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History of E-commerce Development (1991-2021)#

Twenty years ago, Alibaba was still trying to break out from the Chinese e-commerce group, and twenty years later, it has grown strong enough to compete with the global e-commerce giant Amazon for the title of "the world's number one e-commerce." Copyright belongs to the author; any form of reproduction requires contacting the author. Global e-commerce has developed rapidly over the past 20 years, and it is shaking the boundaries of all businesses. However, the origin of all this can be traced back to Jeff Bezos, the founder of Amazon. This company, based in Seattle, USA, was founded in 1995, and its founder Bezos conceived the business blueprint for Amazon in a garage of a residential house. Perhaps this also explains the question of "why the walls of Amazon's headquarters are uneven and look very much like a garage"; maybe this is Bezos's garage complex.

In the early 19th century, the retail market in the United States was in its infancy, and it tells how the American retail industry gradually developed, transitioning smoothly from traditional commerce to electronic commerce. The early development history of American e-commerce giants like eBay and Amazon. Another reason I start with American e-commerce is that the early development models of emerging e-commerce markets today are all imitating the United States, with very few success stories. Understanding this, we can comprehend why e-commerce in developing countries (including their brands and enterprises) is heading in a different direction.

You find yourself in the Nebraska plains of 1875, with the summer sun shining on your wheat field, and a bountiful harvest in sight. You have been cultivating this 160-acre wheat field for five years and have finally obtained land ownership from the government. "Thanks to the Homestead Act," you think to yourself. The harvest season has arrived, and from now on, all the profits from this wheat field belong to you.

The rooster crows, and a new day begins. You step outside, tie a few horses to a mechanical harvester, then sit on the harvester, tighten the reins, whip the horse's rear, and shout, "Go!" The horses start running. However, the wheels behind you squeak, and before the vehicle has fully moved, you hear a loud cracking sound! The horses veer to one side, and the harvester loses control, wobbling to a stop.

"Damn!" you think, "It must be the worn-out strap on the harness that broke." You jump off the harvester to check the harness for issues, only to find that the strap is beyond repair. You need a new harness. So, you unhook the horses, take off the harness, and saddle the strongest horse, leaving the others in the field, and ride straight to the town's grocery store. This journey takes an hour.

As you ride along the dusty road, you encounter several nearby farmers, some of whom are working in their fields. Wooden houses and wheat fields dot the countryside, with some houses still inhabited while others are deserted. Farmers feel that life in remote areas is too harsh and lonely, far inferior to life in large towns or cities.

After an hour of riding on the dusty road, you arrive in town. The so-called small town is just a few wooden houses. You head straight for the grocery store. It is a two-story wooden structure, and the town's church is also inside. You tie up your horse, walk through the revolving door into the grocery store, and see a few familiar faces, which makes you happy.

As soon as you enter the store, the grocery store owner, Lee Adison, calls out loudly, "Ah, look who’s here!" You greet everyone in the store and shake hands with other farmers, then sit in a rocking chair, with a table made of two empty barrels in front of you. The grocery store owner’s wife, Gina Adison, immediately pours you a glass of lemonade and places it on the table in front of you. "Have some soda and take a break," she says, "Take your time to talk."

"What brings you here?" Lee asks.

"My harness broke this morning, and I hope you have some for sale."

"There should be some in the warehouse, $50 a set. Let me check."

Lee walks to the back of the grocery store, and you turn to chat with your friend John Moore, who lives on this street. "Fifty dollars?" you whisper, "Old Lee is a good guy, but $50 for a harness is a bit steep! Running a farm is a good business, but in my next life, I’d rather run a grocery store; that business is the most profitable."

"I get what you mean," John replies, "Old Lee is a good man, but while we’re sweating in the fields, he’s sitting here drinking lemonade and making big bucks. However, since I got the Montgomery Ward catalog, I buy all my expensive products from there."

"Montgomery Ward? What is that?"

John leans in to ensure Lee can't hear him, then pulls out a small booklet with "Montgomery Ward Catalog" printed on the cover. "Take a look," he says, "I bet the prices for harnesses in the catalog are only half of what Old Lee charges."

You feel curious and flip through the booklet, discovering a range of harness products, with such variety that it astonishes you—there are double horse, single horse, extended versions, plow harnesses, and even harnesses for goats.

Your finger slides down the page and you find a double horse harness for only $25! "Told you," John says, "You can receive the product in just a few weeks. In the meantime, I can lend you my harness. If you don’t like the new product, you can return it, and the seller will give you a full refund."

"But can these people be trusted?" you ask him, "There are plenty of unscrupulous merchants nowadays."

"I usually pay cash on delivery. When you pick up the goods at the American Express office, check them first. If you don’t like it, you can send it back. You only pay when you’re satisfied."

"No penalties?"

"Not a penny. My wife and I are planning to place an order next week; if you want, you can join us."

You accept John's suggestion and place an order with him. You don’t have to pay for shipping on this order, so you add two more items: a new handheld makeup mirror for your wife and a harmonica for your son.

"Keep this catalog," John says, "After placing the order, they’ll send me a new catalog."

You hear Lee's footsteps and quickly put the catalog into your small backpack. "Let’s not tell anyone for now," John says, "I don’t want to upset Old Lee; I run into him at church on Sundays."

Lee returns to the store with the harness. "I found what you need," he says loudly, "Come take a look."

"Thank you, Old Lee, this harness looks great, but I’ve already found another way. How much for this lemonade?"

"Alright, sir, suit yourself," Lee says with a puzzled expression, "No problem, the soda is on me."

You place a penny on the table and shake hands with Lee to say goodbye. He gave you a glass of fresh lemonade, and you always want to show appreciation. "Thank you, Old Lee, it’s great to see you."

You walk out through the revolving door, unhook the reins, and ride off. Lee watches your figure riding away, scratching his head, and turns to his wife, saying, "This young man is quite nice, but he surely didn’t come all this way just for a glass of lemonade, did he?"

Evolution of Retail#

Whenever people mention the pioneers of e-commerce, the first names that come to mind are undoubtedly Jeff Bezos, the founder of Amazon, Pierre Omidyar, the founder of eBay, and even my former boss Jack Ma, but few think of Aaron Montgomery Ward. In fact, Montgomery Ward initially gave me the impression of a dilapidated grocery store in the shopping mall near my home.

However, Montgomery Ward himself can be regarded as the Jeff Bezos of his time. If there had been a TechCrunch Disrupt in 1875, Montgomery Ward would have undoubtedly been the center of attention. His business model changed the shopping habits of people in the American West and was highly innovative and disruptive.

When you reach the age of 80 and quietly reminisce about the past, the memories reflect a life full of personality, and the series of choices you made back then were so meticulous and significant. Ultimately, it was self-determination that achieved self-fulfillment.

Jeff Bezos's Graduation Speech at Princeton University

In addition to the rough walls, Amazon has some other aspects that are much talked about. For example, employees can bring their dogs to work, and the company has even designed water fountains specifically for dogs.

▲ Amazon employees writing and discussing work in the elevator

From initially only selling books online, Amazon has expanded its business to provide customers with home goods, food, clothing, jewelry, and more. Amazon's business landscape continues to grow. In the 2016 ranking of the world's 100 most valuable brands, Amazon ranked 8th.

▲ Amazon Headquarters Building

Not only Amazon, but there was also an e-commerce company in the United States founded in 1995, which once entered the Chinese market and was later "kicked out" by Alibaba—eBay.

▲ eBay's slogan

Unlike the process of Bezos conceiving Amazon's grand blueprint, eBay's founding was a romantic journey. Pierre Omidyar, a software engineer in Silicon Valley, had a girlfriend who loved Pez candy dispensers but couldn't find anyone to share her passion with, so Omidyar directly established an auction website for collectors and enthusiasts to communicate, which was the initial process of eBay's creation.

