A powerful dragon cannot crush a snake in its old haunts. – Chinese adage
Founded in April 2003 as a secret subsidiary of the successful Alibaba.com, taobao.com was taking on a formidable competitor from the Silicon Valley – eBay. Starting from a website built by a nine-person team in a month, quickly became the dominant online marketplace in China, driving eBay to irrelevance. Taobao.com reportedly booked $15 billion worth of online transactions on the few days surrounding November 11, 2016 alone. Meanwhile, November 11 was no longer a random date on the calendar. Since 2011, Taobao has given meaning to the day 11 by dubbing it the “double-eleven shopping festival”, a day of online shopping craze fueled by media promotion and large discounts. “Double-eleven” is now a registered brand of Alibaba.com. Both Taobao and eBay were backed by strong technology and capital, and eBay had a massive head start. Numerous researchers and commentators have done the post-mortem analyses this online-marketplace battle.
A “Dragon” poised to strike
Founded in 1995 and went IPO in 1998, eBay withstood the dot-com bubble market crash that destroyed many silicon valley companies in 1999. In 2003, eBay was growing from strength to strength. It just finished acquiring Paypal, the online payment company that was a keystone to eBay’s business, and entered China by acquiring a local online auction player, EachNet.com.
EachNet.com was founded in 1999 by a team in China inspired by eBay’s success. It almost replicated the business model of eBay, allowing users to put up second-hand items online for auction. It also encountered the same challenge as eBay, like the lack of secure online payment and fraud. While Paypal in the US resolved these challenges for eBay, EachNet attempted unsuccessfully to launch a similar service in China, hence many transactions took place offline, and buyers and sellers were thus limited to transact within the same city. Since EachNet was not able to complete transactions online, this partly contributed to the company’s struggle to monetize the marketplace. In addition, when EachNet tried to charge its users for listing, many customers turned away. The eBay-copy was not able to copy the success of the originator, but provided a good starting point for eBay in the Chinese market.
The “Snake” prepares in its cave
Alibaba.com built its success through providing a B2B service platform, listing small businesses on its website to gain exposure to potential customers. While Alibaba and eBay had no overlap business in the short term, Alibaba’s founder, Jack Ma, saw eBay as a threat. “In China, there are so many small businesses that people don’t make a clear distinction between business and consumer. Small business and consumer behavior are very similar. One person makes the decisions for the whole organization. We launched Taobao not to make money, but because in the U.S. eBay gets a lot of its revenue from small businesses. We knew that someday eBay would come in our direction.”
While eBay entered China through a conspicuous acquisition, Alibaba summoned a team of nine dedicated employees, made them sign very strict NDAs that forbade them to tell even their family about an upcoming secret project. Then the team told the “mission”, and was locked down in a separate location from Alibaba’s office to create an eBay competitor, named “taobao”, meaning “searching for treasures” in Chinese. The website slowly gained momentum, registering ten thousand users twenty days after its launch. The secret was well-kept even from most Alibaba’s employees. In June 2003, Jack Ma received a brief internal email: “Attention! A new website named Taobao has emerged!” Soon after, Ma publicly acknowledged the affiliation between Taobao and Alibaba, and announced $12 million investment into this platform.
The war begins
eBay integrated the Chinese platform to the worldwide system for centralized maintenance and design, and aim to infuse the “eBay formula” into the website, namely charging users for insertion, sale, and advertising, though at lower rates than outside China. eBay also invested in advertising through major websites, signing contracts that exclude its competitors.
In the contrary, Taobao launched a fee-free model for limited years, but extended it for multiple years. It also advertised through a large number of computer bulletin board services (BBS) in China. While the loss-making approach was dismissed by eBay as unsustainable, taobao was gaining popularity.
The Payment Battle
While paypal had significant difficulty launching its services in China, Taobao created Alipay, and resolved the trust and payment problem. Taobao eventually prevailed.
 Taobao story
 Alibaba 2016/11/11 sales
 Jack Ma quote: