When I was chatting with a few young people today, I surprisingly found out that half of them no longer bought things on Taobao, since they preferred high quality to low price, and had less time shopping online. Hence these young people turned to specialized online retailers that sold high-quality products of a particular field.
So shocked by my conversation with them that I looked through my own purchase history on Taobao and other specialized online retailers. After doing some research, I concluded that, indeed, the golden age of Taobao is over.
Taobao boomed as the first platform to bring manufacturers, dealers and consumers together, so that consumers could compare the price and quality for the same product among different shops on Taobao and choose the one they preferred.
Therefore, consumers can easily pick the best-received, cheapest, or best-quality products out of a sea of different items for a particular product without leaving home. Imagine the large amount of money and time that is spared.
Taobao soared ever since its establishment in 2003 and registered a sales volume of 1.17 trillion RMB in 2014, making it the primary contributor to Alibaba Group. However, that’s not the whole picture at all. In fact, Taobao’s growth rate has been declining since 2012, for example, Taobao’s sales volume merely increased from 1 trillion RMB in 2012 to 1.1 trillion RMB in 2013.
So can Taobao continue to soar?
The success of Taobao triggered the establishment of many other specialized online retailers that sold high-quality products of a particular field. These online retailers succeeded through filling in the gap of Taobao.
Such examples are abundant: since users can’t buy cheap brand goods on Taobao, VIPSHOP, a website dedicated to special sale offers, filled in the gap and has already garnered a market value of over 10 billion US dollars; since users can’t effectively manage their travel plans and tickets on Taobao, online accommodation reservation service providers such as Ctrip, Qunar and eLong arose in China and has already garnered a market value of over 10 billion US dollars in total; since shop owners can’t promote their products and discount activities in time on Taobao, Groupon service providers such as MeiTuan was set up one by one. By the way, MeiTuan’s market value has already reached 7 billion US dollars.
The list is endless: since Taobao doesn’t provide restaurant reservation service, Dianping, whose market value also reached 10 billion US dollars, came into existence; since Taobao can’t ensure the quality of electronic products on its platform, JD, with a market value of 40 billion US dollars, sprang up and became the biggest competitor of Taobao; since the varieties of books on Taobao is limited, Dangdang, a website specialized in selling books, emerged.
As more and more specialized online retailers sprang up and filled in the blank of Taobao, the golden age of Taobao is bound to be over soon.
I summarized the factors that might contribute to the demise of Taobao into the following five aspects:
First of all, Chinese consumers no longer preferred low-price products.
For many Chinese consumers, Taobao does have a large number of products on its platform and most of them are comparatively cheaper. In the past decade, Taobao boomed as the first platform to bring manufacturers, dealers and consumers together, so that consumers can compare the price, quality for the same product among different shops on Taobao and choose the one they preferred.
However, as Chinese people’s living standard is rising, people gradually attached more importance to quality, brand and service, than price. That’s why consumers turned to Tmall and other specialized online retailers and used Taobao only to figure out the price range of a particular product.
Jack Ma, the founder and executive chairman of Alibaba, was well aware of this trend and launched Tmall in time. Famous brands were invited to open official shop on Tmall and sell quality-ensured products to consumers. However, as the management cost of an official Tmall shop increases, many brands closed their shops on Tmall and turned to other online retailers, or even established their own platforms or apps.
Secondly, more and more specialized online retailers sprang up and filled in the blank of Taobao.
Nowadays, online consumers prefer to go to a specialized online retailer for shopping, since a specialized retailer will provide more detailed information to consumers and even help consumers compare different brands’ products, so that they can better decide which one they really need. However, users can’t enjoy this service on Taobao.
How come? If consumers want to buy a refrigerator, they can only search refrigerators of a particular brand on Taobao, yet specialized online retailer such as JD, Suning, and Gome allow users to search across different brands and choose the one they prefer.
In today’s China, consumers can go to JD to buy household appliances, go to Dangdang to buy books, go to Dianping to book restaurants, go to MeiTuan to enjoy groupon service, go to Gewara to book movie tickets, go to 58.com to find local services, go to Ganji.com to buy second-hand products, and go to Ctrip to find travel plans book tickets, etc. We can safely conclude that both Chinese consumers and shop owners on Taobao will gradually turn to more specialized online retailers. Eventually, Taobao will be replaced by specialized online retailers.
Thirdly, the operation cost of a shop on Taobao is rising.
For many small-scale shop owners on Taobao, they found at the end of a year their efforts in vain, since around 60% of their revenues were spent in promoting their shops.
While the number of old shops on Taobao is decreasing, new shops are also shut down one by one. While consumers can’t easily trust a shop, shop owners also wavers when deciding to open a shop on Taobao.
Although the number of registered users on Taobao and the annual sales volume is still increasing, the golden age of Taobao is already over.
Fourthly, consumers are no longer willing to spend much time when shopping online.
As is known to all, shopping on Taobao can be quite time-consuming since there are so many items for a same product on Taobao and it is typical for consumers to spend half an hour over an item that is worth less than 100RMB.
In the future, 80s and 90s will be the target consumers of online retailers. However, no young people bother to spend much time shopping online only to buy a product that is worth several RMB. Instead, they will turn to a specialized online retailer and buy the product at a roughly similar price.
Now that Chinese consumers put more emphasis on time instead of price, Taobao will definitely fall out of favor one day.
Finally, the rise of O2O business model is the last draw that breaks the camel’s back.
In today’s China, everybody is talking about O2O. While big-scale shop owners can establish their own online shops and develop their own apps, small-scale shop owners can collaborate with local websites such as Baixing.com and 58.com to sell their products. In this case, Taobao will gradually be driven out of the market by the increasing challenge from mobile Internet and the spread of apps.
In the future, shop owners will directly connect with consumers via local websites or other O2O platforms, instead of Taobao.Such platforms will help businesses better meet the need of their customers and provide more customer-friendly products.
In conclusion, the golden age of Taobao is already over.Even Alibaba has already put its emphasis on the quality-ensured platform, Tmall,whose sales volume increased from 100 billion RMB in 2012 to 500 billion RMB in 2014. No wonder, Alibaba’s future lies in Tmall, not Taobao.
However, the challenge for Tmall is to lower the operation cost for official shop owners and maintain as many shops as possible, otherwise shop owners might as well close their shops on Tmall and open websites or develop apps of their own, which will help them better meet the need of their customers and provide more customer-friendly products.
The golden age of Taobao is already over, and 2015 is the year of O2O, mobile Internet and community sharing economy, etc. No traditional businesses or online retailers shall ignore this trend.
（The article is published and edited with authorization from the author @Zheng Lishuai, please note source and hyperlink when reproduce.)
Translated by Levin Feng (Senior Translator at ECHO)，working for TMTpost.com