▲ eBay webpage

The differences between eBay and Amazon are not only reflected in their founding purposes but also in their business models. eBay operates on a consumer-to-consumer (C2C) online auction model, while Amazon operates on a business-to-consumer (B2C) model. Regardless of the model, both Amazon and eBay have proven that e-commerce is an inevitable product of the rapid development of the internet. Alibaba's rise in Chinese e-commerce dates back to 1995 when the Chinese e-commerce giant was still in its infancy. That year, Jack Ma was introduced to the internet at a friend's house in Seattle and returned to China to start the China Yellow Pages website, providing merchants with product supply and demand information and ordering channels, which was the embryonic form of Alibaba.

The Shaw Group was one of the first companies on Wall Street to register a URL (Uniform Resource Locator, also known as a web address, is the standard resource address on the internet). Internet records indicate that Deshaw.com was registered in 1992. Goldman Sachs entered the internet in 1995, and Morgan Stanley joined in 1996.

David had used the internet and its predecessor ARPANET when he was a professor in his early years, and he was very enthusiastic about the commercial and social value of this unique global computer network. In 1985, during an astrophysics class at Princeton University, Bezos first encountered the internet, but it wasn't until he joined DESCO that he realized its commercial potential. David and Bezos met weekly, and during these hours, they brainstormed about future technological waves. Bezos noted these ideas and researched their feasibility.

As early as the beginning of 1994, several forward-thinking business plans were brewing in discussions among Bezos, David, and other employees of the Shaw Group. One of them was the idea of providing users with free email services with advertising—this led to today’s Gmail and Yahoo Mail services. DESCO introduced this idea to a company called Juno, which went public in 1999 and soon merged with its competitor Net Zero.

In addition, DESCO also provided a new financial service model that allowed internet users to trade stocks and bonds online. In 1995, David established a subsidiary called Farsight Financial Services, turning this idea into reality and leading the way for electronic trading companies. He later sold it to Merrill Lynch.

David and Bezos were also brewing another idea, which they called "the everything store."

At that time, several executives at DESCO believed that the idea of creating "the everything store" was very simple: the internet company would be a bridge between customers and manufacturers, and almost all products in the world could be purchased. Previously, people believed that business elements included customer feedback on products left behind when customers left the store; the former Montgomery Ward department store determined its product catalog based on customer feedback, believing that this information was more credible. In a 1999 interview with The New York Times, David confirmed the concept of an online store, saying, "This idea means that some people can profit as intermediaries. The key question is, who will be the intermediary?"

David firmly believed in the importance of the internet, which sparked Bezos's interest, and he began to study the development of the internet. A writer and publisher from Texas, John Quarterman, founded Matrix News, a monthly news magazine that praised the internet and explained its future commercial value. A series of numbers published in the February 1994 issue was particularly shocking. For the first time, Quarterman categorized the growth trajectory of the World Wide Web and pointed out that for the vast majority of users, a simple and user-friendly interface was more attractive than other network technologies. In one chart, he displayed a series of bytes—binary numbers—showing that from January 1993 to January 1994, the network transmission speed increased by 2,057 units. Another chart showed a data packet—a unit of data—where the network transmission speed increased by 2,560 units during the same time period.

From this series of data, Bezos inferred that the entire network operation had increased by about 2,300 units that year—equivalent to a growth of 2,300%. Bezos later said, "Nothing can grow that fast; it’s simply extraordinary, and it made me think for a long time. What industry can share in the high growth rate of the internet?" (During Amazon's early days, Bezos often mentioned in speeches that it was the internet's "2,300%" annual growth rate that made him dissatisfied with the status quo. This became an interesting historical footnote—Amazon was founded on a mathematical error.)

Bezos believed that the plan for an "everything store" was impractical—at least initially. He made a list of 20 product categories, including computer software, office supplies, clothing products, and music. Ultimately, he determined that the best choice was books. Because they are pure products; a book from one bookstore is identical to a book from another store, allowing buyers to choose any channel to purchase. At that time, there were two major bookstores, Ingram and Baker & Taylor, so a newly established retailer did not need to personally contact thousands of publishers. More importantly, there were 3 million books being published worldwide, far exceeding the inventory capacity of Barnes & Noble or Borders bookstores.

You want to stay at the Shamrock Motel No. 6 in Texas, but it is fully booked, so you have to stay at a motel called Rambler. When McKeach sees the room that night, he refuses to take off his shoes while sleeping. A day later, they stop at the Grand Canyon to enjoy the sunrise there. At that time, Bezos was 31 years old, and McKeach was 24, and they co-wrote this entrepreneurial story, making hundreds of millions of internet users and aspiring entrepreneurs remember many imaginations.

More than a year later, Jeff Houlton contacted Bezos again. By this time, Bezos had settled in Seattle, and he emailed Houlton with a link to a website. They now call it Amazon (Amazon.com). The website was still rough, mostly filled with text and not very attractive. Houlton bought a few books through the site and provided feedback. Another year passed, and a few months after the non-infringement agreement signed between Bezos and David expired, Houlton's phone finally rang.

It was Bezos calling. He said, "It's time; let's act now."

In the spring of 1995, Bezos and Kaffen released the web test version and invited a dozen friends, family, and former colleagues to try it out. At that time, the website's content was very sparse, and the text on the page only supported the most basic version of browsers, with slow loading speeds. "There were about a million entries, and the prices of goods were always very low." The text on the page was accompanied by a poorly designed logo: a giant letter A against a marble blue background, with a river winding through the letter A. For knowledgeable people, the site had little appeal because they preferred to browse the shelves of bookstores and libraries. Susan Benson's husband, Eric Benson, a former colleague of Kaffen, said, "I was thinking at the time that people couldn't possibly buy books online." Later, the couple became senior employees at Amazon.

Kaffen invited a former colleague, John Wainwright, to try it out, and Wainwright became their first customer, completing Amazon's historic first order: Douglas Hofstadter's scientific work, titled "Fluid Concepts and Creative Analogies." That was April 3, 1995. Today, the building in Amazon's Seattle campus is named "Wainwright."

Although the site was not outstanding, Kaffen and Davis accomplished a lot of work in those months. They designed a shopping cart icon, a secure way to enter credit card numbers, and realized the idea of opening a browser to search for the catalog of published books on the CD-ROM, which originated from R.R. Bowker, the supplier of the International Standard Book Number in the United States. Kaffen and Davis also developed a system that allowed readers to obtain book information through early internet services (like Prodigy and AOL) and order via email—even though the business was not fully rolled out.

In the difficult early days of creating the network, this was cutting-edge technological innovation; computers were very rudimentary, and technology was constantly evolving. At that time, the Hypertext Markup Language standard itself and the Web vernacular had only been around for five years, while modern language systems like JavaScript and AJAX would not appear for many years. Amazon's early technical staff referred to the computer programming language as C language and decided to store the website and catalog in a ready-made Oracle database, where traffic could not be seen at that time but would show up later.

In the early days of the website launch, every order made Amazon employees exceptionally excited. When someone placed an order, a bell would ring on Amazon's computer, and everyone in the office would crowd together to see if they recognized the customer. (A few weeks later, the bell rang so frequently that they had to turn it off.) Amazon began ordering books from two major wholesalers at wholesale prices, which were half the price marked on the books. Amazon's early supply channels lacked technical content. Initially, the company had no inventory. When customers ordered books, Amazon would order them, and the books would arrive within a few days. The company would first place the books in an underground warehouse and then deliver them to customers. Sometimes, it would take a week for the books to reach customers, and popular books could take several weeks or even more than a month to be delivered.

At that time, Amazon could only earn a meager profit from most orders. The prices of bestsellers and highly sought-after books were 40% cheaper than the marked price. For other books, the company offered prices 10% lower than the marked price; for orders of just one book, Amazon would also charge a shipping fee starting at $3.95.

