Alibaba Taobao (E-commerce Case Study)

Alibaba Taobao

Alibaba Taobao E-commerce Case Study

In this blog, we explain the case study of e-commerce platform Alibaba Taobao. In China Alibaba, Taobao is the biggest e-commerce sector for shopping goods and services at very low prices. 

 

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 T-mall 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.

 

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.

 

The Theory Behind E-commerce Training

E-commerce Case Study

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. 

 

T-mall Department of Merchant Operations

Merchant Operations

Taobao is famous for handling a million different kinds of goods. T-mall, 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. T-mall 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.

 

T-mall 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 T-mall 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.

 

T-mall Department of Merchant Operations does not have that many people in it—the T-mall 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 T-mall Top Team?

Taobao Mall

The T-mall Top Team is composed of the top 200 merchants that make up the Taobao Mall, i.e, T-mall. 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, T-mall’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 T-mall. Because of this, when the team sends out guides to train other stores on T-mall, the results are similar to the Vendors Training Department of Tao-U.

 

The difference is that T-mall 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 T-mall. As such, this team is also responsible for devising strategies for the T-mall platform itself. T-mall 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, T-mall’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 T-mall platform, as well as being the back-end support behind the release of new endeavors to the industry.

 

How Does T-mall Persuade the Members of the Top Team to Share Information Without Holding Back?

Tmall’s commercial environment

In comparison with Taobao, T-mall’s commercial environment is more complete and sound; that is, T-mall provides a more environmentally protective ecosystem. As an environmental protector, T-mall’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 T-mall essentially without any qualms—they know that they will not be buying fake or watered-down goods.

 

Because T-mall 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 T-mall and Taobao’s core tenets. They are the foundation of the entire ecosystem in which every vendor participates.

 

Will the T-mall Top Team Lead to the Matthew Effect?

Matthew Effect

Even though the Top Team is a consultant to T-mall 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 T-mall platform has the final say on any project waiting to be implemented. This team ensures that there are no potential problems. The T-mall 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, T-mall 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.

 

T-mall 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 T-mall store, he or she generally becomes less upset about the thing itself than about the reliability of T-mall.

 

T-mall own trust is cast in doubt. Because of this, whenever any small vendor on T-mall 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.

 

T-mall 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 T-mall can be divided into three levels. The first is for basic merchants, a market segment that includes mainly new stores that have joined T-mall 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 T-mall 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. T-mall invites experts and outstanding merchants in certain lines of business to deliver courses on such topics.

 

Cases of Very Creative T-mall Stores

Creative T-mall Stores

T-mall 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 T-mall 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 T-mall, people who enjoy eating specialty cherries and people who are worried about the quality of their powdered milk no longer need to 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 T-mall, 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.

 

T-mall 90-Day Virtual Training

Virtual Training

T-mall 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 T-mall 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, T-mall’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 T-mall platform. This high barrier to entry allows T-mall 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

T-mall Department of Merchant Operations plants a development assistant into the T-mall 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 T-mall training curriculum.

 

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

 

Small 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 T-mall’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 T-mall’s Department of Merchant Operations.

 

Primary-considerations merchant training is a training system that centers on what are called sectors. Small'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 T-mall’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 T-mall. 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 T-mall 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, T-mall has consistently held to the principle of concentration. The T-mall platform services around 80,000 vendors and is positioned to guide extremely important brands toward markets.

 

First, T-mall places a strong emphasis on restricting the number of product categories and 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, T-mall 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 T-mall’s Department of Merchant Operations serves as a guardian of the environment and fulfills its responsibility to help merchants grow.

 

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 those 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 a 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 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 T-mall 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 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 of 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 of Accounts

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.

 

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 a 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 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 are 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

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

The 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

The 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 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.

 

The 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 a new 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 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 T-mall 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 their 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 T-mall Incident

To have the merchants on T-mall operate in a more engaged and serious manner, on October 10, 2011, Taobao Commerce City (T-mall) 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 T-mall 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 T-mall 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 T-mall sites, and realize greater fairness between the two sites.

 

3. Separate out T-mall (B) and Taobao (C) stores and put an end-to enabling the T-mall 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 T-mall’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 T-mall 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. 

 

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. The web can imagine 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 a 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 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 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 user 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 as 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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