how-does-taobao-make-money

How Does Taobao Make Money? The Taobao Business Model In A Nutshell

Taobao is a Chinese eCommerce website, and it is among the most visited websites in the world. Within it also comprises its payment arm, Alipay. Taobao is part of the Alibaba Group, founded by Chinese tech entrepreneur Jack Ma. The company makes money via its Tmalls (e-commerce platform), and through Alipay, mostly via its Escrow service fees.

Origin Story

Taobao is a Chinese eCommerce website and it is among the most visited websites in the world.

The platform was founded by Alibaba Group in 2003 as a marketplace to facilitate consumer-to-consumer (C2C) transactions for small businesses and entrepreneurs.

alibaba-business-model

Initially, Taobao offered free listings to sellers and increased buyer-seller trust by incorporating Alipay – an escrow-based payment facilitation service. This saw the platform gain significant market share from eBay which was seen as a major competitor at the time.

In 2008, Taobao introduced the B2C platform Taobao Mall (Tmall) to complement its existing C2C offering. Two years later, the online shopping search engine eTao was introduced.

Taobao reacheda a billion product listings by 2016 and on the platform, most products are new and sold at a fixed price, but it does offer eBay-style auctions for some listings.

Taobao revenue generation

Considering how many transactions Taobao handles on an annual basis, the platform does not charge sellers or buyers a transaction fee.

Instead, it makes money by offering SEO-like advertising to sellers in much the same way that Google does. With more than 1 billion product listings spread across 8 million sellers, there is high competition between merchants to get the attention of buyers.

Merchants can choose between pay-for-performance or display marketing ads.

Tmall

As noted earlier, Tmall is the B2C arm of Taobao. With over 500 million active users, the platform allows Chinese and international businesses to sell brand-name goods to Chinese citizens.

Taobao makes money here by charging businesses to open a store on the Tmall platform. They must pass a stringent verification process and then pay a commission to Taobao for every subsequent sale. Typically this fee is around 5%.

As a real-world example, sunglasses retailer Lemon Optics paid a fee of around $25,000 to become verified and establish a shopfront on Tmall.

Alipay

how-does-alipay-make-money
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrows transaction fees, a range of value-added ancillary services, and through its Credit Pay Instalment fees.

Escrow provider Alipay also charges for its services on Taobao. Merchants are charged a 0.55% fee for every successful sale. The system is free to use for withdrawals under RMB 20,000 – or approximately 3,000 USD. Above this threshold, users are charged a 0.1% fee.

Compared to rates offered by traditional credit card companies and payment facilitators, Alipay is an extremely attractive option for merchants. At least theoretically, this increases ad revenue for Taobao as sellers compete for that buyer visibility.

Key takeaways:

  • Taobao is a Chinese eCommerce site founded by the Alibaba Group in 2003. It was initially created to counter the dominance of eBay in the Chinese market and increase trust between the buyer and the seller.
  • Taobao sells advertising placements to more than 8 million sellers on its platform. With high competition for visibility, advertising represents a lucrative source of income.
  • Taobao also charges Chinese and international businesses to open on B2C arm Tmall. After the initial setup fee, Taobao also charges a commission for every sale. Usually, this commission is around 5%. Escrow provider Alipay also charges users for its service. Here, low service fees are in part compensated by the huge volume of transactions on the Taobao platform.

Read Next: Alibaba Business Model ,What Does Tencent OwnWeChat Business Model.

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