling appeals is new territory for Taobao.

 

In the second half of 2013, it worked with the Standards Department to push the effort forward. Staff members attempted to make the appeals process more human-oriented by setting up a bridge for direct communication between sellers and buyers.

 

Moreover, by resolving some sellers’ issues, such as infringement of rights, they moved toward a more standardized (regularized) Taobao platform, eliminating unscrupulous stores and suppressing vicious and antimarket competitive behavior.

 

Second, Zhan Lu says that the team should seek to ensure that authentication of vendors is a transparent and thorough process. Vendor authentication was something that was first proposed in 2012.

 

It started with Alipay A-type authentication. Every consumer who paid for a transaction via Alipay had to use his or her own household registration number to guarantee authentication.

 

In 2012, the Vendor Operations Department carried out authentication of 100 percent of new vendors, which lowered the cheating and swindling behavior of vendors by between 60 and 70 percent. When new vendors now register to be on the Taobao platform, they first encounter authentication mechanisms.

 

These are something akin to abiding by the rules and regulations of the platform, so accepting them should be fairly easy. However, long-term vendors on the platform have no such requirements. Implementing the same procedures with them in too precipitous a fashion might incur negative feelings.

 

What Taobao has done, therefore, is to adopt an incremental method of sequential authentication. During the interview with Zhan Lu, he mentioned that the company hoped that authentication would cover 60 to 80 percent of existing vendors by the second half of 2013.

 

The next step will be the vendor authentication and market-entry procedures for B-type market groups. When 60 to 80 percent of C-type vendors are authenticated, they can be certified as B-type vendors by following B-type authentication procedures.

 

Third, the team should create products that enable the smooth operations of vendors. These can include such applications as white-listed lists of names, black-listed lists of names, vendors’ market-entry procedures, information sending, and so on. These can be embedded in Taobao’s management products.

 

The team is currently intending to comb through all the Taobao platform’s various rules and regulations to help vendors grow. It intends to see if there is any potential for relaxing some rules. It intends to do everything possible to create cordial relationships between the platform and vendors.

 

By taking advantage of this good news, vendors can feel that Taobao is warmly inclined to their well-being.

 

The number of new vendors has increased sharply in the past two years, but accompanying this rise has been an increase in the number of vendors with “evil intentions.”

 

Standardizing the rules and dispensing punishment are concerns that Taobao is highly focused on as the next step.

 

In terms of being both concerned about and firm with vendors, this year Taobao also intends to conduct an experiment with new vendors.

 

Online products will be integrated with offline training, with the intent of enabling vendors who have just come onto Taobao to understand just what kind of company the Taobao platform is.

 

They should understand its rules and regulations and learn some basic operating and marketing skills so that they are equipped with advantageous tools.

 

The second innovation is to make certain breakthroughs in channels of communication with vendors. Currently, there are already fairly diversified channels that enable the platform to communicate with vendors, including an internal e-mail system, the information center, and others, all of which are widely used.

 

However, given the mixed nature of the channels, there are often redundancies in how information is collected and managed, which lead to low efficiency and high costs.

 

The Department of Vendors Development, therefore, is now putting its efforts into consolidating the existing channels into one communications platform.

 

The third innovation is to create an overall trends-analysis product that looks at vendors’ structures and the distribution and direction of flow lines.

 

The thinking right now is to design a product that will see whether or not there is a correlation between the internal structure of Taobao’s vendors and matching trends in traffic. This idea is currently being discussed with the B1 Commercial Intelligence Group and the B1 Market Group.

 

All these things, the three basic efforts, and the three potential breakthrough ideas are an indication of the core values of the Department of Vendors Development.

 

Because Taobao aims to be a superlative manager with a high degree of professionalism, because it is putting its efforts into helping grassroots vendors be innovative, it must first become a successful innovator itself.

 

So far, it has done this and is continuing to work at the process. It is highly attentive to every micro change to do with vendors, is concerned about setbacks and obstacles that vendors face, and is glad for each time they innovate and are successful. Taobao resides in the same space as vendors and is codependent on them.

 

What Is the Greatest Challenge to Growing Vendors?

Growing Vendors

The Department of Vendors Development on the seventh floor of the Western Lake International Building is bustling and full of people every day. From morning to night, people work as a hive of diligent bees.

 

As a department with the most intimate connections with vendors, it also is a department that faces unprecedented challenges. Zhan Lu says that the greatest of these is to ensure that people from different departments struggle together toward the same goals.

 

The ideal situation would be to have a balance between short- and long-term goals. Nevertheless, members of the team often feel a strong sense of being pulled in one direction.

 

“We are a horizontal-type department, which is to say that we have lateral connections with all the different teams in the company, customer service, network security, sector categories, rules, and regulations.

 

Within the department, we also have lateral connections. So we are in a fairly good position to communicate effectively on behalf of the needs, or the hopes, of others.

 

We can get hold of the key points other people are making and meld the key issues of different departments together to create an engine that pushes the network forward as a whole.”

 

At the same time, the demands on people are quite high in terms of their ability to coordinate communications and their capacity to organize projects. This year, the department hopes to conduct training of project managers and to upgrade the capacities of Taobao’s online customer services providers.

 

For the Taobao online customer services providers in the Department of Vendors Development, the sense of accomplishment they get is often not the same as such providers in other departments. The services they perform do not have an impact that can be seen directly on the bottom line, as with other types of projects.

 

Although all are doing work that relates to the fundamentals of the business, many times those in the Department of Vendors Development feel that they cannot “raise a pole and actually see its shadow.”

 

This is not to say that when the online customer services providers issue a “war report” or when an issue regarding an appeal and punishment for breaking the rules is completed in terms of quality that it will have an effect on GMV.

 

It is hard to predict with any accuracy which vendors will produce the most notable influence. Therefore, the sense of accomplishment and the motivating force of the online customer services providers come first from changes on the vendor end of the business.

 

Does the Department of Vendors Development Engage in Special Support for Certain Groups of Vendors?

Generally speaking, the Taobao Department of Vendors Development Group does not explicitly go out to support this or that group of vendors or buyers.

 

In the early period of setting up the Taobao platform, in order to support the independence and self-reliance of small vendors as they established their businesses, in its “early sprout” stage, the platform may have tended to guide traffic in a certain direction.

 

The Department of Vendor Development also provided vulnerable groups with special treatment, including disabled people and single mothers. For example, for a period of time, it opened up a unique domain just for them.

 

In doing this, the platform was seeking to encourage more people to found their own companies. It continued to engage in this public-service-like behavior for quite a long time.

 

Through preferential market-entry procedures, rules and regulations that lowered the barriers to entry for certain groups, opening up channels of information transmittal for vendors, designing a more detailed platform, and so on, Taobao set its sights on enabling more entrepreneurs to enter the e-commerce age.

 

A Case Study Regarding an Innovation of the Department of Vendors Development

Vendors Development

Many Taobao merchants do not have any concept of the importance of brand protection. The Department of Vendors Development recently launched a new project called the Tao Mark Project, aimed at helping vendors to forge their own brands. Each vendor is given an opportunity to rebrand itself, but it cannot duplicate anyone else’s name.

 

Taobao is going to set up a connecting tool that starts with the name of the storefront and then enables direct passage on through to the store. This is based on each individual Tao mark that buyers and sellers establish.

 

Vendors have exclaimed that this is a marvelous thing to do, the most basic way to enable vendors to lead peaceful and happy lives. There are several reasons for designing this project.

 

First, it is hard for vendors to promote their own brands on the platform. This is true especially for small brands that were born online. Those that are highly inventive and of excellent quality may well run into counterfeiting, plagiarizing, and so on, making it hard for them to operate properly and indeed to survive.

 

Even the best storefronts need fertile soil to grow, so the Tao mark is intended to serve as a kind of fertilizer for that soil.

 

Second, consumers can easily find that “fish” and “dragon” brands are all mixed together on Taobao. That is, in making their selections, they may choose something that seems to be similar on the outside but is a product of inferior quality.

 

When this goes on for long, it degrades the confidence that consumers have in the products. This is why stores must do all they can to protect and preserve their own marks and their own brands.

 

Third, the naming of storefronts is not standardized in any way. Some are highly elaborate in that they string together the names of several other well-known brands in order to catch the attention of search engines.

 

They use this as their ID (registered status). This can be very inconvenient for consumers when they are trying to buy the originals.

 

Fourth, intellectual property protection that has antipiracy applications embedded in it is needed. Functions should be carried out in a more digitized way, with sales in real time with authenticated old customers;

 

with individualized search, and with systemic differentiation among categories of products and labels (brands), functions that address the interests and likes of consumers and that can segment them into finely differentiated markets.

 

This involves a communications channel that allows vendors to connect with and influence buyers, for example, Wei-tao, WeBlog (China’s blog site), purchasing carts, and so on.