The initial problem was that book wholesalers required retailers to order at least ten copies at a time. Amazon did not have that much sales volume at the time, but Bezos was proud of the courage to overcome difficulties back then. He said, "We discovered a loophole in the wholesalers' ordering rules; their system was designed so that you didn't really have to buy ten books, but you had to order at least ten. We found a book about 'lichens' that was in the system but out of stock. We started ordering one book we wanted and nine copies of 'lichens.' Then they would send us the book we needed, along with a note: 'Sorry, our book is out of stock.'"

In early June, Kaffen spent a weekend coding a special overview. Bezos believed that if the Amazon website had more user reviews than other sites, it would be very beneficial for the company's development, and customers would not visit other online bookstores. They had discussed whether these unfiltered reader reviews would get the company into trouble. Bezos decided to strictly control reviews with aggressive content rather than browse through all of them before posting.

The early startup period was not smooth; after Jack Ma went out to raise funds, he returned to tell the team that he had rejected 37 investment institutions one after another. But the truth was that none of the 37 investment institutions believed in his judgment that the e-commerce industry would eventually rise. At that time, not many people knew what the internet would develop into, let alone doing business online. Jack Ma's rise and the story of Alibaba's emergence are already well-known, but it is still necessary to recall how Alibaba became the leader in the Chinese e-commerce market, especially to review how Alibaba's business model evolved from the models of eBay, Amazon, and other Chinese e-commerce platforms, while also presenting unique characteristics. Reviewing Alibaba's story helps to illustrate the development process of e-commerce in China and explains how e-commerce can develop in emerging markets that are similar to China's national conditions.

Jack Ma was born in Hangzhou in 1964, coming of age during China's reform and opening up. He was very interested in English and liked to make friends with foreign tourists visiting Hangzhou. At that time, there were only a few cities in China that opened to tourism, and Hangzhou was one of them. Jack Ma took foreign tourists to see the famous West Lake and took the opportunity to practice his English. His love for English made him an English teacher. He took the college entrance examination three times, failing the first two due to poor math scores, but finally got admitted to a normal college on the third attempt. After graduating from university, he worked as an English teacher for five years and then resigned in 1994 to start a business, founding Hope Translation Agency.

With the surge in product exports from China's eastern coastal areas, the business volume of Hope Translation Agency also rose sharply, as small and medium-sized export enterprises sought its services to translate marketing materials into English. Over time, Jack Ma discovered that the biggest challenge faced by these small and medium-sized enterprises was finding overseas buyers for their products. Traditional methods like trade shows and creating product catalogs were too costly, and by the time the catalogs were printed, the content was almost outdated.

In 1994, Jack Ma took a trip to the United States, where a friend introduced him to the internet, and he suddenly had an idea: to create a website that could connect Chinese enterprises with overseas customers. Upon returning to China, he founded China Pages, an English online directory website that specialized in providing information about Chinese enterprises and is now regarded as the first internet company in China. As the company continued to grow, a local telecom company supported by the government noticed China Pages, and its management persuaded Jack Ma to form a joint venture. However, when he and his new partner had different views on the future of the internet, he left China Pages and was hired by a government department in Beijing that helped small and medium-sized enterprises use the internet.

Shortly after arriving in Beijing, Jack Ma discovered that the government officials he worked with only wanted to use the internet to control China's small and medium-sized enterprises rather than empower them. He decided to leave Beijing. In 1999, just as the internet wave began to sweep across China, he gathered 17 friends in his apartment in Hangzhou to found Alibaba (Alibaba.com). He hoped this website could help global enterprises discover new business opportunities and share the wealth of e-commerce.

Jack Ma's 17 partners

Alibaba was founded in 1999, with a total of 18 founders, known as the "Eighteen Arhats of Alibaba Entrepreneurship," including Jack Ma, Zhang Ying, Sun Tongyu, Wu Yongming, Sheng Yifei, Lou Wensheng, Peng Lei, Ma Changwei, Han Min, Xie Shihuang, Dai Shan, Jin Jianhang, Jiang Fang, Zhou Yuehong, Shi Yufeng, Rao Tongtong, Jin Yuanying, and Cai Chongxin.

Notably, Sun Tongyu was Alibaba's third employee and held a position second only to Jack Ma, earning the nickname "God of Wealth." Additionally, Sun Tongyu is also the founder of Taobao, known as the "Father of Taobao." He left Alibaba in 2008 and later achieved great success by investing in Pinduoduo, proving to be an impressive figure!

While eBay, Dangdang, and Zhuoyue were trying to get consumers accustomed to online shopping, Alibaba focused solely on building a business-to-business (B2B) e-commerce trading platform. Alibaba was not the only new internet company in the B2B field; MeetChina.com was also one of them, while traditional directory companies like Global Sources were transitioning to online business models.

I joined Alibaba in 2000, at a time when the vast majority of Americans, including myself, were not familiar with the import and export business of small and medium-sized enterprises. Where do the metal springs of the ballpoint pens we commonly use come from? I had no idea. Where were the plastic buttons installed in our backyard's automatic sprinkler system produced? I didn’t know either. I only knew that they just appeared on the market. However, in the eastern coastal areas of China, thousands of factories, large and small, were busy producing various components, product assemblies, textiles, and everyday goods.

As early as 2000, Wall Street investors and analysts often said that the most "elusive" thing in the B2B market was to create an end-to-end trading platform where importers could wholesale with just a click of a mouse, similar to how people ordered books on Amazon. "Imagine," they said, "the global trade volume is $6.8 trillion, and even if the B2B market only earns a 1% transaction commission, its scale would reach the total of 100 Amazons."

Both importers and exporters wanted to push the risks onto each other, and disputes were often inevitable. If you were to procure 1,000 champagne glasses for a hotel, price might be the most important variable; but if you wanted to print "Welcome to the 2001 US Open" on the surface of those 1,000 glasses, the delivery time might be even more crucial. After all, if the exporter couldn't deliver on time before the tournament, those glasses would lose their value. Moreover, if the glasses broke during transport, who would bear that risk?

We quickly abandoned the idea of creating an end-to-end trading platform for businesses because we knew that the greatest value Alibaba could provide to customers was helping small and medium-sized enterprises find business partners, which was the opportunity Jack Ma observed while providing translation services for exporters. So, we created a fully open market instead of forcing buyers and sellers into an end-to-end trading platform. Alibaba played the role of an interactive trade fair, providing sellers with a "booth" and then offering them the tools and methods needed to decorate their "booth," leaving the rest of the work to them. Alibaba did not charge sellers transaction commissions because we knew they would find ways to avoid paying commissions; instead, we only charged an annual booth fee and sold other services, such as paid keyword listings and priority displays of similar products. If they met certain standards, they could also receive "Gold Supplier" certification.

In contrast, our competitors stubbornly promoted closed market strategies, trying to keep importers and exporters within their fenced areas and regularly charging a percentage of sales commissions through their platforms. Naturally, customers with entrepreneurial spirit and independent thinking would not buy into this. Soon, our competitors either went bankrupt or gradually faded away. After a period of effort, Alibaba finally became profitable in 2002, becoming one of the few surviving companies in the B2B field; more importantly, Alibaba made people more confident that the open market model was feasible. This model empowered sellers with customizable stores instead of confining them to a closed end-to-end platform. When we later went to war with our strongest competitor eBay, this part of Alibaba's corporate DNA played a significant role.

▲ Jack Ma and the "Eighteen Arhats"

Perhaps when Jack Ma passionately shared his e-commerce dreams with his team, many people thought it was unbelievable (the boss was joking again). It wasn't until today, when people marvel at the business miracle created by Alibaba, that they realized the foresight of its founder, Jack Ma.

When Taobao was established, Jack Ma explained his reasoning: "In today's world, only two companies know how to create and operate online markets, one is eBay, and the other is Alibaba. eBay is now focused on the Chinese consumer market, but they will eventually snatch our customers, namely small and medium-sized enterprises. At that time, our B2B business will be threatened."

From the day it was founded, Taobao was essentially a clone of eBay. However, in the following months, Taobao continuously evolved, ultimately transforming into a new species more suitable for the Chinese market. Western analysts often believe that Taobao's ability to defeat eBay in the Chinese market is due to government support. However, I believe that Alibaba met the specific needs of the local market rather than simply imitating eBay and Amazon's models, which is the main reason for its success.

