Struggling with declining net profits and competition from other ecommerce platforms, Alibaba, China’s ecommerce titan, strategically invested in online shopping platform Taobao and achieved significant results in the first quarter. This shift involves the “Return to Taobao, the Users and the Internet” guided by the insights of Jack Ma, co-founder of the Alibaba Group. In this article, we will discuss what you should know about Alibaba’s new strategy and its effects on global retailers and brands.
What does the new strategy mean?
“Return to Taobao” reinstated the focus on consumer affordability, enabling numerous small and medium-sized businesses (SMBs) to offer competitive products and services. In its initial phase, Taobao seeks to establish a user-friendly platform for all merchants. During the leadership of Daniel Zhang, Alibaba’s ex-CEO from 2015 to 2023, the ecommerce giant shifted towards supporting corporate and brands merchants and experienced a loss of SMBs. Currently, 70% revenue of Tmall and Taobao comes from corporate merchants. With consumer confidence yet to fully rebound to pre-pandemic levels and the need to cut unnecessary spending, SMBs have become more strategically significant to boost the ecommerce giant’s vitality, as measured by the key metric monthly active users (MAU) and transactions.
Consequently, Alibaba’s decision to “Return to Taobao” is aimed at empowering these merchants and enhancing its own competitiveness.
Alibaba is now highlighting a user-centric approach, which entails improving the user experience and engagement on the platform. The objective goes beyond giving consumers access to premium and affordable products on Taobao by immersing them in a plethora of captivating social and video content offered by SMBs. This objective aligns with content-oriented ecommerce platforms, such as Douyin (China’s original TikTok), WeChat video account and Little Red Book, which have captivated a substantial audience of youthful users through short videos, livestreaming and social community. Surging transactions on these platforms demonstrate the importance of content to inspire customer action and facilitate conversions.
“Returning to the internet,” a tenet within Alibaba’s overarching strategy, means forging an open and mutually beneficial ecosystem, transforming Taobao into a platform that connects merchants with customers, rather than a closed and self-sustaining domain.
In the past, Alibaba faced accusations of employing a “pick one of two” approach, as Alibaba limited the number of competing platforms where merchants could sell their goods, leading to unfair market competition and subsequent regulatory penalties. Through this new transformation, Alibaba aims to reaffirm its commitment to make doing business with it easy for merchants and become more transparent.
Benefits of Alibaba’s new strategy
According to Alibaba’s first-quarter 2023 financial report, its revenue surged 14% year-over-year to 234.16 billion Yuan ($33.43 billion US), and Taobao’s average daily active users in June climbed by 6.5%. The data vividly illustrates the positive impact of the new strategy.
Alibaba’s strategic adjustment has led to a surge in exposure and orders for SMBs. Taobao’s historical traffic distribution imbalance favored brands, affected SMBs’ profitability and pushed them towards alternative platforms. To address this disparity and minimize the loss of these merchants, Taobao carved out an outstanding position named “Great Deal” on its homepage, exclusively designed for SMBs. This dedicated section is a lasting fixture aimed at granting SMBs’ sustained access to traffic and it is expected to inspire millions of orders for enrolled merchants. Notably, as of June 1, over 2 million SMBs have secured their first orders during this year’s 618 Shopping event.
Providing support to SMBs indicates Taobao’s need to improve the content dynamics of the platform and increase the number of products with low prices. As consumers become more cautiously optimistic and rational about spending money, Taobao desires to create or discover users’ demands with appealing content and low-priced products. This approach may contribute to the platform’s vitality and sales growth.
For Tmall and Taobao users, this transition could enhance their shopping experience by making it simpler to discover cost-effective products. Alibaba provides a substantial 10 billion Yuan ($1.4 billion US) in subsidies across diverse product categories, giving consumers the chance to acquire the same items at reduced prices. Furthermore, as Taobao actively promotes content formats like livestreams, short videos, and technological enhancements (AI makeup, digital humans, unique recommendation algorithm, etc.) throughout the shopping journey, consumers are treated to a more engaging and enriched consumption experience.
The new strategy further harnesses the potential of user traffic. According to Alibaba, users dedicate nearly one-fifth more time to engage with Taobao during nighttime hours, mainly focusing on livestreams, short videos and communication with customer service. To leverage this traffic, Taobao introduced the “Night Life” function, featuring common items found at night markets, such as midnight snacks, drinks, clothes, necklets and more. This function creates a nighttime avenue where SMBs can connect with a larger consumer base and increase sales.
Potential drawbacks of Alibaba’s new strategy
In the process of aiding SMBs, the prestige and high-end image associated with Tmall’s brand may potentially be influenced. Unlike brand merchants, managing SMBs poses a greater challenge due to their sheer numbers and the varying quality levels of their products — ranging from authentic to counterfeit or subpar. Although these products might offer cost savings, they risk diluting the overall product standards on the platform.
Moreover, high-end fashion and luxury items are integral to Alibaba’s business vision. However, these brands avoid juxtaposing their products alongside everyday items like instant noodles. Similar challenges might arise more frequently. As Taobao prioritizes SMBs, emphasizing discounts and cost-effective products, there is a potential risk of losing both merchants and consumers of high-end goods. Striking a balance between luxury brands driving revenue and SMBs enriching content poses a challenge that the platform must tackle.
From the perspective of consumers, with an influx of less-established SMBs joining Taobao, the risk of encountering counterfeit goods and subpar after-sales service potentially increases. This possible outcome could lead to a decline in repeat purchases and diminished user loyalty. Notably, SMBs are more willing to experiment with soft order transactions than brands to accumulate product sorting weight for better traffic. The harm caused by these soft orders not only erodes consumer trust in Taobao but also undermines fair competition on the platform. Although Taobao has taken supervision measures to publish fraudulent merchants with fake orders or products with copied content or without registration and authorization, it is still complex to manage and eradicate them completely.
Taobao is an immensely vast ecosystem where even a minor change can trigger a significant impact. Years ago, Taobao underwent category traffic weight adjustments, which compelled numerous businesses reliant on category traffic to resort to practices like soft orders to enhance their product sorting weight. Any shift on Taobao could influence the consumer experience, thus strategies should be practiced after careful consideration.
The approach to address this challenge might involve a deeper integration of AI and big data to create a personalized experience. Currently, Taobao has the capability to uncover numerous consumer preferences, but these tags are gradually distorted under the impact of interest-based ecommerce on platforms like Douyin, which is another challenge to face. Additionally, providing greater exposure to high-quality content can facilitate transactions while decreasing the auction traffic taken by SMBs.
Overall, Alibaba’s new strategy focuses on affordability, improving the user experience and connecting merchants with customers is paying off in higher revenue. Benefits include increased exposure and orders for SMBs, an enhanced shopping experience with easier product discovery for affordable items and big crowds on Taobao at night, thanks to content like livestreams. Potential drawbacks include the risk of more counterfeits and subpar products, which could affect consumers and premium sellers.
Franklin Chu is managing director US for Azoya International, a provider of turnkey cross-border e-commerce solutions to assist retailers looking to expand into China through a cost-effective and lower-risk method. In recent years, over 100 retailers and brands in 12 countries have partnered with Azoya to expand into China with ease, including French fashion retailer La Redoute, Australia’s largest pharmacy group, Sigma, as well as Feelunique, the largest online beauty retailer in Europe.