 

A Samples Room

Samples Room

In the words of Yu Yan, the concept of a samples room is even more marvelous. Prior to this, vendors were often stumped on how to categorize their products to attract the most traffic. To resolve this, Yu Yan is in the process of experimenting with a method whereby vendors can get around this kind of traffic issue.

 

She hopes that Taobao will be like other houses in the future, in that consumers can select products by looking at samples in a sample room and then, based on the number of the product, go to a warehouse to pick up their goods.

 

With a samples room, the things the vendor has to deal with are simplified. The vendor must consider ways to make his or her own part of the samples room more attractive. This can be done by the vendor himself or herself, or the vendor can hire others to do it, including Taobao.

 

In the end, the consumer sees his or her “treasure” in the sample room, which thereby relieves the vendor of struggling with the question of how to categorize products so as to get the most traffic.

 

Platform Strategies and the Long-Tail Effect

 Long-Tail Effect

Many members of the Alibaba staff believe that the Taobao model is a kind of long-tail model. How is this long-tail effect manifested in the e-commerce industry? Before getting to the main menu, let us give you a few appetizers and first describe the fundamental concept behind the long-tail theory.

 

Most readers will have heard of the 80/20 principle. This 80/20 rule also has been called the Pareto effect because it was first suggested by the famous nineteenth-century Italian economist Pareto.

 

Later it became one of the main concepts in the field of management sciences. At the outset, Pareto was attempting to use the 80/20 rule to describe and explain certain features of the social structure.

 

Later, in the course of doing further research, he discovered that almost all economic activity conforms to this law: 20 percent of the core customers contribute 80 percent of sales volume, 20 percent of stellar products contribute 80 percent of profits, and so on.

 

However, unlike the offline traditional way of doing business, Internet-based marketing and sales are exhibiting a more extreme variant of this law, namely, the 98 percent rule.

 

Unlike the 80/20 principle, this new phenomenon may be completely unfamiliar to most consumers. The general theme is the same as the 80/20 rule, and it has provided quite some inspiration to many in e-commerce. 

 

Many so-called nonmainstream vendors have found a niche in which to survive on e-commerce platforms. As an academic research report looking at book sales on Amazon described, “98 percent of the first 10,000 books on the best-seller lists sell one copy every quarter of the year.”

 

With a limited number of racks and a limited number of windows, the only intelligent thing to do is to give space to the most popular items.

 

To get ready for the arrival of the 11.11 Shopping Festival, many vendors redecorated their storefronts.

 

They put explosively hot items in prominent positions. In research on the market for Internet sales, scholars use the term superstar effect to describe this phenomenon.

 

It represents a kind of concentrated consumer model; that is, a few items are extremely desirable and occupy the greatest share of sales. However, most of us need more than just hot items.

 

Each person’s taste has areas that differ from the most popular commodities on the market. What’s more, the more options we have in choosing different things (niche products), the more we are attracted to self-benefiting things. As production technology develops, the percentage of self-benefiting goods will swiftly move up in the index ranking.

 

High-efficiency digital publicity, massively powerful search engines, and the way in which broadband has penetrated life to an extreme degree are coming together to form a kind of force that improves information on products and allows for greater choice in e-commerce markets. This provides opportunities for very specific products to be discovered and purchased.

 

The explanation of the long-tail effect is actually a part of the economics of abundanceWhen bottlenecks between supply and demand begin to disappear and all products become available to people, an economy will naturally experience the long-tail phenomenon.

 

If you take enough nonhot items and combine them together in one place, in fact, you can create a large market that could be described as the equal to the hot-items market.

 

Kevin Laws, a venture capitalist who has served as a consultant to the music industry, puts it succinctly: “The greatest wealth can then be generated from the smallest kinds of sales.”

 

We can think of our sector of the economy as being a vast ocean with hot items sticking up like islands above the surface of the water. We can also think of lower operating costs as a kind of lowering of the level of the water itself or as a retreating wave.

 

As the water recedes, new land is revealed. It was there before but hidden under the surface. The richness and diversity of the world under the water are far greater than that above the surface. That richness is composed of niche products.

 

After describing the long-tail effect both directly and via analogies, we would now like to see what this theory implies by tracing it back to its roots.

 

Chris Anderson first created this term of art long tail. His article entitled, “Long-Tail Theory,” published in the October 2004 issue of Wired magazine, quickly became the most quoted article in the history of the magazine.

 

Anderson arrived at three major conclusions. First, the long tail of product categories is much longer than we imagine. Second, there are now effective means by which we can develop this long tail.

 

Third, once all niche products are grouped together, they can create a very sizable major market. The long tail actually refers precisely to those dark-horse products that have been overlooked and that are looking for a sales platform that is appropriate to their needs. Once they find that platform, they bring together astonishing demand statistics.

 

New Markets

New Markets

By being sold on the Internet, more of such niche products can satisfy the diverse preferences of consumers. Therefore, they have the potential to surpass the stellar products marketed via traditional channels. Both supply and demand play a role in generating the formation of the long tail.

 

On the supply side, the main factors include increasing the accessibility of products as well as their diversity. All kinds of products are filling the Internet’s essentially unlimited shelf space for products. The way products are made to order and the fact of digitization have radically lowered both production and retail costs.

 

Enterprises involved in this unlimited shelf space have already realized one of the principles of creating sufficient critical mass—a very large number (the number of products in the tail) times a relatively small number (the sales volume of each product in the tail) still equals a very large number. What’s more, this very large number can only get bigger.

 

The efficiency of these myriad scattered sales is that they are low cost. Because there is no rent for shelf space on the Internet, the more niche products are sold, the greater is the benefit. Profits are no lower than and can even be greater than those of more popular products.

 

A flourishing tail market can provide an astonishing number of products and can provide customers with far greater options from which to choose.

 

Successful devices to consolidate the tail need not only dark-horse products, but they also need hot products. If you are positioned only in the head territory of products, you will soon find that customers have many more needs that you cannot in fact satisfy.

 

If you only have tail products, customers lose their way because everything you provide for them to choose from is unfamiliar. Products must range across the entire spectrum of diversity.

 

They should extend from the most popular products with broad appeal to specific goods with the very narrow appeal.

 

Only then can information be organized in such a way as to indicate a path that has meaning for all people, namely, a path that explores the tail.

 

On another note, allowing for total spontaneity in choosing hot products may not necessarily be appropriate for all people. Product segmentation and then remixing may be a more successful strategy.

 

Umaer Hake calls this microchunking, that is, dividing a particular area of content into different components (microchunks ) so that all people can use whatever methods they choose to consume it or, alternatively, mixing the content together with other things to create new content.

 

We have already seen this trend in highly segmented products and branding. An example would be how a certain shop on Taobao sells iPhone5s.

 

This is done according to the Internet provider (either Unicom or Telecom), according to the cell phone color (e.g., gold, deep-space gray, or silver), by the menu available on the cell phone (i.e., selections from 1 to 7), by the internal memory of the phone (e.g.,16G, 32G, or 64G), by services (e.g., insured by Nationwide warranty, one year warranty, or remote service), and so on.

 

These are all listed out as possible combinations. Each new combination can use different transmission networks and can come into contact with different customer groups.

 

If the number of items is numerous and demand for each is low, this reflects the fact that consumer demand is fragmented because the customer base of the Internet is, in itself, fragmented. What’s more, user demands change very quickly (equivalent to the fragmentation of time).

 

As a result, Internet purchasing generally displays certain characteristics: small quantities, diverse varieties, large range, and enormous capacity (virtual shelf space). Alibaba has already given birth to an e-commerce market that is on the order of 1 trillion RMB. Within five years, this is expected to reach 10 trillion RMB.

 

The Taobao platform alone has over 6 million vendors. It has 100 million individual user visits. This is much greater than the traditional market—for example, the famous market within China called the Yiwu Small Commodities Wholesale Market has only some 60,000 booths.

 

On the demand side, the main factors include the wealth of online information about products, including consumers’ evaluations and recommendations, as well as the powerful search and selection tools available on e-commerce websites. In slow markets, you have to guess in advance what things are going to be best-sellers and promote those.

 

In flourishing markets, all you need to do is throw a product out there and let the market itself decide on what to buy. The distinction between a filter performed in advance and a filter performed after the fact lies in the distinction between forecasting and evaluating. The latter is always going to be more accurate than the former.

 

The great advantage of the Internet is that it can make use of the evaluating capacity of group intelligence. Because of this, it harbors unlimited amounts of information.

 

The Internet can grade things into levels or classes on an objective basis, and it can evaluate things subjectively through descriptions. This makes it easier for people to compare the advantages and disadvantages of products and transmit their likes and dislikes to others.

 

Long-tail e-commerce truly sees consumers as living flesh-and-blood people. With a large-scale custom-made system, consumers no longer need to bow before mass-commodity products that are all the same. What the wave of individualism is in fact revealing is the emergence of consumer power.

 

The individualization of products and services and their enrichment, the more efficient allocation of resources (green-ification and conservation of resource consumption), exploiting the potential of consumers, and so on all have been stimulated.