In the American market, Amazon's business model is essentially to move the "Walmart economy" online, relying on high sales and low-cost models, saving costs through scale and high technology, thus creating a retail giant. eBay's business model, on the other hand, moved the "yard sale economy" online, creating a market for second-hand goods and collectibles. In contrast, Taobao moved the "mom-and-pop store economy" online, providing small retailers with new opportunities to open stores and sell products. This model is more suitable for the retail environment in China because the retail industry in China at that time had many similarities with the American retail industry during Montgomery Ward's entrepreneurial days, yet it was far from the environment in which Amazon or eBay rose.

At Alibaba, we found that the small retail store owners who joined Taobao had something in common with Alibaba's small and medium-sized enterprise customers—they all hoped to have an online store where they could find and attract buyers, without letting intermediaries restrict their freedom and siphon off their meager profits. If they could obtain information about potential online buyers, they could sell their products, make deals with buyers, and fulfill orders creatively; and they were already doing this offline.

For example: a shopper finds a sweater online that she likes, but she has questions about the material, such as whether it will shrink after washing; she also wants to know if the seller can offer a discount if she buys two more as gifts for friends. On Taobao's platform, she can communicate with the seller via phone or instant messaging to negotiate the terms of the transaction and can directly visit the seller's online boutique to select products. If both the buyer and seller are in the same city, the buyer can ask the seller to send an assistant to her neighborhood to let her touch and feel the fabric of the sweater before she makes her final decision. Of course, this method is inefficient, but for a small seller who only does a few transactions a day, it is worth it. Most importantly, this approach resembles the transaction methods that Chinese shoppers are already accustomed to, so it works well.

In addition to providing a market more suitable for Chinese users, Taobao also announced that buyers and sellers could use its services for free for five years. eBay publicly mocked this policy, saying, "Free is not a business model." However, at that time, Chinese enterprises were still half-hearted about the potential of e-commerce, and against this backdrop, this policy helped to enhance sellers' confidence, letting them know that opening an online store would not incur any risks. Jack Ma always said, "We will only try to make money after our customers have made money using Taobao." In contrast, eBay charged sellers listing fees and transaction fees, making it difficult for sellers to afford the platform.

The biggest mistake eBay made was migrating the platform of eBay China to eBay's global technology platform, resulting in a "de-localization" effect for eBay China, losing the local appearance, feel, and functionality that Chinese users loved. The speed at which eBay rolled out new features also slowed down significantly because any decision had to be approved by its headquarters in San Jose, California.

After Jack Ma declared war on eBay in the Chinese market, Taobao's C2C market share skyrocketed from 7% to 83%. In 2006, eBay closed its Chinese version of the website, officially withdrawing from the Chinese market. Although eBay achieved many successes before and after entering China, it ultimately lost the Chinese market. Today, eBay has become a classic case in MBA courses warning foreign companies not to rashly enter the Chinese market.

▲ Alibaba's 10th Anniversary Celebration

It is hard to say how many people mistakenly believe that Jack Ma is the number one person in Chinese e-commerce; in fact, the true number one is Wang Juntao, who founded China's first online book sales website—8848.

Customized Stores#

To satisfy sellers, Taobao allows them to create vibrant and exciting interactive online stores within the Taobao marketplace. Alibaba provides online trade fair "booths" for exporters, and similarly, Taobao provides a space for small retailers to express their ideas and make their stores unique. These sellers do not have the tools or expertise to independently create efficient websites, so Taobao allows them to create their own store pages. This work can be done on the Taobao platform, so sellers will not get lost in the vast ocean of the internet. The stores provided by Taobao are highly customizable, so sellers do not need to create their own websites. Many sellers print their Taobao store links on business cards, so whenever they promote their stores, they bring traffic to Taobao, effectively advertising for Taobao.

Sensory Experience Suitable for Chinese People#

The practicality of a website relies on clean, fresh, and minimalist design, eliminating distracting information and guiding buyers to shop online, which has been regarded as a creed by Western designers. Upon arriving in China, these designers were surprised to find that local websites often preferred bright colors, flashy animations, and chaotic designs.

I believe that the daily life of a person from Shanghai is vastly different from that of a person from Sweden, which greatly influences how Chinese people use the internet. Chinese shoppers have become accustomed to bustling shopping environments, such as Nanjing Road; but in the Swedish countryside, shoppers may have to drive an hour along quiet country roads to find a store, with only tranquil farms and a few red houses and cattle along the way.

Admittedly, this example is a bit exaggerated, but compared to Western internet users, Chinese internet users seek more visual stimulation, and related research has proven this. I once heard a speech by Kaifu Lee, the then president of Google Greater China. He said that Google had used laboratory research results to track the eye movements of Chinese people while browsing the internet, then compared this data with American internet users. The results showed that when American internet users logged onto Google's homepage, their gaze would go directly to the search box, while when Chinese internet users opened Google's homepage, their eyes would move up and down, seemingly searching for something fresh, stimulating, and surprising on the webpage.

Among Taobao users, we also observed this phenomenon, although it has not been studied in a scientific manner. Shoppers respond positively to flashy promotional information that suddenly appears before them. eBay's Chinese users quickly shifted to Taobao, largely because Taobao provided users with more exciting experiences, making them feel that Taobao was more user-friendly. In the eyes of eBay's Western managers, Taobao might have seemed too cute and flashy, undoubtedly exceeding eBay's design standards. However, for Chinese shoppers, the colorful and visually impactful Taobao was more attractive.

Reputation Evaluation System#

eBay and Amazon pioneered the online review system, allowing buyers to compare sellers and products. These ratings help buyers evaluate sellers and serve as a powerful incentive for sellers to provide high-level service. We learned about the importance of online reviews from Amazon and eBay, but Taobao took it to a whole new level.

We realized that in a society with low trust like China, buyers needed more evaluative variables to refer to than what American e-commerce sites provided, as there were no credit reports, business improvement bureaus, or small claims courts to resolve disputes in China. Therefore, we had to create a detailed evaluation system to bridge this trust gap, allowing buyers to better evaluate the sellers they were transacting with.

Over time, Taobao's evaluation system has continuously evolved and now serves as a comprehensive means of assessing the credibility of online sellers. Buyers evaluate sellers based on their service attitude, the accuracy of product descriptions, and the timeliness of shipping. The evaluation system interface is easy to use and enjoyable, allowing buyers to rate sellers using red roses (positive reviews), yellow roses (neutral reviews), and black roses (negative reviews). Taobao encourages buyers to explain their rating reasons in writing, and buyers can even upload product images to show whether the physical item received matches the images posted by the seller online.

Buyers can browse the total number of roses received by sellers and their historical trends, examining whether the quality of service provided by sellers is continuously improving or declining. The number of roses received by sellers will be aggregated into red hearts, blue diamonds, blue crowns, and gold crowns, forming an overall credibility record for sellers, and Taobao will score sellers based on this, providing another layer of rating. Buyers are also responsible for the transactions. After each successful transaction, sellers also have the opportunity to rate buyers. The ratings received by buyers gradually accumulate into red hearts, yellow diamonds, gold crowns, and red crowns, forming their personal credibility records. Many Taobao sellers are also buyers, and their seller credibility and buyer credibility are displayed separately on Taobao for everyone to see.

Seems hard to understand? Yes, I also can't quite grasp this evaluation system. However, for internet users who are enthusiastic about online gaming, this "gamified" scoring method allows them to participate in evaluations more enjoyably, providing the information needed for mutual understanding between buyers and sellers.

Unfortunately, not all participants in this game are virtuous. The importance of positive review rates is self-evident, which has led to the frequent occurrence of "brushing orders," where some Taobao sellers collude with third parties to conduct fake transactions online to improve their positive review rates. Sellers do not need to ship goods; instead, they send empty boxes to the colluding third party, and this fake customer writes positive reviews for the seller, pretending to have completed a real transaction in exchange for a service fee. To eliminate this practice, Taobao has engaged in a "cat-and-mouse" game with the brushing order gangs.

