The Driving Force of Technologies and Rules
“The supplementary RMB2 billion must be spent on technologies, innovations, new talent, and value chain construction over the next five years,” proclaimed Jack Ma during the fifth anniversary party for Taobao.com.
Lu Peng, the vice president of the Taobao Products R&D Center, felt a heavy responsibility fall on his shoulders. Lu left Silicon Valley in the US and joined Taobao last year. He is now in charge of the overall platform structure and technological background of Taobao.com. Lu used to construct large projects for multinationals like Oracle. He also established two companies, one them specializing in collaborative commerce.
“I was tricked by Jack Ma,” says Lu jokingly as he recalls how he was lured to join Taobao. The real reason he joined was because of Lu’s conviction that technologies will have a profound impact on business activities, and so does Ma. “In the coming years, Taobao will be driven by technologies,” predicts Lu Peng.
When Lu joined Taobao in June 2006, the daily transaction volume on the website was about RMB60 million (US$8.8 million). That figure is now nearly RMB300 million (US$44 million). Over the past year, Lu has not only done a huge amount of work on the design of Taobao’s technological structure and system optimization, but he’s also introduced an international vision for the website.
There is a strange phenomenon in the Chinese e-business field. Joyo.com, which was acquired by Amazon, looks more and more like its Chinese competitor Dangdang.com. But the Chinese Taobao.com looks more and more like the American Amazon.com. These changes are indicative of the visions. Amazon has already supplied cloud computing services to SMEs in the US, and cloud computing is becoming an important strategic development direction for future IT companies. There are only a handful of enterprises with this kind of ability and vision in China, and Lu Peng hopes that he can inject this new gene into Taobao.com.
Data is the most precious resource in Taobao, which currently generates 500G of user behavior data on a daily basis. Lu and his team need to use technologies to mine and apply this data in order to supply value-added services to users at various levels. Taobao’s profit model has been clarified under a technological warranty: apart from the basic service charge, Taobao also charges a promotional fee to companies on the B2C platform. It also offers them individualized data analysis services. Lu is planning to copy amazon.com and open an API on Taobao.com so that more software development organizations can develop e-business-related software on the Taobao platform. This, in turn, could further offer an array of products and services to those companies that rely on e-business. Chinese companies are chronically weak in IT, and Taobao wants to take the opportunity to penetrate this market with a relatively cheap cloud computing service.
Aside from technologies, Taobao’s rules are the other major force driving its development.
“If the servers constitute a visible infrastructure for the operations of Taobao, the rules are the invisible infrastructure of Taobao,” explains Liu Hanhui, the head of the Safety and Security Department at Taobao.com. Since Taobao has created its own new business world in China, the rules in this new world have a particularly important resonance for the existence of Taobao.
In Taobao, the fundamental rule is the Taobao service agreement which clarifies the relationship between the website and its users. The agreement is legally binding, and all rules are based on this agreement. Liu Hanhui is a lawyer, and she’s always busy stipulating all kinds of detailed rules for Taobao.com. “IT is an emerging industry, and we need to deploy all sorts of agreements and rules to develop and standardize this type of new business.”
Take Taobao’s credibility evaluation system rule for example. Liu says it’s designed to measure the credibility of a user, and the development of this kind of rule will gradually influence people’s real lives. When the rules of Taobao begin influencing reality, this new type of business will have an immense impact on the entire industry.
Before joining Taobao, Liu Hanhui was engaged in protecting intellectual property rights. After conducting thorough research in the ten major wholesale markets in China, she realized how pervasive fake products were in the consumer market, but concluded this problem was not particularly bad on the Internet. “I tend to correct the problems on Taobao by using business rules rather than force. We must follow the nature of the market and allow ‘survival of the fittest’,” says Liu. Taobao now has more than 60 agreements and rules, which have gradually become the business’s guidelines.
Who Stands by Your Side
Alipay is the payment subsidiary of Alibaba and China’s leading online payment service provider. Shao Xiaofeng, the current president of Alipay, has extensive work experience. For 20 years he worked as an award-winning detective. He was the vice president in charge of sales at Taobao before being appointed president of Alipay.
“Alipay now has 460,000 partners, and Taobao is just one of them,” says Shao. But despite the huge number of partners, Taobao accounts for 70% of its total payments. Shao’s task is to decrease this figure to 50% this year.
Taobao is the same. In five years, the website has built up a large number of external partners including all the leading banks, logistics companies, and express delivery companies in different cities. These organizations all have tailor-made services for Taobao. For example, the Industrial and Commercial Bank of China (ICBC), the largest bank in China, issues e-cards to Taobao users and offers them a smart-card service; courier service company ZJS Express provides a special express service for Taobao and charges a lower rate to sellers on the website.
In addition to the external partners, Alibaba also set up its own ecosystem, including Alipay’s payment tool, Alisoft’s IM tool, and Alimama’s sales and promotional platform, around Taobao. The open platform of Taobao has enabled the development of other subsidiaries of Alibaba.com.