 

Instead of being large scale and standardized, demand is becoming an individualized and high value. The satisfaction and enrichment of individuals are, in themselves, generating greater personalization.

 

They are making things more human-oriented. However, simply supplying more varieties of the product does not change demand. Consumers must have ways to find the kinds of products in which they have a special interest or need.

 

A whole series of tools and technologies can now effectively take care of this, from automatic recommendations to the ranking of products. These filters can push demand toward the end of the tail.

 

Widely used Internet user response systems allow consumers to share their feelings about and experience with Internet-based purchases. These have therefore expanded the use of public opinion and made it more automatic. However, research has discovered that the role of public opinion is not unified when it comes to different trendy products. 

 

Ranking popularity can amplify the effect of verbal transmission of positive responses by many times over. In traditional markets, products that are highly similar are stacked up on shelves with very little differentiation. Unlike those markets, Alibaba’s selection tools have functions that are clear and simple and can help customers to make a choice.

 

These include ranking according to personal preferences, ranking according to sales volume, ranking according to reliability, ranking according to newness, ranking according to price, and so on. This recommendation information can potentially become a large and powerful marketing tool.

 

From user evaluations to detailed specifications, information on products can respond to consumers’ questions effectively and also can prevent them from giving up and not buying because of doubts and concerns.

 

In helping to win the trust of consumers, it is important to explain the source of information that is being supplied. Clear explanations can help consumers to make use of the system. Transparency can help to establish trust, and the costs of transparency are quite low.

 

User ratings are the reflection of collective concepts, and they themselves can be quantified so as to make it easier to compare products and divide products into categories.

 

These tools can organize a multiplicity of complex product types into proper order. They can help the consumer to make choices, and they can also help the store owner to try to figure out what consumers might want to buy in ways that are less arduous. Alibaba’s platform has a dynamic grading system of stores.

 

Specifically, it includes descriptions that correspond to certain grades, including grades for service attitude, the speed of executing orders, and delivery of product and a percentage rating that compares the store with others in the same industry.

 

The user evaluations of Taobao customers are often highly intelligent and incisive, some with rather flowery descriptions, but the most import thing is that other users believe these evaluations.

 

Added together, the time and effort that customers put into these are unlimited in value. Customers are the ones most familiar with their own needs. Through online responses, these are transmitted to the production decisions of e-commerce.

 

Compared with traditional enterprises, the products supplied by e-commerce entities are low priced but excellent, which has greatly expanded surplus value for consumers.

 

To save on costs, many retail stores on the Alibaba platform use their existing inventories to expand e-commerce markets. The variety of products put on the Internet is far greater than what can be put in traditional stores.

 

It is far more efficient to concentrate product offerings on the Internet than it is to spread products out over the shelves of several hundred retail outlets. Moreover, different people may be willing to accept different price levels, what microeconomics calls the characteristic of price elasticity.

 

There are many different reasons for this, including a customer’s income and the amount of time he or she has to spend on shopping. In a bountiful market that is spatially unlimited, changeable pricing may become a powerful tool. It helps to maximize the value of the product as well as the scale of the market.

 

For example, Taobao has a discounted pricing system for holidays (such as the 11.11 Shopping Festival), and Juhuasuan has a group purchasing price system. In a fiercely competitive market with plenty of diversity, prices tend to move in line with costs. Given the laws of a digital economy, however, costs can only get lower.

 

The Role that Alibaba’s Platform Plays in Creating a Long-Tail Effect

Internet economy

As described earlier, the long-tail theory is where the essence of an Internet economy resides.

 

The prerequisite for a long-tail theory to work, however, is scale. Only when buyers and sellers, as well as the variety and numbers of available products, reach a certain scale will long-tail theory be effective.

 

The adequate scale then draws in consumers looking for the products that they need, and an e-commerce platform is perfect in being able to realize these functions.

 

First, a platform is effective in making something attractive and popular, and it need not put out a lot in costs to do it.

 

Second, a platform can serve as both a vehicle and a radiating force for other products that are being sold. The best way to fully realize the power of the long-tail effect, therefore, is to use an Internet-based sales platform such as Alibaba.

 

At the initial stage, e-commerce platforms represented a confluence of information, financial, and human flows. Alibaba, Taobao, and Eachnet were some of the earliest e-commerce platforms.

 

At the outset, e-commerce evolved out of simply separating information into different categories. Jack Ma put the information of enterprise Yellow Pages up on the Internet.

 

He later discovered that in looking up information, customers lacked the ability to investigate the credit or trustworthiness of both sides of an exchange.

 

As a result, evaluation systems and integrity systems were born and then gradually improved upon. With the birth of Alipay and the process of going through a third party who guaranteed the exchange (an escrow service), the buyer’s risk was greatly reduced.

 

The introduction of Internet banking then greatly improved the convenience of payment. Even large-sum transactions could go through channels outside of banks given the presence of security guarantees for transactions. With the increase in the numbers of “netizens,” the virtual platform of e-commerce improved the grade levels of stores via the evaluation system.

 

This made the transmission of information more convenient as well as more accurate. At the same time, the appearance of third-party escrow tools (guarantee of transactions), namely, Alipay, guaranteed flows of money, completing the growth of the first stage of e-commerce.

 

This opened a new page on the development of e-commerce platforms.

e-commerce platforms

The staff of the Logistics Department of Alibaba in Hangzhou has confirmed their belief that the core part of the middle period of e-commerce platform development related to warehousing and logistics and, moreover, that the purpose in developing warehousing and logistics was to truly close the circle and complete full-package service, the “whole dragon,” for both sellers and consumers.

 

The purpose also was to avoid the negative impact of outsourcing any part of the cycle to others.

 

The aim of this current higher stage of e-commerce platform development is to refine the categories of the platform and to enable more precision services.

 

Segmenting industries in a more refined way relate to an in-depth search across the entire industrial chain. Done well, it can further lower the operating costs of stores.

 

Moreover, it is more targeted than simply synthesizing all services across the entire platform. Information transmission is more accurate, shipping and handling are faster, and targeted customers are clumped into more useful categories.

 

A vertical platform can realize greater interaction among more finely segmented customer-group markets that are both online and offline. It can unify the handling of the warehousing and shipping of the supply chain.

 

It greatly lowers the costs of promotion, as well as warehousing and shipping, and promotes the upgrading of the industrial chain.

 

The core substance of this reconfiguration is big data and the way that data endows the system with greater functionality. Big data accumulates large quantities of information on merchants and consumers.

 

It is thereby able to overturn the original model of basing sales on the amount of production and instead can transform it into a model of basing production on the number of sales.

 

After an in-depth analysis of big data, the producer can understand more clearly how to match his or her production to what consumers want. This greatly lowers the amount of excess (unsold) goods that are both produced and held in inventory.

 

Meanwhile, greater functionality, that is, the ability to use the intelligence of the system itself, equates with higher efficiency, less time wasted, and simpler operations, all of which lead to lower costs. Greater functionality enables the system to maintain high quality and outstanding service.

 

As we have always described it, creating a platform is a totally absorbing task. Platform designers are the generals on the field of markets. From a higher vantage point, they see further than others, and they determine the victory of the battle long in advance.

 

Nobody can forget the sense of exultation on November 11, 2013, when people assembled in the great hall of Taobao Town as sales volume surpassed a record figure yet again.

 

The staff could not hide the excitement and emotion on their faces. Alibaba had again earned a plateful of money. In theory, a platform has an advantage that cannot be duplicated by other lines of business.

 

On the one hand, it is located on the high end of the industrial chain. Not only return plentiful, but the positioning allows for tremendous autonomy and a beneficial vantage point in the competition.

 

It can call the shots, and no one dares not comply. On the other hand, the business model of a platform enables all involved to be winners. As a result, the longer it operates, the greater is its value.

 

However, as consumers eye the tremendous revenues of Taobao with envy, we must recognize that the operations of the platform are in fact facing serious dangers and obstructions.

 

It is in fact quite hard to build successful platform strategies. First, prior to selecting a platform strategy, you must ensure that you have the capacity to accumulate a massive number of users.

 

To be number one in the number of users in a large market not only requires exceedingly strong products but also fortunate market conditions in terms of strong demand and marketing and promotion procedures that are effective.

 

Second, the enterprise selecting its platform strategy must be able to provide its users with massive “stickiness.” 

 

Any company intending to operate a platform must be a service-oriented enterprise, and moreover, it must service the rigid demands of users. There are in fact very few of these kinds of service entities, and competition is intense.

 

This represented an elevation of the transaction platform. In recent years, the anti-corruption movement that Jack Ma has championed has been dedicated to preserving this attribute. Integrity is the key to changing the transaction model and to profitability by unearthing the potential of the Internet effect in consumer markets.

 

The Taobao platform links up sellers and buyers, whereas the participation of third-party applications software vendors enables the platform’s mechanisms to be more complete. Since entering the market in 2003, Taobao conducted 8.02 billion RMB in transactions within two years.