Despite the serious issue of brushing orders, the large number of internet users in China—nearly 80% of them provide genuine evaluations of products and online sellers—allows this system to operate effectively. Compared to the United States, there is a significant trust gap between buyers and sellers in China, and Taobao's widely used dynamic rating system bridges this gap.

Other Links in the Taobao Ecosystem#

The core service of Taobao is to create a marketplace for buyers and sellers, but in the e-commerce ecosystem, payment and logistics remain two very weak links that need to be strengthened. To address this, we only needed to make slight adjustments to the American e-commerce model.

Payment#

The prevalence of credit cards in the United States is extremely high, which is also why Amazon and eBay were able to develop rapidly in their early days. At that time, consumers were already accustomed to making catalog purchases over the phone and paying with credit cards, so Amazon and eBay only needed to persuade consumers to use credit cards online to complete the transition of payment methods.

For Amazon, this was almost a seamless transition because, under extensive media coverage, Amazon had already been shaped into a trustworthy brand. eBay faced more difficulties because consumers did not pay eBay directly; they paid the sellers on eBay. Therefore, eBay needed to make payments between buyers and numerous sellers more convenient. By acquiring PayPal and encouraging users to use the software, eBay easily achieved this goal. In most cases, buyers trusted eBay sellers, and what they needed was a payment method that could transfer money to the sellers. Establishing a credit card payment system that all sellers would accept would undoubtedly be a massive undertaking, so PayPal came up with a solution that allowed eBay buyers to create their own online accounts, where they could transfer funds via credit card or bank wire.

In contrast, in China, credit cards only began to be issued in large quantities in the late 1990s, and consumer acceptance of credit cards was very low. Therefore, when Alibaba launched its own payment system, Alipay, in 2004, we faced a huge challenge in convincing customers to transfer money from their bank accounts into their Alipay accounts. Of course, challenges always coexist with opportunities. We realized that if we could provide convenience for users by connecting their bank accounts with Alipay, we would establish a deeper relationship with users. With this deep relationship, we even did not rule out the possibility that Alipay would eventually evolve into a bank.

Taobao shopping has many benefits, and Chinese shoppers are motivated to transfer money to Alipay. Alipay is fundamentally different from PayPal. Alipay is a third-party escrow payment system that only transfers money to sellers when consumers confirm that they have received the goods and that the goods meet their expectations. This improvement, although simple, helped Alipay become a more attractive payment system than PayPal because both buyers and sellers were assured of one thing: if one party in the transaction did not fulfill their responsibilities, Alipay would bear the corresponding risks.

Logistics#

Compared to other emerging markets, China's logistics infrastructure is relatively well-developed, allowing e-commerce to start smoothly. Throughout history, China has almost always maintained a centralized management approach, with population movement being restricted. The central government also established a nationwide postal system, which, although slow and inefficient, could reliably deliver packages. Additionally, since China implemented its reform and opening-up policy, many express delivery companies have emerged, which, although scattered across the country, can complete most of the delivery tasks. While China's logistics infrastructure is not perfect, buyers are willing to wait a few extra days to buy cheap products or products that cannot be found locally.

▲ Wang Juntao in the center

8848 is the height of Mount Everest, indicating Wang Juntao's ambition when he founded the e-commerce brand. Unfortunately, just a year later, 8848 went bankrupt. In the 20 years of competition in Chinese e-commerce, it was not just 8848 that went bankrupt and disappeared; many e-commerce companies, such as E-country One Hour, Gao Peng Network, and Red Baby, also fell. We cannot list all the e-commerce companies that collapsed over the past 20 years, but we must not forget their contributions:

They cultivated the early online shopping users in China, nurtured the market for Chinese e-commerce, and changed people's consumption behavior.

You, me, and everyone else are the true patrons of Alibaba. China has 310 million online shopping users, with one in every five people being an online shopper. Although everyone now refers to Jack Ma as the number one, in fact, each of us who is shopping online is the true patron of Alibaba.

The Birth of Tmall#

While major brands focused on selling products through physical retail channels, small buyers and sellers on Taobao jointly created the ecosystem of Chinese e-commerce. By 2008, in terms of transaction volume, Taobao had become the largest shopping place in China. Some large retailers and brand owners also tried to develop e-commerce, but most could not attract online traffic, and Taobao's success forced them to pay attention to this platform.

In the past, major brand owners and distributors were reluctant to sell products on Taobao, believing that the credibility of those small and medium-sized merchants was not on the same level as that of large brands, and that their products could be counterfeit. They did not want these "counterfeit products" to appear next to their own products, jeopardizing their brand image. To serve these sellers, Taobao launched Taobao Mall, allowing larger and higher-quality sellers to create brand stores in a paid channel within the Taobao marketplace. This move distinguished brand stores from ordinary Taobao small shops.

Taobao buyers had become increasingly sophisticated, and their expectations for Taobao products and sellers were rising, yet they still felt anxious about the quality and source of the products provided by Taobao sellers. Although seller ratings helped, buyers still faced many troubling questions, such as: Are these Nike sneakers genuine? Were these L'Oreal cosmetics properly stored during transport? Is this really a new Apple phone?

Taobao Mall made guarantees to buyers: the products they purchased from authorized distributors were genuine, and the products they bought were no longer second-hand goods from a virtual suburban flea market; instead, Taobao Mall resembled a shiny large shopping center in the city center, where consumers could buy genuine products they desired. Of course, the prices of products in Taobao Mall were slightly higher, but the shopping experience was much better. Taobao Mall also promised that sellers entering the mall must be certified and pay a large deposit to ensure smooth transactions. If sellers defrauded buyers, Taobao Mall would punish them.

After gathering enough sellers, Taobao Mall split from the Taobao platform and became Tmall. Soon, brands from all over the world flocked to open stores on Tmall. Although Tmall is independent of Taobao, its products also appear in Taobao's search results, marked with the "Tmall" logo, which can redirect Taobao users to Tmall. It turned out that Tmall was Alibaba's cash cow; Tmall sellers were willing to spend money on rankings, keyword advertising, and promotions, and agreed to pay about 5% transaction commissions based on different product categories.

Alibaba discovered that Tmall was easier to profit from than Taobao. Taobao sellers had become accustomed to free services, and if Taobao were to charge fees, they would definitely oppose it; in contrast, Tmall sellers were happy to pay these fees because the cost of running a Tmall store was much lower than that of running a physical store.

The success of Taobao relied on several key features, which Alibaba also integrated into Tmall. Buyers could communicate in real-time with sellers through Taobao Wangwang's instant messaging feature. Tmall allowed small merchants to compete directly with large brands, and the products sold by these merchants were identical to those of large brands, which was not a good thing for them. As Tmall continuously raised the entry threshold for sellers, many small merchants found it impossible to enter Tmall, resulting in tens of millions of dollars' worth of unsold products in warehouses. Eventually, this tense situation peaked after Tmall modified its entry rules, with hundreds of Tmall sellers protesting in front of Alibaba's headquarters, publicly condemning Jack Ma and Alibaba for not giving sellers enough time to respond to the new policies, prompting local government intervention. Alibaba defended that this move was to enhance the qualifications of sellers and create a safer and more reliable shopping environment. Over time, the protests gradually subsided.

As more and more people began shopping on Tmall and Taobao, mainstream society in China started to accept online shopping. The internal question for Chinese shoppers was no longer "Is online shopping safe?" but rather "Which website should I shop on?" Since Taobao and Tmall had made the online retail system more mature and efficient, the B2C model flourished in China. Logistics had improved significantly, and online payment platforms were widely adopted. Therefore, a decade after the first batch of "China's Amazons" appeared, the B2C model made a comeback, but it was not early e-commerce companies like Dangdang or Amazon that promoted this model, but rather Alibaba, a company born during the SARS period.

