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Today, Alibaba is a family of ecommerce businesses, which The Wall Street Journal described as “comparable to eBay, Amazon, and PayPal all rolled intoone, with a stake in Twitter-like Weibo thrown in to boot.”1 Alibaba’s main trading platforms are Taobao and Tmall.Just like Ali Baba in the folk tale, Alibaba had humble beginnings. In 1999, a former English teacher named Jack Ma started the company with a team of 18in his apartment in Hangzhou, a city some 100 miles southwest of Shanghai. At this time, China’s explosive growth of Internet users was just beginning (seeExhibit MC 27.1). By 2015, China’s Internet users had grown to 675 million. Alibaba rode this wave of exponential growth to success. In comparison, theUnited States has some 260 million Internet users (less than 40 percent of Chinese Internet users).The number of Internet users in China seems to be reaching a plateau in recent years. Nonetheless, given the low percentage of online transactions incomparison to China’s total commerce, huge growth in per capita spending online is expected in the future.Initially, Alibaba’s website was a business-to-business (B2B) platform where China’s small and medium-sized businesses could showcase their products tobuyers around the world. Alibaba was not the first company to explore opportunities in introducing China’s manufacturing to global demand, but it was thefirst to do so online. In its first year of operation, Alibaba signed up new members at a rate of 1,200 per day. By 2002, the young startup was alreadyprofitable. By 2012, Alibaba facilitated transactions in nearly every country around the world.Alibaba vs. eBayAt the same time Alibaba was started, EachNet, another Chinese Internet venture, was launched in Shanghai. EachNet was founded by two Harvard MBAswho wanted to create a Chinese eBay, an auction site for locals to sell and bid for goods. By 2003, EachNet had 2 million users and 85 percent marketshare in China’s consumer-to-consumer (C2C) transactions. At the time, eBay was actively looking to expand in China and eventually acquired EachNet asits China operation for $180 million in 2003.Fearing eBay would lure small businesses away, Alibaba launched a competing C2C platform Taobao (meaning “digging treasure” in Chinese) as adefensive strategy. Unlike EachNet, which charged listing and transaction fees from sellers, Taobao was free for sellers. But Taobao’s free services did noterode EachNet’s loyal customer base. EachNet’s dominant market position meant more products and more opportunities for both buyers and sellers totrade. Although EachNet was competing head-to-head with Taobao on advertising campaigns, eBay made a decision to terminate EachNet’s homegrown
technology platform and move all EachNet users to eBay’s U.S. platform in 2004. At eBay, the internal term for this was “migration.” The intent was tocreate one global trading platform that would allow eBay users to trade with each other, no matter where they located.