 

It grew at a rate of over 700 percent. In 2006, Taobao’s transaction volume reached 15 billion RMB, and it occupied the premier position in the market with a 65 percent market share.

 

In 2010, the total sum of transactions conducted on the Internet in China “stormed the pass” by breaking through 1 trillion RMB. Taobao’s market share in that was over 80 percent.

 

While we enjoy the sight of these dancing figures, we should also take care to analyze them in a level-headed and rational manner.

 

What tricks have Alibaba latched onto in order to enable it to storm one pass after another? What precisely has it done to pluck the fruit of such astounding success?

 

The book Platform Strategies points out that there are two main categories of network effects that operate in platform models. One is the same-side network effect and the other is the cross-network effect.

 

The same-side network effect refers to how a particular group within all users begins to affect others within the group when scale reaches a certain size.

 

The cross-network effect refers to when the increase in the size of a particular group of users has an influence across the platform by increasing the effectiveness with which other groups are able to use the platform.

 

Platform enterprises design mechanisms that are intended to stimulate positively reinforcing cycles via these network effects and thereby to increase effectiveness.

 

To avoid network effects that work in the opposite direction, mechanisms must be set up that filter user. The most basic way to do this is to authenticate the user’s identity.

 

Alibaba requires each user to register for an account number with a true and valid identity. This is effective in improving the reliability of platform services.

 

In addition to identity authentication, another method is to have users become authenticators of one another. This mutual-evaluation mechanism is worth promoting because the results of combined opinions generally have the force of public trust behind them.

 

The mechanism by which users grade stores on the Taobao platform is intended to enable sound transactions and the ability to differentiate between outstanding and inferior products.

 

It is done to coordinate more precise pairing of needs and serves as an important reference for people’s decisions on whether or not to carry out a transaction. Meanwhile, those who are being graded can create their own publicly acknowledged brand depending on their own individual energy and efforts.

 

Moreover, in individual markets (or in two or more markets), they can position themselves with respect to customer groups more precisely, and they can target customer groups more precisely.

 

The strategic driver of a platform is its ability to provide each element in the group with unique value.

 

Whoever becomes the focal-point community in the ecosystem depends mostly on the way platform enterprises position themselves and the resources they command.

 

From the beginning, Taobao has positioned itself as an aggregator of millions of small merchants and sole proprietorships. As a result, it has created an ecosystem with a tremendous variety of product options.

 

As a representative of one platform model of e-commerce, the Taobao system has effectively used the advantages of the Internet to earn money by taking in annual platform usage fees from merchants and advertising fees.

 

The enormous a number of users on both Taobao and Tmall and the enormous base of merchants have basically created a natural monopoly in this particular realm of Internet effect.

 

The others, Tencent, Jingdong, DangDang, and Amazon-China, have some revenue from their platform businesses, but they have vastly fewer platform advantages than the Taobao system.

 

In terms of the architecture of its basic infrastructure functions, Taobao is already using an open-system pattern. The users of the platform already conceive of themselves in ways that are not limited to “buyer” or “seller.”

 

A great diversity of identities can realize their own business value on the platform, including consumers, retail shops, value-added services, shippers, e-commerce pay providers, commodity providers, brand-holding entities, and freewheeling individual businesspeople. As the saying goes, the ocean’s vast capacity can accommodate hundreds of rivers.

 

In the embrace of a very rich and diverse business ecosystem, all have gradually grown powerful together. In the course of growing its platform, Taobao has scrupulously abided by the principle of only providing basic infrastructure and not trying to do everything.

 

The whole business of logistics could bring in several tens of millions in revenue to Taobao, and indeed, it is a large source of profits for Taobao, but Taobao does not undertake the business itself.

 

Instead, it opens the business to partners with whom it cooperates. This is not done to strike a pose but is a rational business decision. Taobao’s policymakers are taking into consideration the fact that Taobao might well be able to do everything, but it cannot do everything well. If it tries to do all, it will provide second- or third-rate service.

 

The platform itself will not be the first rate and, consequently, will not succeed in “growing a single blade of grass.” Taobao can only be a first-rate service company by being open and enabling the best companies to survive through competition.

 

It can only be the model for the industry (and have a model effect) if it truly asks users to vote with their feet by providing traffic.

 

As Chen Weiru, author of Platform Strategies, points out, the reason merchants and consumers are willing to carry out trades on Taobao is that it extracts very low fees from merchants. This requires that the platform be highly cognizant of the needs on both sides of transactions. For example, Taobao provides microlending services.

 

It understands that merchants have funding needs but are unable to get money under the existing banking system. As a result, it has dealt with this issue in a strategic way.

 

The very essence of platform strategies, as per the success of Taobao, lies in creating an ecosystem that allows for win-win benefits in many different ways. This enables members to enjoy the benefits while the platform itself gets bigger and stronger.

 

As Chen Weiru describes it, the key path to success for platform enterprises lies in providing the greatest benefits to all kinds of customers and satisfying the greatest number of needs.

 

This is the only way a company can remain on untakable territory in the midst of competition and industry restructuring. Platform models have precise rules and regulations that are unique to themselves and that can provide effective incentives for the mutual interaction of all different kinds of groups (communities).

 

The moment one begins to grow as a result of increased demand, the demand for the others increases along with it. In this manner, a positively reinforcing cycle is established. By communicating with one another via the platform, all parties assist in stimulating the unlimited growth of other parties.

 

Through selecting the right platform model, it is possible to move to greater scale, improve the ecosystem, deal with competition, and even dismantle and restructure current industrial structures, including refashioning the overall pattern of China’s market.

 

INTEGRITY CAPITAL–BASED MICROFINANCE

MICROFINANCE

In recent years, the Chinese government has been putting major effort into transforming its institutions, a process that includes such things as making interest rates more market driven.

 

As one consequence, the situation surrounding the funding of small business has received more attention and is changing for the better.

 

More banking entities feel that one of their major orientations in the future should be a shift toward financial services for small business. Various kinds of entities that offer small loans are springing up and increasing the possibilities for a small business to be financed.

 

Meanwhile, the Internet, with its use of big data, is making it possible to break out of the traditional model of financial services. Microfinance is becoming a vital new force in the recognition and fostering of small businesses.

 

Alibaba currently has 500 million registered customers on its Taobao platform. As an additional rearguard force, it has 800 million customers registered on Alipay.

 

It is constantly building platforms on top of platforms and creating a new experience for customers. Its differentiating strategies rely on platforms and the Internet, as well as on concentrating the forces of many micro entity customers.

 

By creating new rules so as to insert itself into the traditional realm of finance, it is constantly seeking to penetrate the core functions of the banking business. This blog explores the integrity capital– based grassroots financial innovations of Ali Small Loans.

 

Grassroots Finance in the Internet Age

Grassroots Finance

If you mention Alibaba in China, the names Alipay and YuEbao spring to mind for many people.

 

New forms of finance brought on by e-commerce have blown over us all like a kind of hurricane, sweeping the daily life of millions of people into its vortex as it goes along.

 

Many people start to understand finance as something that relates to capital and something that services capital. For example, by controlling the risks, tax consequences, and returns from asset restructuring, rich people can become even richer.

 

The difficulty that micro entities face in getting financing is a classic example. This problem exists not just in China, with its multitude of microenterprises, but also in a very real sense worldwide. Asymmetrical information is one of the main causes of this funding problem for micro entities.

 

The financial institutions and governments of many countries are searching for ways to resolve this core issue, but nobody has found a highly effective answer. Now that we have entered the information age, however, the growth of the Internet and big-data applications is providing a new way of thinking about the issue.

 

To a great extent, Alibaba does not want to limit itself to being an entity that does microfinance. There are many Internet companies and financial institutions that can perform this function.

 

Instead, Alibaba is very clear about the fact that its advantages lie with its ecosystem. Its goal is to build a microfinance services platform that provides high-quality, highly efficient, personalized services that are open and competitive.

 

Ultimately, the aim is to stimulate the formation of a positively reinforcing cycle in the entire ecosystem of Internet interaction.

 

It may be that at the current time it is hard to separate out some financial services technologies (such as the Ali Small Loans) from the Alibaba ecosystem, but as the ecosystem grows, its corresponding basic infrastructure will improve, and its financial force will be able to benefit more people.

 

At that time, it will be able to unleash greater grassroots entrepreneurship.

 

E-COMMERCE LEGISLATION AND INNOVATIONS IN REGULATORY SUPERVISION BY THE PUBLIC

E-COMMERCE LEGISLATION

We are all beginning to be aware of a new kind of commercial civilization given the rapid development of three aspects of the Internet, namely, e-commerce, e-goods, and e-rules. To grow this new kind of commerce in a sound and sustainable way, it is becoming especially important to have standardized regulation of the industry.

 

China’s existing laws and regulations have not kept up with the Internet’s fast-paced change. This means that we need a new structure, which can be called Internet Rules, to serve as a support.