Amazon has laid out logistics centers globally;

JD.com established the "Asia No. 1" warehouse, with a single warehouse reaching 100,000 square meters;

Cainiao Network's investment also reached hundreds of billions;

The market value of Amazon and Alibaba fluctuates back and forth, hard to distinguish.

The Return of the Amazon Model and the Rise of JD.com#

eBay exited the Chinese market in 2005, and at that time, Alibaba dominated the domestic e-commerce market, seemingly without any competitors challenging its dominance. However, as JD.com gradually rose, Alibaba faced its first challenge in the post-eBay era, with a strong smell of gunpowder between the two business models. The battle between Alibaba and JD.com was not just a contest between websites but also a competition between two online ecosystems, which had significant implications for the future of e-commerce in China and even globally, as it helped predict which business model was more likely to succeed in other emerging markets.

Richard Liu was born in 1974 in an ordinary family in Jiangsu Province. In 1998, he founded JD.com in Beijing. Liu was initially studying social sciences in Beijing, and later he rented a restaurant to support all his expenses while attending university. Soon after, the restaurant's employees embezzled funds, and the restaurant went out of business. This was a very embarrassing situation, but Liu learned an important lesson from it. "I gradually realized that the responsibility for the restaurant's failure lay entirely with me," he said, "because I had not established a management structure, was negligent in supervision, and had not set up a financial system and processes."

A few years later, Liu regained his dignity and founded JD.com in Zhongguancun Computer City in Beijing. In less than five years, he opened 12 branches, with annual sales exceeding $1.45 million. However, in 2003, SARS swept across China, and customers stayed home, afraid to go out. Liu realized that the only way to keep the business going was to sell things online, so he opened an online store called "JD Mall" (360buy). "If it weren't for SARS, I might not have joined the e-commerce industry," Liu later recalled. Since then, JD.com began to expand rapidly, quickly surpassing its competitors Dangdang and Amazon China. JD.com became known for selling electronic products, and later its business scope gradually expanded to books, clothing, accessories, and daily necessities. When customers complained about the unreliable and fragmented express delivery services in China, JD.com began to build its own delivery team, using this as a selling point, claiming that JD.com could control the entire consumer experience, which set it apart from Taobao and Tmall. With its own delivery team, JD.com could track and seamlessly manage product deliveries and returns. Of course, this came at a high cost. By 2016, JD.com had reached a workforce of 100,000 employees, the vast majority of whom were working on the front lines of delivery.

Over the years, JD.com has been increasing its product categories, forming its own market model. JD.com allows external merchants to join its distribution platform, directly competing with Alibaba's Tmall. This move enabled JD.com to further expand its product variety and make significant investments in its national distribution infrastructure. With the rise of cross-border trade, JD.com also began to attract international brands to its "Global Purchase" platform.

The increasingly fierce competition between JD.com and Alibaba, along with their different business models, also led to public disputes between Richard Liu and Jack Ma. Jack Ma once predicted that JD.com's heavy asset business model "would ultimately end in tragedy." This statement further fueled the animosity between the two. Liu often publicly rebutted in the media, claiming that Taobao and Tmall were gathering places for counterfeit products, and only business models like JD.com could eliminate the production of counterfeit goods.

Which business model will prevail?

The biggest question surrounding JD.com is its determination to continue owning and operating its logistics and distribution infrastructure. Investors either hate or love this business model. Even companies like Amazon have left delivery and home delivery to third parties; Alibaba's response was to create a joint venture called Cainiao Network, uniting existing logistics suppliers in China. Cainiao Network has 1,200 employees and handles 33 million packages daily. In contrast, JD.com has 100,000 employees and handles 3.4 million packages daily. Alibaba argues that for JD.com to reach the number of packages processed daily by Alibaba, it would need to increase its workforce to one million.

Which business model will prevail? It seems no one can provide a definitive answer. Supporters of JD.com argue that the infrastructure of Chinese e-commerce is becoming increasingly efficient, and a full-service model will win out because the larger the scale, the easier it is to control the costs generated by a warehousing-oriented business model. Supporters of Alibaba argue that any e-commerce company would find it difficult to manage inventory across different product categories alone; seasonal trends and ever-changing fashion require specific category product managers to be close to customers and know when to stock the right products. They say that specialized merchants can do this better than large retailers that cross categories.

Alibaba's staunch supporters also believe that the market model composed of various small sellers will create a stronger sense of community, making the evaluation system more effective. This social force formed by the community gives Alibaba a certain advantage, but when JD.com allied with another internet giant, Tencent, this advantage was offset.

E-commerce around the world is rapidly developing toward an unpredictable future, but everyone can feel that the e-commerce situation is very promising, with a bright future ahead.

1. The Origin of E-commerce and the User War

In 1994, Jeff Bezos founded the world's first e-commerce company—Amazon. From the moment of its birth, e-commerce as a new business format has exuded powerful vitality. Starting with selling books, Amazon quickly improved its logistics and supply chain by poaching senior executives from Walmart, entering the retail industry. Faced with the e-commerce giant eBay's entry into the Chinese market, the newly established Alibaba decided to compete with a free business model and quickly promoted Alipay to establish credibility between buyers and sellers. eBay's paid model, which was implemented without understanding the Chinese market, led to its defeat in the Chinese market. At the same time, the service-oriented e-commerce company 58.com rapidly expanded, showing that e-commerce was not limited to challenging traditional retail industries.

As early as 2000, eBay and Amazon were still the focus of commercial media, and it was hard to imagine that China would soon replace the United States as the leader in global e-commerce.

However, by 2016, China's online transaction volume had surpassed that of the United States, with 450 million online shoppers and a transaction amount of $750 billion; while the Chinese e-commerce market had already become enormous, its growth momentum in the following years remained strong. The e-commerce revolution led by Alibaba blossomed, and countless aspiring e-commerce entrepreneurs followed in Alibaba's footsteps, creating entirely new business models that had never appeared in Western countries. This momentum seems to be on the rise; if you don't believe it, take a look at the following set of forecast data for the Chinese retail market in 2020 provided by eMarketer:

• China's online shopping transaction volume will reach $2.5 trillion, 3.5 times that of the U.S. market;
• The number of online shoppers in China will reach 575 million, accounting for 60% of the world's online transaction population;
• These 575 million people account for less than half of China's total population, meaning there is still significant room for growth in the number of online shoppers in China;
• China's online sales will grow by 24%, the fastest growth rate in the world.

How did all this happen, and what does it mean for global business? What changes have taken place in China that have led it down a path of e-commerce development that is completely different from the West? Behind these astonishing numbers are a series of historical, economic, social, cultural, and political factors. To gain a deeper understanding of the background of e-commerce development in China, we need to temporarily leave the glamorous skyscrapers of modern Chinese metropolitan areas and enter the vast countryside and rice fields of China.

In the 1930s, Nanjing Road was the most famous commercial street in China. It stretched from the Bund in Shanghai to the racecourse, crossing Shanghai's public concession, and was 1.5 miles long. Tourists from all over China walked along the wide tree-lined avenue of Nanjing Road, which was crowded with trams, double-decker buses, cars, rickshaws, and pedestrians. Unique buildings of various styles, decorative art buildings, and Chinese-style arcades with exquisite wood carvings lined the streets. A visit to Nanjing Road must include a stop at the Daxin Department Store, the largest department store in the country, which offered a variety of goods that could not be found elsewhere in China, including Cuban cigars, Swiss watches, and German pens. To ensure that their city sightseeing trip was not left with regrets, shoppers at Daxin Department Store had to queue to ride the first elevator in China, which was also the only one in the country at that time.

In May 1949, the People's Liberation Army liberated Shanghai, marching in unison down Nanjing Road. Five months later, Mao Zedong announced the founding of the People's Republic of China from the Tiananmen Tower in Beijing. Soon after, China's private enterprises were nationalized and became "public enterprises," and the retail industry in China entered an ice age.

