Week 5 post - Lightweight models and cost effective scalability

INTRODUCTION

Eventually this week turns to business-related issues. How to maintain the cost-effective scalability is essential for a growing Web 2.0 enterprise even if it claims that relevant profit model has already been presented since the user base boomed. For the last time I will illustrate the weekly pattern with the example of a celebrated online platform in China. Now that we’ll be discussing business, Taobao is on top of the list for sure.

‘Taobao’ means ‘seek out the treasure’ and that’s what the founder motivates users to do at all times. If you ever know nothing about it, you must have known something about Alibaba, a Chinese Internet company founded by Jack Ma in 1999. Popularly the primary services include e-commerce and online payment. Now in the information era almost everyone is able to get access to the Internet and grab what they want so there’s such a tremendous market emerging out there. Taobao was established in 2003 and once accounted for about 80% of total online transactions. Actually, like the saying goes, ‘a journey of one thousand miles begins with one step’. Why did it come to success? There must be some reasons.

SCALE WITH DEMAND

You know what? Back in 2003 when Taobao was first put online, there were only 200 and more commodities on display, all of which were brought along by the core technical staffs from their home. However, 20 days later, guess what? Taobao owned the 10,000_th registered user. It was aiming for big because Jack Ma saw the business opportunities behind but starting from scretch. What’s really interesting was that Taobao was regarded as a trial at the very beginning but gradually it began to absorb into business of Alibaba which in fact was at a higher level. Today, it’s not a fruit of Alibaba anymore. Instead, it’s been the rich soil. The core idea really is to ‘make small big and then make big small(which actually is bigger)’.

SCALE YOUR PRICING AND REVENUE MODELS

Over 90% of Taobao users never pay a butt for using it, meaning that they’re free to get content and services provided by various suppliers. Taobao does value the user base and network effects because they set the foundation of page view. As long as people visit the website regularly, what they’ve done will create value continuously even if they don’t purchase anything. What Taobao really concerns is to coordinate the business issue but it won’t get involved in the disputes unless it’s required to.

Basically Taobao adopts the principle of ‘leveraging the long tail’ well. The website is user based providing personalized resources to the users so their target stuff will be highlighted frequently. For any supplier he can set up a shop free of charge but if he wants to earn, he is encouraged to pay first. Pay fast, earn fast, basically. That’s just one of the many approaches that Taobao profits. Think of the scalability that lies within.

FAIL FAST, SCALE FAST

As an example, last summer a fairly popular Chinese actor was put into prison because of taking drugs and what’s ridiculous was that on the second day, someone started to sell the same model of his prison garb on Taobao which obviously was illegal. However, this guy finally paid for it. On the one hand, the system loophole was exposed that limitations didn’t work so when it was getting bigger it may fail faster. On the other hand, also because it was scaling fast everyone was under the supervision of either competitors or consumers. In addition, Taobao spared no effort to crack down on lawbreakers. The outcome was that a new booming cycle would be on. In future, that’s still the mainstream.

References：
Pic_1.http://www.alizila.com/sites/default/files/Taobao_logo-jpg.jpg
Pic_2.http://si.wsj.net/public/resources/images/MK-AS266_TAOBAO_NS_20081008185219.gif
Pic_3.http://www.taobaospree.com/file/model/2013032117034210705.jpg
Pic_4.https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib9kaSLARDWt_0eNJVJcS3ukwbnMzSfO-K7TrPMfQrflzklVxFVG4JgcMPoYBLzNuyKZS6I83KoLANDVeFjBdnsfeOlyJfU89ZFCdwQrRM4_7P-ur5kfBIdJwR_ug0WC-NVlscWZt5XO4/s1600/taobao+item+search+go+to+taobao+shop+rating.gif