 

China’s existing laws and regulations originated in the era of large-scale industry and in China’s unique planned-economy period as dominated by state-owned enterprises. There is quite an obvious generation gap between the laws of that age and the modern laws required by an age that is based on IC, the Internet, and big data.

 

Meanwhile, the language of existing laws is based on the advanced economies of the United States and Europe. Again, there is obviously a major chasm between such laws and the economics, society, culture, and history of a country such as China, which has the advantage of being later-to-develop but that still lacks a certain degree of development.

 

The regulatory system of the platform of the Alibaba Group is constantly undergoing innovative improvements. In this regard, it may provide useful lessons for the regulatory aspects of the new age.

 

A Smart Regulatory System

Smart Regulatory System

The Internet has already been going for more than 40 years now. At the outset, it was manifested mainly through tools. Sina was, for example, a tool for disseminating information, whereas Tencent was a tool for communicating among people.

 

360 was a tool for ensuring security, Baidu was a search-engine tool, and so on. As the Internet developed, however, the network itself began to take on social attributes. It became a space in which people live and grow.

 

The formation of a social condition has to satisfy two conditions. One is that people exist within a certain environmental space. The second is that people do not exist in isolation within this environmental space. Instead, the mutual interaction between them forms a fairly stable interconnection and relationship.

 

In the Alibaba Group, the social attributes of the Internet have two particular characteristics. The first relates to the material level of things in the virtual society of Ali, namely, commercial activity and money transfers, as well as the mental level, namely, people communicating with one another.

 

The second relates to the way Ali has taken on the functions of social management or, one could say, governance in this virtual society. For example, Ali is responsible for account security, for providing tools, and for formulating rules and regulations.

 

Based on the preceding two characteristics, Alibaba’s difficulties have been greatest with respect to carrying out regulation of security. Given the need to standardize rules and regulations, in an innovative fashion, Alibaba set up an Information Security Department.

 

This department is responsible for tying together all the security aspects of the Taobao trading platform, which include ensuring the security of information, ensuring that online merchants and online products are authentic and reliable, and ensuring the security of consumers.

 

The Information Security Department has endured years of pulling together the efforts of many different departments with respect to the systems governing transactions on the Internet. It is different from the Information Technology Department and also different from the Internet Rules Formulation Department.

 

It involves an extremely broad range of topics, including virtual products and real products—and then there are considerations of information, logistics, credit, and transactions, and there are enterprises, and there are individual people. 

 

To achieve harmony among the platforms over which it has jurisdiction, the Information Security Department has used innovative approaches to turn certain real-world management methods into “Internet-sized” methods.

 

It has applied offline methods to online procedures to form a set of unique management models. Ali has put them into three main categories, which it calls the three main lines of defense of the Ali security framework.

 

First Line of Defense: Protecting the Security of Accounts

Security

The Information Security Department uses three primary measures to ensure the security of accounts. First, when vendors open a “store,” they must certify their identity. This identity certification system is linked directly to the Chinese government’s Public Security Bureau and its population information system.

 

The two systems are synchronized and check whether or not the data that the vendor has supplied is valid. Second, vendors must use their registered identity certificate to open a credit card account with a bank. By remitting money to that account, Ali confirms whether or not the account does indeed belong to the said vendor.

 

Third, the vendor has to have his or her photograph taken as he or she holds his or her identification card so that the information can be checked and confirmed. These measures are used to confirm the account information of the vendor and the actual name and integrity of the vendor.

 

Alipay’s Identity Certification System

Alipay’s Identity Certification

Identity certification in a virtual environment is a challenge to the intelligence-based capabilities of the management system. If you don’t carry out identity certification, it becomes hard to control the risk of the platform. In carrying out identity certification, however, you come up against all kinds of resistance.

 

For example, in 2010, the Ministry of Industry and Information Technology of the People’s Republic of China made it clear that any individual wanting to start a website had to go in person to go through procedures and have his or her photograph taken. This provoked considerable unwillingness on the part of people responsible for websites to divulge their personal information.

 

Faced with this dilemma, Alipay came up with a creative solution. It set up a test of the identity of the person being certified by sending money to his or her account. This ingenious solution resolved the problem and at the same time reduced the burden on the person being certified as much as possible.

 

Alipay’s handling of the matter in this way also displayed an open and creative mindset; that is, it resolved the problem through the support of already existing channels (in this case, the enormous network of banks). It turned virtual into real and turned “what the other has” (namely, a bank’s confirmation) into “what I have.”

 

Second Line of Defense: Protecting the Security of Products

Security of Products

Taobao currently encompasses more than 800 million online products. Among these, there is no dearth of illegal, prohibited, restricted, and counterfeited items. Another dilemma confronting the Information Security Department therefore soon became how to ensure effective regulatory supervision over all these products.

 

With respect to illegal and prohibited items and restricted items, the Information Security Department first divided them into categories by consulting both Chinese law and the provisions of international conventions.

 

It calculated that more than 40,000 items currently on its platform are illegal, prohibited, or restricted.

 

What’s more, it estimated that the figure would go up over time, not down. To deal with this problem, the Information Security Department cooperated with the public security system in China, including such parts of the system as the Internet Security Department, the Food Safety Department, the Anti-Illegal-Publications Department, and so on.

 

It synchronized the online and offline categories of behavior that were defined by all as contravening laws and regulations.

 

With respect to counterfeited goods, the Information Security Department’s main strategy could be summarized as protection + maintaining legitimate rights and interests + supporting and helping.

 

The category of supporting and helping could be seen in such things as educating vendors, providing official sources to buyers for the original makers of the goods, cooperating with the Ministry of Commerce and Industry to open up channels for registering copyrights on a preferential basis, and so on.

 

With respect to fake trades and counterfeit goods, it is sometimes hard to distinguish which are authentic and which are not. To do so, on the one hand, Ali used its massive database system and applied its research and development (R&D) system to develop an intelligence-based (or smart) discriminating system. Some 99 percent of goods can be put through this system and recognized accurately.

 

If the machine has any question and the system cannot confirm authenticity, then it transfers the order to a human labor order, and a person carries out the final differentiation. On the other hand, Ali cooperates with the makers of authentic goods who inform Ali of the array of their authentic products.

 

Ali enters this information into the intelligence-based or smart discriminating system. Naturally, attacking counterfeit products is a constant battle for Ali. Not only must Ali undertake this effort, however, but the government and the public also must cooperate in the effort as well.

 

Louis Vuitton and Coach Team Up with Taobao to Attack Counterfeiting Behavior

On October 11, 2013, the Taobao platform and Louis Vuitton announced the signing of a memorandum of agreement in Paris. Under this agreement, the two sides set up proactive cooperative mechanisms to jointly protect intellectual property and to jointly attack counterfeiting behavior on the Taobao sales platform.

 

In fact, starting in 2010, Taobao had already instituted regular periodic meetings with Louis Vuitton to carry out a series of cooperative measures to protect property rights and attack piracy.

 

In 2013, it went further in cooperating with the Public Security Department on the issue, starting a series of actions on this single issue to punish the makers of a group of counterfeited goods.

 

Around the same time, Coach, a designer brand for luxury accessories, signed a memorandum of agreement with Taobao in New York that renewed an agreement signed earlier in 2011.

 

The purpose was to deepen anticounterfeiting cooperation and work together with Taobao in suppressing counterfeit sales on Taobao and infringement of Coach’s intellectual property. Both sides also committed to protecting the rights and interests of consumers.

 

Protecting Intellectual Property Rights

Intellectual Property Rights

Intellectual property rights are an important target of regulatory concern. The subject involves wide range of things from commodities (products) to store names to illustrations, movies, and so on.

 

Often it is unclear whether or not Infringement has occurred because there is a certain degree of difficulty in distinguishing real from fake.

 

Because of this, the Alibaba Group has set up a synthesis of Rules and regulations. It incorporates all parts of intellectual property rights that have to do with material things. It includes things about which the Internet still has no legal determination, and it includes a full set of mechanisms for bringing legal action.

 

Third Line of Defense: Protecting the Security of Transactions

Transactions

As in the real world, such illegal phenomena as swindling, extortion, and stealing cannot be wholly avoided in the Ali virtual society.

 

To keep such behaviors from getting worse, however, the Information Security Department first divided all kinds of-such behavior into categories and analyzed the features that characterize each behavior.

 

It set up models using big data. Through intelligence-capable systems, it set up uninterrupted real-time “lining up and examining.”

 

Another form of criminal behavior that is unique to the Internet happens when someone suspected of committing crime issues an invitation from an outside network that is then transmitted to Taobao to carry out the crime. This kind of activity is generally concentrated in virtual (nonmaterial) products, on game programs, and so on.

 

In order to attack this kind of criminal behavior, the Information Security Department intends to set up long-term cooperative relationships with external networks to synthesize and organize information from all networks and thereby use all lines of attack.

 

The System of Security Deposits

The “Taobao Rules and Regulations” stipulate that merchants who operate on the Taobao marketplace must possess a Tao Gold Certificate. This gold certificate is mainly a security deposit used to ensure that the merchant operates in line with Taobao’s rules and regulations.