During the planned economy era, Chinese retailers and wholesalers were shaped into hierarchical state-owned entities, and their functions shifted from profit-making enterprises to institutions solely for storing materials, responsible for the circulation of products, transporting goods from state-owned factories to central distribution centers, and then transferring them to local wholesalers, ultimately delivering them to local retailers and consumers. The state set product prices and distributed commodity ration coupons to citizens for purchasing food and fuel. The rationing system was designed to ensure that everyone in the collective received a fair share. The government cleverly renamed Daxin Department Store to "No. 1 Shanghai Department Store," while its former competitors were renamed "No. 2 Department Store," "No. 3 Department Store," and "No. 4 Department Store" (nowadays, naming companies is not that simple). For the next 30 years, while Walmart and other chain retailers were busy consolidating, the U.S. retail industry had entered a modernized phase; in contrast, China's economy and retail system remained stagnant.

The turning point came in 2001. That year, China successfully joined the World Trade Organization (WTO), and its retail market had to open up comprehensively. In 2004, China lifted most restrictions on foreign investment in retail, and foreign retail giants like Walmart and Carrefour began to expand from their bases in large cities to second, third, and fourth-tier cities. This was originally a competition among offline retailers, but unexpectedly, when the internet arrived from across the ocean to China, the plot suddenly reversed.

In 1999, the portal website China.com, styled like Yahoo!, successfully went public on NASDAQ, serving as a catalyst for the rapid development of China's internet industry. Soon, venture capitalists boarded flights to China in search of the next potential internet company. They discovered B2C companies similar to Amazon and C2C internet enterprises like eBay, believing these business models would soon become mainstream in e-commerce. American investors were eager to let Chinese investors understand the success stories of American internet companies, and in their view, many Chinese e-commerce companies were retracing the development paths of Amazon and eBay.

Amazon's B2C model was the most admired and imitated by Chinese e-commerce, with the core of this model being the establishment of large warehousing centers to store various types of goods and sell them via the internet. In China, the most prominent and significant case of replicating the Amazon model was 8848, founded by Wang Juntao, who had previously engaged in software retail. In March 1999, Wang Juntao named his newly established website 8848, and soon he was dubbed the "Father of Chinese E-commerce," becoming the cover figure of business magazines nationwide.

Other e-commerce companies imitating Amazon also followed Wang Juntao's footsteps into the B2C field. In November 2009, Li Guoqing and Yu Yu (Peggy Yu) founded Dangdang.com, entering the online book sales market like Amazon. Yu graduated from New York University with an MBA and had worked on Wall Street, witnessing the rise of Amazon. Her husband, Li Guoqing, ran a book publishing company in China, possessing expertise in the book publishing industry, thus becoming her entrepreneurial partner. Together, they established China's largest online bookstore. Shortly after Dangdang.com was founded, another online bookstore, Joyo.com, was also established with funding from Kingsoft, a software manufacturer.

These B2C enterprises, known as "China's Amazons," received extensive media attention and possessed some basic elements of internet companies, such as employees skating around the warehouse, but they neither achieved good development nor made profits. They quickly realized that the number of online shoppers in China was too small to drive product sales growth, leading to a lack of development momentum for their heavy asset business models. Although the number of internet users in China was increasing, the overall business foundation was too inefficient to allow these companies to generate sufficient profits. Amazon's success in the U.S. market was based on its efficient infrastructure, enabling the company to effectively manage inventory, shipping, logistics, and payments; but in China, everything had to start from scratch, leading to excessively high costs and no profits. The credit card usage rate in China was so low that it was almost negligible, and companies could only adopt cash-on-delivery methods, which were costly. Logistics costs in China were also high because logistics companies were very fragmented, each operating independently without communication, resulting in high costs and long delivery times from warehouses to consumers. The reverse logistics issues related to returns were even more complex. China had never had a mail-order catalog industry, and the delivery of goods had always been one-way; returns were not easy; worse still, at that time, China lacked the relevant technology to allow companies and consumers to track product deliveries during the order fulfillment process.

The rising costs made Amazon's B2C model difficult to implement in China. Two years after being crowned "Father of Chinese E-commerce," Wang Juntao was forced to leave 8848. The disagreements and disputes between him and the board ultimately led to their separation. Soon, 8848 announced its closure.

In the following years, the internet industry bubble burst, and two other companies imitating the Amazon model, Dangdang and Joyo, struggled to survive. The number of online shoppers in China was increasing, but they did not become significant forces in the Chinese e-commerce market. In 2004, Amazon acquired Joyo.com for $75 million, a deal that did not bring much return to Joyo's investors, as they had already invested $52 million in the company before the transaction. Dangdang's situation was somewhat better; it successfully went public on the New York Stock Exchange in 2010. Dangdang was undoubtedly a successful company, but for many years, its market share in the Chinese e-commerce market hovered around 1%, failing to meet investors' expectations and certainly not reaching the influence Amazon had in the U.S. market.

After graduating, he worked for Boston Consulting Group for two years before returning to Harvard Business School to pursue an MBA. After earning his master's degree, Shao Yibo returned to China to join the internet gold rush. He raised $7 million in angel funding and venture capital and soon founded eBay China.

Shao Yibo quickly realized that to successfully implement the auction model in China, he would face many rare obstacles, the biggest of which was the lack of trust between buyers and sellers who had never met. eBay from the U.S. believed that people were "generally well-intentioned" in e-commerce transactions; however, Shao Yibo found that this principle did not necessarily apply to the Chinese market. He sighed, "In the U.S., if you place a bid, it's equivalent to signing a contract. According to the law, if you win the auction, you must complete the transaction. If you don't comply with the contract, you face the risk of being sued, which is very clear. In China, people don't care about that." He described how eBay users in China treated auctions: "I placed a bid, but I don't want the item anymore; let it be whoever wants it!"

To solve the trust issue, eBay set up auction events in Shanghai and established transaction stations where buyers and sellers could meet face-to-face. Customers could inspect items at the transaction stations and pay only if they were satisfied. However, by 2001, Shao Yibo found that maintaining these transaction stations was too costly to promote nationwide, so he closed them down.

Clearly, eBay's auction model was not suitable for the Chinese market. On one hand, eBay's success in the U.S. was due to providing a trading platform for unique items. Whether it was collectibles (like the rare Pez candy dispensers) or second-hand items (like slightly faded Oriental carpets), the only way to determine their market price was to put them online and let people bid on them. Yard sales were previously popular in the U.S., where second-hand items were placed on the lawn in front of houses to attract nearby neighbors to bid. eBay differed in that its auctions were nationwide, making it easier for buyers to find the items they wanted. In the auction model, the starting price would be low, and the price would gradually rise as people placed bids until it reached the market price.

On the other hand, Chinese households generally do not have basements or garages where consumer goods can be stored for years. Their personal property is relatively limited, and they do not like to buy second-hand items. Collectibles are even less common; aside from some antiques, the only collectibles people have are the "Little Red Book." In 2002, eBay's registered users reached about 3 million, with monthly transaction volumes reaching $2 million. For the Chinese market, this was already a considerable number, but compared to the giant eBay in the U.S. market, it was insignificant. However, Shao Yibo's sister was a classmate of Meg Whitman at Harvard Business School, and during Whitman's tenure as CEO of eBay, she invested $30 million in eBay, acquiring 33% of eBay's shares. Shao Yibo's future suddenly looked bright. At that time, eBay had already become one of the most valuable internet companies in the world, and Wall Street's confidence in Whitman and eBay's business model was unprecedentedly high, believing that the funds eBay invested in Shao Yibo would lead to a qualitative leap for his company. As a return, eBay provided Shao Yibo with a captivating story to tell Wall Street investors: just as American internet companies were suffering defeats in the Japanese market at the hands of SoftBank and Yahoo, eBay was carving out a niche in the Chinese market. Fifteen months after the initial investment in eBay, eBay added another $150 million investment, taking full control of eBay.

