Learn the answer to the 2021 Biz Quiz.
Question
How does Taobao, a Chinese e-commerce platform like eBay, make money? (Bonus question: Who has a better business model Taobao or eBay?) View the original question webpage.
Answer
Taobao followed a typical storyline for many internet start-ups: create a popular basic service for free and monetize through the traffic and value-add services such as various marketing tools. Taobao’s low barriers to entry give many people an opportunity to open a store and generate income independently from the comfort of their homes, but they need to compete for online traffic. For example, one of the tools that sellers would like to invest in is called sponsored search ads, in which they bid for search keywords and have their products show at the very front of the customer search.
eBay lost the competition to Taobao because of their business model, they ended up exiting from the Chinese market in 2006. Taobao’s business model attracts millions of sellers to list their products on the Taobao platform, which in turn attracts a lot of consumers. The network effect significantly increased the number of users on the platform, and helped Taobao win the competition over eBay in the Chinese market.
Editor's Note
Glen Schucker, MBA '08 and Brandon Harding, MS '17 submitted the correct answers. We're sending them each a Lehigh Business t-shirt!