 

When a merchant violates the rules, according to the service agreement he or she has signed with Taobao, as well as relevant other rules and regulations, that merchant must pay a violation fee as per agreement to Taobao and to the consumer. 

 

The Information Security Department is the core of the Alibaba Group’s regulatory control over its platforms. Its mission is to guard and protect Alibaba’s “treasure,” namely, its prosperity and success, in a stable and orderly way. It does this through intelligence-based or smart regulatory measures, namely, the three lines of defense of the Alibaba security framework.

 

Taobao’s Evaluation and Indexing System

Taobao’s Evaluation

Taobao’s evaluation system is based on rating a number of indicators about the subject in question that are mutually interconnected and form an internally consistent organic whole.

 

To ensure that this indexing system is scientific and standardized, the system was created in compliance with a number of major principles. Specifically, the indicators must be systematic, representative, concise, scientific, comparable, manageable, quantifiable, and comprehensive.

 

Taobao’s Indexing System for Evaluation

Taobao’s indexing or grading system for evaluation is a method by which both sides of a transaction can evaluate each other after the transaction has taken place, that is, after buyer and seller on the Taobao platform conduct business with each other.

 

These evaluations that are used as a reference by other buyers and sellers, given that the evaluations of both sides are made Available in ways that are fair, open, transparent, and accountable.

 

In contrast to traditional ways of rating companies that are derived from official sources or third-party professional institutions, this type of evaluation is bottom-up as opposed to top-down.

 

It involves a broadly based group of people, and it is dynamic. Taobao’s evaluation and grading system is built on three main cornerstones, namely, Alipay, AliWangwang, and real-name certification.

 

The Online Payment Tool Alipay

Online Payment Tool Alipay

The online payment tool called Alipay is one of the cornerstones of Alibaba’s evaluation system in that it serves to defend the security of online payments on the platform.

 

As a third-party payment platform, Alipay serves as a guarantor of the goods being sold by the seller and of the payment being paid by the purchaser.

 

Taobao stipulates that only once the purchaser has received the goods and confirmed receipt on Alipay can both sides appraise each other through the evaluation system.

 

At the same time, irrespective of whether the buyer chooses to pay through Alipay, an online bank, quick-and-easy pay, or a credit card, confirmation of payment must be done through Alipay.

 

Because of this condition, in addition to serving as an escrow agent or guarantor, Alipay can effectively prevent any fake transactions from occurring.

 

The Online Chat Tool AliWangwang

Online Chat Tool

The online communications tool called AliWangwang is a free online business communications form of software that was tailor-made for merchants on Taobao and Alibaba. It enables buyers to get in touch with sellers at any time to discuss details about products and negotiate a transaction.

 

At the same time, it allows for eyewitness confirmation in the evaluation system. Taobao’s regulations stipulate that if any dispute arises from a transaction, the record of conversations on AliWangwang may be used as evidence in resolving the case.

 

Certification of Real Name

Taobao’s regulations give buyers the option of registering their real names or not, and generally, buyers are only required to fill in basic information. Registration and activation can be done using the Taobao platform. In terms of sellers, however, real-name certification is required to ensure account security.

 

As mentioned earlier, sellers must fill in their real names, addresses, telephone numbers, identity registration numbers, photographs of themselves as on their identification cards, and bank account numbers.

 

The system confirms the bank account numbers. These measures are taken to guarantee the authenticity of the certification and to guarantee the security and authenticity of the account.

 

In abiding by the main principles according to which the evaluation system was formulated (systematic, representative, concise, scientific, comparable, manageable, quantifiable, and comprehensive), the Taobao evaluation system includes two main parts. Those are credit evaluation and rating of the store.

 

Credit Evaluation System

Credit Evaluation System

The Chinese term for credit that is used by Alibaba can refer to both credit and integrity. In the context of someone’s financial strength, it is used in the sense of credit.

 

In the context of trustworthiness, it refers to a quantified measure of integrity. In the United States and other Western countries, the use of credit cards is pervasive and is based on a reasonably well-established credit evaluation system.

 

China does not have such a system, and this has been a bottleneck choking the development of Internet businesses. Alipay has been helpful in serving as a credit evaluation system via evaluation of the transaction records of Alipay users, but this still has not been sufficient.

 

As for a result, Alibaba’s Ant Financial Group recently organized a company called Sesame Credit Management Co., Ltd. This is an independent credit assessment and credit management organization.

 

Sesame Credit assesses the personal credit situations of individuals based on objective measures by connecting a variety of services and applying big-data and cloud-computing technology.

 

The Ant Financial Services Group was itself spun off as a financial branch of the Alibaba Group in October 2014. The launch of this financial arm was an expression of Alibaba’s ambition to develop financial services based on its innovative online payment platform Alipay.

 

Such services now include payment (Alipay), credit evaluation (Sesame Credit), microlending (Ant Micro Loans), cloud computing (Ant Financial Cloud), and such financial management services as YuEbao and ZhaocaiBao.

 

In terms of quantified measures of integrity, the following procedures apply on the Taobao platform. Based on a real transaction, both buyer and seller “members” on the Taobao platform are asked to complete mutual evaluations within 15 days of the successful completion of a piece of business.

 

Buyer may rate their purchased goods according to a three-level rating of good, medium, or poor, and sellers may rate certain criteria on the same three-level rating. Overall, these ratings are known as integrity evaluations.

 

Rating of the Store

Rating of the Store

The store-rating system is conducted after Taobao members complete a successful transaction. It is limited to a one-time evaluation, with the purchaser Rating the seller using the seller’s Taobao membership identity.

 

It includes four items: whether or not the description of the goods tallies with the actual goods, the service attitude of the seller, the speed with which the seller dispatched the goods, and the speed of actual delivery.

 

The store ratings are dynamic indicators, so the average rating of a store incorporates all ratings of the past six months.

 

Reference Standards for Grading Sellers

Degree to Which the Purchased Goods Tally with Their Description

5 points: Extremely high quality, completely tallies with the description of the seller, extremely satisfied

4 points: Not bad, basically the same as what the seller described, still quite satisfied

3 points: Only so-so, not as good as what was described by the seller

2 points: Included some damaged goods, not in line with what the seller described, dissatisfied

1 point: Inferior and unacceptable, not in accord with what was described by the seller, extremely dissatisfied

 

Seller’s Service Attitude

Seller’s Service Attitude

5 points: Wonderful service on the part of the seller, all things took into consideration, exceeded expectations

4 points: Quite a good service, communications smooth and easy, generally satisfied

3 points: Responses from seller slow in coming, attitude just so-so, not able to say we had smooth communications

2 points: Seller rather impatient, service did not come up to what was promised

1 point: Very poor attitude on the part of the seller, used foul language and shouted, did not treat the customer with any kind of respect

Speed with Which Seller Dispatched Goods

5 points: Extremely fast, packaging was well done and sturdy

4 points: Fairly on time, shipping costs quite reasonable

3 points: Timing just so-so, only shipped after being reminded

2 points: Slow in dispatching goods, had to chase the seller several times

1 point: Finally shipped after I insisted, made me waste time, and packaging just so-so

 

This system quantifies objective impressions on the part of consumers. They form a specific rating system that enables merchants to see at a glance how customers feel about their product quality, attitude toward service, the speed of dispatching goods, and degree of integrity.

 

Integrity thereby becomes a standard that can be measured across different merchants, that can be anticipated and made a use of by buyers, and that also tells merchants where they can change things and improve.

 

A Comparison Between Taobao’s Integrity Evaluation System and Its Store Rating System

Taobao’s two different evaluation systems coexist on the overall Taobao evaluation indexing system. The information Displayed by each is different, but they share the same purpose, namely, to provide buyers with multidimensional information with which to make decisions and to provide sellers with multidimensional incentive Mechanisms.

 

As Asia’s largest Internet retail sales platform, Taobao is responsible not only for creating a secure purchasing environment that inspires consumer confidence but also for building standardized regulations for the Internet and instituting a spirit of integrity on the Internet.

 

The three cornerstones and the two main systems, as just described, combine to form the Taobao evaluation indexing system.

 

This is the basis for constructing an e-commerce platform Internet integrity system that is characterized by the qualities of fairness, equality, and transparency. The fact that this system actually does play a role in promoting e-commerce integrity and accountability is something that can be seen daily on the Taobao platform.

 

Efficiency of Systemic Innovations and an Evaluation

Systemic Innovations

In this context, the term systemic innovations refer to how Alibaba creates new systems on top of its existing ecosystem to incentivize certain behaviors by the entities that carry out transactions. The purpose is to allow Alibaba to ensure the ongoing sound growth of its platform.

 

All such innovative activities rely on the long-term effect of incentives that are sustained and consistent over time. Over an extended Period, these incentives become cohesive enough to serve as institutionalized methods that play an ongoing role in healthy functioning.