In 2003, in San Jose, California, eBay's management believed that eBay had a bright future; meanwhile, Wall Street investors saw an even brighter outlook for eBay. eBay had always wanted to dominate the global e-commerce market; wherever it set its sights, it was destined to be the leader, and it had never lost a market. Its layout had formed a powerful network effect, making it impossible for challengers to win. However, soon eBay found itself embroiled in a bitter battle, and this time the competitor was completely unexpected.

2. Price War#

On June 18, Liu Qiangdong's promotional birthday banquet for JD.com became a price war among e-commerce platforms like Tmall, Suning, Dangdang, and Amazon: price is the most effective means for e-commerce to attract users and seize market share. Behind the price war are technology wars (web traffic), supply chain wars, cost wars, and operational wars. E-commerce companies have dealt a devastating blow to traditional retail by adopting sales prices below the operating costs of physical stores to seize market share. Zhang Jindong relied on an unusual off-season ordering method to reduce costs and prices, making Suning leap to become the largest air conditioning seller. In the face of the rise of the internet, Suning quickly launched its online mall, Suning.com, to compete with major e-commerce platforms. JD.com stood out in the book battle against Dangdang and the appliance battle against Suning and Gome due to its strong self-built supply chain and logistics management.

Western people often talk about social e-commerce, focusing on how social networks like Facebook, Twitter, and Instagram recommend shoppers to e-commerce platforms. Consumers generally learn about another platform, such as Amazon or a manufacturer's website, through a social network platform, and then shop on that website.

But social e-commerce in China is a completely different scenario. Western social platforms and shopping platforms operate independently, while in China, the two merge, making it difficult to distinguish between social and commercial. Taobao exemplifies this aspect most clearly. From its inception, Taobao has been a highly social platform, with a much higher level of consumer interaction compared to Western shopping platforms. Shoppers may only use Amazon's mobile app a few times a week, and when they visit the Amazon website, they typically stay for an average of 9 minutes. The behavior of shoppers is simple: they go to Amazon to shop, and after completing their purchases, they "go their separate ways." In contrast, Taobao shoppers use the Taobao mobile app an average of 7 times a day, spending a total of 25 minutes. This even exceeds the average of 16 minutes that Twitter users around the world spend on Twitter daily. It is worth noting that Twitter's mission is precisely to provide users with a platform for socializing and sharing ideas.

So, what do Taobao users do when using the Taobao mobile app? Taobao has over 1,000 special interest groups, covering topics from wedding planning to fishing. Users interact through interest groups, either communicating with each other, live-streaming merchants' activities, reading and commenting on blog posts written by community experts, or meeting new friends with shared interests in group forums and chatting with them.

To a large extent, this community has developed organically, composed of millions of amateur bloggers and shoppers, and Taobao has created a platform for these individuals. However, it has also received support from Alibaba. Alibaba provides amateur bloggers and community experts with sales commissions to encourage them to write about products and recommend them to consumers. Taobao also arranges live broadcasts and invites celebrities to blog about certain products, such as a new cosmetics line.

One important purpose of all these social activities is to create a social network around a user's specific interest, encouraging people to make new friends rather than relying on existing social circles. As Alibaba co-founder and Group Executive Vice Chairman Cai Chongxin said, "On Facebook, you communicate with your friends because you already know each other. On Taobao, we first deal with strangers, and then use big data to find a common interest point, creating a community around that interest." The growing middle class in China is constantly seeking new pastimes and hobbies, and Taobao can provide a platform for a new BMW owner to find other BMW owners and arrange to meet at a car club on a certain Sunday. Taobao can also provide a forum for fishing enthusiasts to discuss which bait works best locally. All these activities help boost product sales on the Taobao platform.

So, why is social e-commerce in China so vibrant? Some believe it is because, after years of class struggle, people's long-suppressed leisure hobbies have burst forth; others believe it is driven by the new consumption trends in China. However, in my view, cultural heritage is the main reason. This highly social culture can be traced back to the way of life in China's rice-producing regions thousands of years ago. Chinese people like to connect themselves with others and be part of something great. In the internet age, data packets, switches, and fiber optic pipelines have replaced the irrigation channels beside terraced fields and China's social networks.

3. Logistics War#

Faced with a massive volume of packages, logistics has become the biggest constraint on customer experience. In response to this dilemma, JD.com chose to build its own logistics centered on customer value, promising delivery within three hours in major cities; Alibaba, on the other hand, opted for a platform strategy centered on corporate value, with "Cainiao" using big data analysis to improve operational and logistics efficiency, promising nationwide delivery to homes within 24 hours. For logistics companies, e-commerce brings enormous business opportunities while continuously testing their operational limits. The massive volume of packages and thin profits present both opportunities and challenges. Logistics companies like Shentong chose to cooperate with Alibaba, but Shunfeng harbored ambitions to control the logistics supply chain.

4. Brand War#

Chen Nian created PPG, which primarily relied on online and telephone orders for direct sales, surpassing the leading shirt brand Yagao in just two years, while its creation "Fan Ke" achieved viral marketing through the internet, surpassing PPG in just two months. However, without the buffer zone of intermediaries, Chen Nian's expansion led to enormous inventory, which became the straw that broke Fan Ke's back.

Although prices have narrowed the distance between brands and consumers, only trust can bring brands into customers' hearts. E-commerce brands have rapidly risen through various means, such as unique delivery methods, niche markets, offline experience stores, partnerships with banks, and reducing channel costs between customers and products. Lei Jun's Xiaomi accurately positioned itself to attract enthusiasts, interacted with users to engage consumers, and built a smartphone brand and now Xiaomi's smart ecosystem using internet concepts, achieving a market valuation of $10 billion within three years, becoming an internet miracle. Merchants strive to build their own internet brands, while platform-based e-commerce emphasizes establishing a fully connected and comprehensive service platform with users.

In the West, there is a clear line between social platforms and shopping platforms, while the social characteristics of Chinese e-commerce blur this line. This further highlights the importance of catering to various customer needs and has sparked a different kind of war for online customers. The e-commerce battle in China should be viewed as a contest between two competing ecosystems. Each ecosystem is an alliance composed of several companies, intertwined with complex investment relationships and exclusive partnerships. The leading company in the first ecosystem is Alibaba, which accounted for about 75% of China's online retail total in 2016; the second ecosystem is led by Tencent and JD.com, accounting for only 15% to 20% of China's online retail total in 2016, but it is gradually encroaching on the market dominated by Alibaba.

There are driving factors behind these two emerging ecosystems. China is a society with low trust; if there are trustworthy companies like Alibaba or Tencent backing merchants and ensuring consumer interests when transactions go wrong, consumers can shop with a more relaxed mindset. As the overseers of the ecosystem, Alibaba and Tencent's responsibility is to ensure that all participants are accountable for their business actions. They must reward those merchants with good conduct and position them prominently in the ecosystem based on their rankings. Unruly participants will be expelled from the ecosystem, and their businesses will lose growth prospects.

In the offline environment, shoppers can usually determine whether a retailer is legitimate (though not every time). However, even if a merchant is illegitimate, it is difficult to take action against them. In China, many "knockoff" Apple stores have sprung up like mushrooms after rain, not only completely copying the design and employee attire of real Apple stores but also achieving a level of detail that is indistinguishable from the real thing. This is the most obvious example. If the offline environment is like this, the difficulty of investigating the legitimacy of online stores is even greater. Sure, an online brand store may look real, but who can guarantee that it is not imitating another brand? Retailers on Tmall and JD.com can ensure that customers are buying genuine products or those represented by authorized distributors.

Another reason platforms play a more important role in China is that the market's efficiency is too low for individual retailers to solve efficiency issues; in contrast, platforms can represent all merchants to handle logistics and payment challenges. Alibaba and Tencent formed corporate alliances, strengthening the connections between e-commerce companies through mutual shareholding.

Microsoft and Apple fought for the throne of desktop operating systems for many years; similarly, Alibaba and Tencent are competing for the dominant position