Taobao has a market share of 62% in China. It earned a revenue of around 100 million yuan which is equivalent to $15.4 million as of the financial year ending March 2021. Thus this makes us keen to know the business model of Taobao.
In this blog, we have covered the in-depth analysis of the business model of Taobao which includes its revenue model, value proposition, service segmentation, competitor analysis, etc. But before we start with its business model let us know about Taobao as a company.
About Taobao
Taobao was established by Alibaba Group on May 10, 2003. It provides a platform for small businesses and individual entrepreneurs to open an online store. It has over 500 million registered users on its platform and over a 60million regular users.
This is a marketplace that is quite similar to amazon.com, ebay.com, or even Buy.com.The websites mostly benefit sellers and buyers of China, Taiwan, Hongkong, and Macao. Taobao offers its sellers, both auction format and fixed-price sales.
in 2016 Taobao launched a function name “ask everything”, it became more popular in the Taobao system, in which consumers can ask questions regarding a product, concerns about a certain product, and they can also comment on that and the previous consumer of the product respond on it.
It expanded the business to consumer addition in 2008 the website expend Taobao Mall. with its domain. By the year 2013, it was the 8th most visited website in china and after these effective steps, the market shares of Taobao rose from 8% to 59% between 2003 and 2005.
Let us now start with the step-by-step business model of Taobao.
BUSINESS MODEL OF TAOBAO
The business model is used to determine a company’s plan for generating revenue. It determines the products or services the business plans to sell, its identified target market, and any anticipated expenses.
Taobao uses a freemium business model in which it allows its customers to use its site without paying any fees and provides premium services on a paid subscription. By using this business model it is able to capture more than 60% of the market share in China.
Let us now start its business model by looking at the revenue model of Taobao.
1. Revenue model of Taobao
Taobao generates its revenue mainly from these methods:
- Advertisement
It earns from the ads that the sellers put on its website to show their products on the top which is similar to paid search results. It has 1billion products and 8million sellers creating high competitiveness among them to show their product at the top which increases the price bit and creates a large amount of revenue for Taobao.
- Entry fees
It chares its sellers to open stores on its platform. The seller must also pay a 5% commission to the company after the product is approved to sell on the platform.
- Premium Gold Supplier Membership
Taobao provides its users with premium gold supplier membership in which it provides them with different premium services like the best sellers and products on the top or best deals, etc.
Let us now see the value proposition of Taobao.
2. Value proposition of Taobao
- Taobao creates opportunities with a business funnel by connecting both buyers and sellers.
- It provides a wide range of products and services in the market, making it convenient for its customers to get all the required products in one place.
- It provides its customer’s reliability of its products and services by providing them the best quality products in the market.
- They also provide their customers with quick responses and tackle all the queries of the customers.
- Taobao allows sellers to list their products at zero cost. and also provide some extra features like instant messaging with sellers and buyers and a payment solution called Alipay.
Let us now see the service segmentation of Taobao.
3. Services segmentation of Taobao
- happyTaobao – a television shopping started in 2009
- Taobao live – streaming service started in 2018
- Baopals – a shopping platform that translates Taobao and Tmall into English in February 2016
- Taobao introduced a new B2C platform, In April 2008, called Taobao Mall to appendage its B2C marketplace. Since then, Taobao has changed itself to a provider of quality, attractive goods for Chinese consumers.
Let us now see the promotional activities of Taobao.
4. Promotional activities of Taobao
Initially, Taobao used different methods to make its company a household name. It has partnered with large television shows and even advertised in movies to spread its word all over. It also partnered with major websites in china to promote itself. It even partnered up with a salient blogging website and allowed its users to use their accounts to shop at Taobao.
Let us now see the competitor analysis of Taobao.
Competitor analysis of Taobao
There are only two main competitors for Taobao in the market which are as follows:
- AMAZON
Amazon is an online marketplace where people from all over the world can buy and sell their products online. It has a market capitalization of over 1.777 trillion dollars. And due to its strong financials and dominance in the market, it makes a tough competition for Taobao.
- EBAY
It was started in the year 1995. It is an online auction website that provides its users to auction its products all over the world. It is one of the large competitors in the world in the online marketplace. Thus this makes eBay a tough competitor for Taobao.
With this, we come to the end of the Business Model of Taobao. Let’s conclude this case study in the next section.
Conclusion
On the analysis of the business model of Taobao, we have known that it has implemented its business model very well in the market. It was able to capture a large market share in China and still has the potentials to grow in the market.
It earns its revenue from mainly 3 different models which are advertisement from its sellers, the Entry fee for new businessmen, and premium gold supplier membership. They also provided its customers with different value proportions like a wide range of products under one roof, reliability, quick responses, etc. It also introduced different services like happyTaobao, Taobaolives, Baopals, etc. Taobao has mainly 2 competitors in the market which are Amazon and eBay.
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