 

With respect to the overall evaluations process, the key to creating new innovative systems that are truly effective lies in analyzing the costs of each new system.

 

Such costs are characterized by six specific dimensions, including design costs, opportunity costs, timing factors, risk Involved, the friction with established systems, and implementation. Each of these is described next.

 

Design Costs

Design Costs

A new regulatory system cannot be built out of thin air. It has to be designed in meticulous fashion by planning personnel who first conduct detailed surveys.

 

The design process of such a new regulatory system includes training the planning personnel, broadly based surveys, plan for design components, plan for comparative analysis, decision making, refinement of the plan, and so on. In this process, all the costs involved are incorporated under the term design costs.

 

Opportunity Costs

When a new regulatory system is generated, it necessarily accompanies the elimination or revision of a previous system. That long-standing system had its own rationale for having come into being as a way to provide regulatory supervision.

 

Because of this, the opportunity costs referred to here are the benefits that the previous system was able to maximize, benefits that now will be eliminated and that lose their former function.

 

Costs of Time Lag

It is not hard to understand that there is always a time lapse between the complete elimination of a previous system and the launch of anew system.

 

During this period, entities initiating systemic change have a continuous stream of inputs that they have to cover, and in monetary terms, these affect such things as profits. These then become the costs of time lag.

 

Costs of Taking Certain Risks

Like investment risk, with which we are all familiar, building a new system also entails a certain risk. The returns on systemic innovations are necessarily uncertain. In the period between now and a given time in the future, many variables can intervene to affect anticipated returns.

 

As time goes on, the impact of ever-changing risk factors becomes greater. This, then, is what we refer to as risk costs.

 

Costs of Conflicting Interests

In theory, systemic innovation should abide by the principle of the Pareto optimum. In reality, however, any innovation in a system cannot accomplish this totally for the reason that change will affect the interests of those who were vested in the former system.

 

Their resistance will generate a certain amount of conflict and friction. Damage to anticipated profits will be the result, as measured by the costs of conflicting interests.

 

Costs of Implementation

Costs of Implementation

After a new system has been launched and put into operation, its implementation and handling or the running of the system will have an impact on income.

 

For the moment, we divide this kind of cost into implementation costs and handling costs , but both are influenced by four main factors: the Degree to which the new system is scientific, its comprehensiveness, its manageability, and the people who execute it, that is, the caliber of those who run the system.

 

In the Process of carrying out institutional innovations, Alibaba tries to minimize the preceding six costs by Focusing on the following. First, it attempts to make the process of formulating the new system as democratic as possible. That is, it solicits the opinions of buyers and sellers as broadly as possible.

 

Second, it attempts to weigh the value of old and new systems in a comprehensive way so as to avoid issuing orders in the morning that have to be retracted in the evening. Third, it tries to limit its “battlefront” to precise objectives in order to have a “short war that is quickly resolved.”

 

Fourth, it adopts an incremental method of systemic innovation as opposed to a revolutionary mode.

 

The process of improving systems must necessarily confront pressures and opposition from vested interests both inside and outside the system. Since 2008, when Taobao came up with the concept of Internet rules, it has encountered three major incidents of large-scale group opposition as it reformed its own system of rules and regulations.

 

These three incidents are the incident when Taobao changed its search-engine rules and regulations, the Tmall incident, and the Taobao attack wrecks reputations incident. In dealing with these and similar kinds of efforts that sought to block systemic innovations, Taobao came up with its own unique set of countermeasures.

 

In these countermeasures, the relationships between Taobao and small and micro vendors, between Taobao and the government, and between Internet rules and Legal-system rules are worth our close attention. They involve the Relationship between Alibaba’s regulatory supervision of itself and its external environment.

 

The Three Large-Scale Taobao Vendors Protest Incidents

Taobao Vendors

First Protest: Taobao Changes Its Search-Engine Rules and Regulations

On July 8, 2010, Taobao revised its search-engine rules and regulations. This was done to craft a platform environment that allowed for fair competition among vendors, to provide a purchasing experience for consumers that were quick and easy by a guided purchasing service, and to push forward the sound development of e-commerce markets.

 

Taobao formally announced seven major kinds of behaviors that constituted fraud: manipulating integrity, duplicating stores and goods, commodities that are actually advertisements, misrepresentation of categories and product attributes, arbitrary use of key terms, postage fees that are out of line with product prices, and product descriptions that do not match Up with illustrations.

 

Taobao’s search engine could automatically recognize whether or not any of these fraudulent practices were occurring, and Taobao could adjust its search engine accordingly by making it delete duplications and put the search Results at a lower, less desirable level.

 

In the most egregious cases, the search could result in having a protective screen put over a store so that it could not be accessed at all.

 

To take the category of duplication of goods as an example, some vendors change the attributes of a product very slightly to make the search engine find it in multiple ways.

 

They change its measurements, its color, or even its name. After Taobao’s change in search-engine rules and regulations, if the search engine determined that this was redundant, then it would not list even the original product among the first few pages of Search Results.

 

In doing this, Taobao intended to provide a better purchasing experience for consumers while also providing incentives to vendors to supply a greater real diversity of products.

 

However, this move by Taobao stirred up considerable discontent among some vendors. They Felt that this new regulation was intended only to win more business for Taobao, while it dramatically Lowered the traffic to small-and micro vendors.

 

It, therefore, reduced their orders. They complained that the Taobao Rules and regulations were changed “once every three Days in small ways and once every five Days in a major way,” with each change bringing them unnecessary trouble.

 

Between early July and early September 2010, Internet vendors held demonstrations outside Taobao’s offices. This attracted widespread public attention.

 

This was the first time that Alibaba had encountered such questioning from vendors. Faced with increasingly shrill queries, Jack Ma composed An internal letter for-all Alibaba staff that he called “Living for your ideas.” In this letter, Ma confirmed the correctness of the change in search-engine Rules.

 

He said that he believes that the action “gives up Immediate benefits on our part in favor of long-term sustainable growth on the part of users by setting up more fair and equitable business practices.”

 

He warned those who were attempting to use the incident as a way to gain personal benefit out of it, “Your actions not only are damaging the ideals of more than 20,000 outstanding young people, but you are also attacking and hurting the interests of tens of millions of small businesses who rely on the Internet and several hundred Million consumers as well.”

 

He encouraged Ali-people to carry on Doing upright and proper business and to hold to their ideals. He called on them to “choose the path that holds to principles, that holds to ideals, and that holds to our mission.”

 

Second Protest Incident: The Tmall Incident

To have the merchants on Tmall operate in a more engaged and serious manner, on October 10, 2011, Taobao Commerce City (Tmall) announced new platform regulations: “Announcement Regarding the Renewal of Merchant Agreements for 2012 and Regulatory Changes” (the “Announcement”).

 

Third Protest Incident: The Taobao Anticounterfeiting Incident

On July 22, 2013, Taobao announced to the world its latest regulations on selling counterfeit goods.

 

This was done to ensure that the ongoing growth of the Taobao ecosystem would proceed in a sound and prosperous way and to ensure that consumers have a positive experience when they purchase things on the Taobao platform. The new rules and regulations included the following main modifications:

 

1. They increased the overall severity of measures taken against counterfeiting behavior and extended the period during which offenders lost certain rights and privileges.

 

2. They intensified the punishments for behaviors that were particularly egregious, including multiple instances of violations, particularly serious violations.

 

3. They set up a system to calculate and add up the number of violations. Excessive violations then triggered a red flag, and repeat offenders were prevented from using the Taobao platform for business.

 

Starting in October 2013, Taobao began to increase its regulatory controls over and punishment of the community of copiers on the basis of these new rules.

 

These two severe anticounterfeiting actions then became a “guided missile” in the history of Taobao. They elicited tremendous dissatisfaction from small-scale vendors, who intensified their virtual attacks on the Taobao platform.

 

On December 3, 2013, yet another e-commerce mass incident occurred, following on the previous Tmall incident. Some Taobao stores declared that Taobao had, in attacking transactions for counterfeit goods, mistakenly deleted their own goods from the platform.

 

 As Double Twelves approached, so-called hot-selling items were deleted, which was Equivalent to cutting off their path to sales.

 

A number of small vendors gathered together through QQ groups and maliciously attacked some of the famous large vendors on the Tmall website. On December 8, small vendors put forward to Taobao eight explicit conditions for a ceasefire of this war:

 

1. Restore all items and stores that were misconstrued to have offered falsely sold items and stores that violated the rules.

2. Conduct a thorough investigation of counterfeit trade on the Taobao and Tmall sites, and realize greater fairness between the two sites.

 

3. Separate out Tmall (B) and Taobao (C) stores and put an end-to enabling the Tmall stores to absorb the Internet data volume from C stores.

 

4. Provide evidence of any violations on the part of a store before taking any disciplinary action.

5. Adopt modified rules only after the Taobao Vendors Association has voted on them.

 

6. Restore Tmall’s middle and inferior rating/grading mechanism or abolish the similar mechanism on Taobao so as to realize fair treatment on-both and a spirit of free competition.

 

7. All official activity on the part of the Alibaba Group must treat Tmall and Taobao stores on an equal basis.

 

8. The Alibaba Group must provide a public apology about this incident.

Three days after the incident began, Taobao made a formal reply via WeBlog (China’s blog site). On the one hand, Taobao improved the procedures for initiating Appeals or Legal suits.

 

Moreover, starting on November 14, 2013, the deadline for Appeals being made by vendors who were implicated in counterfeit trade was postponed until January 20, 2014. (This provision made an exception for the 48 cases of severe violations.)

 

On the other hand, Taobao emphasized in its message, which was entitled “Dispersing the Pollution Caused by Integrity Manipulation and Enabling the Market Once Again to See the Clear Light of Day,” that it was determined to eradicate behavior that damaged integrity in the Internet marketplace.

 

It indicated that some merchants had swindled consumers by selling counterfeit products and that this was beginning to endanger the entire trustworthiness of the platform. It declared that it would not give an inch in the battle against untrustworthy behavior.

 

At the same time, Jack Ma maintained a clear-cut position on the subject when he declared that he knew this incident would cause trouble for some people but that playing with integrity, dealing in counterfeit goods, and infringing intellectual property lines would not be tolerated. Any complaints would be useless.

 

If any vendor was unwilling to accept the process of being tested for integrity, Ma invited them to go to any other platform that would support them. “Do not wait for Taobao to come to terms with you,” he stated. He made it clear that he would take the attack on counterfeiting to the bitter end.

 

These three large-scale Mass protests Brought tremendous losses to Taobao, to vendors, and to the government. They hurt the enthusiasm with which the Alibaba Group’s platform enforced its regulatory management.

 

They hurt the Normal operating order of the great majority of vendors, and they increased the difficulty of the government as it maintains stability in its own work.

 

Because of this, the three protests occasioned considerable reflection within the Alibaba Group about how its own internal platform regulatory systems were related to the environment of the outer world. These reflections included the following.

 

Several Thoughts on Taobao’s Relationships

Taobao’s Relationships

Since established in 2003, Taobao.com as e-commerce retail platform went through a tremendous challenge. Despite Amazon and eBay.com being leaders in the field, the Taobao platform has grown into a very different business model that no one had done before. The major challenge was from how to deal with several important relationships.

 

The relationship between Taobao and Small Microvendors

Standardizing regulatory management of the platform is done to meet the needs of growing the new commercial civilization and of growing a modern market economy. It is in line with the needs of an information society and certainly even more in line with the needs of economic globalization.

 

Meanwhile, systemic innovations must occur because they are a vital part of the ongoing process of regulatory management of the platform.

 

In the context of the “tides of our times,” the fact that the Alibaba Group has firmly held to its social responsibilities in the face of enormous obstructive forces and has maintained a way of handling systemic reform innovations that come straight from the heart and cannot be altered is something that Deserves our confirmation.

 

Taobao has by now come up against a number of mass incidents. This makes one wonder if there are not certain “black hands” pulling strings behind the scenes, malicious attacking companies that target a company by giving false evaluations and blackmailing innocent vendors, or false trading companies that deliberately undertake fictional trades to stir things up for monetary gain.

 

Taobao cannot indulge or appease this kind of bad behavior. Instead, it must focus on it as a serious opponent and deal it a hard-hitting blow. Webcan imagines that as Taobao does this, however, it will unavoidably make Mistakes that affect a certain number of vendors who are blameless.

 

From Taobao’s perspective, it must correct such mistakes in Timely fashion and Apologize. From the perspective of small and micro vendors, however, they, too, should extend a certain amount of understanding for Taobao’s situation.

 

As in the ancient saying about the solidarity of brothers, only if the Alibaba Group and the great number of small and micro vendors stand united behind the sustainable and sound growth of the Alibaba ecosystem can they prevent third-party evil forces from opportunistically stirring up trouble to gain illicit profits.

 

Relationship Between Taobao and the Government

As we enter the new commercial civilization, the lines between individuals and enterprises become Less distinct, as well as the lines between enterprises and government. This is a major new characteristic of the new era.

 

The preceding sections give examples of incidents that play with Taobao’s reputation. With respect to sham trades behavior, in legal terms, this can be described as an unfair competition and disrupting market order. When it comes to details, however, there are no relevant legal provisions on which to base a case.

 

Prior to having any Legislation that clearly defines the rules, and prior to having the government set its foot in the Process, the Taobao platform itself must carry the appropriate social responsibility and must carry out corrective actions against a behavior that violates the rules.

 

Part of the problem is that Taobao’s platform is not in itself government. It does not have the authority to compel compliance. This is why it must launch counterincidents undertaken to maintain stability as its only way to respond.

 

In the realm of e-commerce platform governance, the government should come forth with major support for Taobao’s platform by directing its actions in the correct direction.

 

What are the criteria for judging the correct orientation? In answering this, we must return to the main topic of this book—whether or not actions serve to unleash the innovative forces of grassroots people and entities.

 

If Taobao’s governance benefits things that incentivize and protect the creativity of the grassroots, then the government should support it. If not, then the government should stop it.

 

E-commerce is highly dynamic and highly grassroots-driven, and it fuses various industries as it develops. These characteristics mean that it has to be managed by a governing model that allows for low barriers to entry and is highly dynamic. China’s traditional government model employs the permitting system (licensing system) to allow market entry.

 

It divides industries into categories in order to manage them. This model has long since become inappropriate to the needs of developing the new commercial civilization.

 

In the sphere of e-commerce platform governance, therefore, the government should rely more on the relevant useful experience of platform enterprises such as Alibaba.

 

Relationship Between Internet Rules and the Chinese Legal System

Ever since the Internet came into being, it has spawned the creation of numerous new technologies and new industries. Search engines, Internet games, household websites, and e-commerce—each of these changes daily with a speed that no traditional industry can begin to match.

 

By nature, the legal system is intended to be fair and upright, rigorous, prudent, and thorough—all of which means that it cannot keep up with the pace of an ever-changing Internet.

 

One constant source of discussion, as we think of how to standardize the Web, is, therefore, the blank areas in Internet legislation and the lack of authority in many areas.

 

If we try to trace back to the source of Taobao’s three large-scale mass incidents described earlier, in one way or another, they all relate to the lack of or inadequacy of legislation.

 

If there were clearly defined a Legal language to serve as the criterion for behavior, small and micro vendors would not have to express their appeals in such unreasonable ways.

 

Taobao would not have to walk such a difficult path in the course of taking on social responsibility, and there would be no way for nefarious manipulation to occur.

 

In this regard, the deputy chair of the Policy and Law Committee of China’s E-commerce Association, who is concurrently the chair of the Internet Regulations Research Center, A. Lamusi has proposed the following several considerations:

 

1. Internet rules are supplementary to the national legal system. As we move into the information age, markets Constantly become more complex, whereas the traditional procedures by which laws are enacted are Constraining. Regulation often falls behind as a result.

 

The governance procedures by which Internet rules function are often able to avoid the shortcomings of traditional controls. They should be Adopted as useful supplements to the government’s methods of managing the Internet.

 

2. The relationship between Internet Rules and the national legal system is also substitutive. What this means is that Taobao’s “platformized” governance allows society to use fewer judicial resources.

 

It lowers the costs of the judiciary and the burdens on China’s judiciary. The Taobao platform’s protection system of intellectual property rights is a good example.

 

In 2011, Taobao determined that the personnel responsible for intellectual property rights Infringement on the network should be divided into three teams, one for safeguarding rights, one for intellectual property rights cooperation, and one for quality control of products.

 

It created a team made up of over 2,000 professionally Trained staff Engaged in an intellectual property rights system with diversified functions. To a very large degree, this reduced the government’s burden of protecting intellectual property rights.

 

3. The relationship is compensative.

 

Conclusion

The Alibaba Group has made a tremendous number of innovations in the regulatory systems that govern its platforms.

 

The areas in which such innovations are most concentrated include the real-name system, the integrity system, guarantees of secure transactions, prevention of fraud, and the areas relating to dispute resolution, protecting consumers, and core links surrounding the Protection of consumers.

 

These efforts pulled together the intelligence, vision, and hard work of a great number of people working on platform regulatory supervision. Although changes in how platforms are regulated cannot help but stir up the opposition, the Alibaba Group has never hesitated to move forward in the midst of tricky issues.

 

This has led the group to undertake a great deal of interesting thought and consideration of the issues.

 

Such consideration may be worth using as a reference when enterprises are determining the rules and regulations of the industry overall and assuming a social responsibility for their actions.

 

It also may be worth using as a reference when the nation is formulating relevant laws and regulations and breaking through the traditional methods of managing these things.

 

Naturally, what can and should be used for reference are not simply the innovations themselves but rather the thinking that went into how to realize innovations and Improve governance. That thinking is of key importance and is precisely what we like to call the Alibaba spirit.

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