2. The Social E­commerce of Taobao 

Introduction 

The traditional electronic commerce model has been used and improved to                      establish an on­line market for China since 1999 when the first                      business­to­consumer (B2C) websites were activated as well as the                  consumer­to­consumer (C2C) market. Based on the development of internet                  technology and the governments’ energetical support, consumer­to­consumer              (C2C) market had been rapidly expanded on line from 2003 to 2007 and                          gradually became one of China’s most important e­commerce model.                 

However, continuous debates on the concept of “web 2.0” have implied that                        each user on the internet is not only the reader and receiver of on­line                            information but also the producer of web content. Instead of just “surfing” on                          the internet, the users are more willing to be the “wave makers” in recent                            years. Under the circumstance, the on­line market has been modified from a                        simple one­directional pattern to a complex and multiple platform which is                      more humanized than before. It is noteworthy that consumers on C2C on­line                        market could be no longer satisfied with traditional e­commerce models after                      the innovation of the internet structure, which urged vendors to take actions to                          a next step on figuring out a new way of attracting and communicating with                            potential buyers and increasing sales. Such new step can be called the “social                          e­commerce model”. 

The emerging social e­commerce model, sometimes was called just social                    commerce, which can be seen as a new derivative model of traditional                        e­commerce. It means that on­line purchase and sale could be improved by                        social interaction and user­made content through transmission channels of                  social media and online media. In the web 2.0 era, more and more contents                            and behaviors are generated and dominated by end­users, such as blogs and                       

microblogs. Based on that fact, social e­commerce model can generally be                      divided into two types. One is focusing on product information, primarily on                        sharing users’personal shopping experiences on social platforms and                recommending good products on social applications. The other one is a                      relatively new model in which social platforms are directly involved in the sales                          process of goods with their intervention to allow end­users to merchandise                      sales process and sell goods through social media. 

The impulsiveness of consumers could be affected severely by the information                      they got from social media such as facebook, twitter, instagram, snapchat,                      youtube and so on, especially from the key opinion leader (KOL) accounts.                       

Instead of being affected by those globle­scale social media, Chinese on­line                      consumers are influnced primarily by the microblogs and chat softwares which                      could be combined together to get an integrative function, such as Weibo from                          Sina, QQ and Wechat from Tecent. It is vital to understand that the core of                              traditional e­commerce is information flow, which is also seen as the basis of                          social commerce, but the difference between them is that social commerce                      focuses on improving and optimizing the distribution of the information flow. In                        other words, social commerce could be identified as an advanced level of                        traditional e­commerce which aims at sale increase based on buyer’s                    impulsiveness, and at improvement of seller­buyer relationship. 

In this paper, we investigate two typical and important social commerce                      platforms in China: Taobao.com and Wechat. The first one is well known as                          the leader of China’s C2C on­line market, owned by the largest                      business­to­business e­commerce company—Tecent, and Wechat is an              instant messaging software owned by China's largest and most used Internet                      service portal—Tecent. It is noteworthy that Wechat was lauched to market in                        2011 and its penetration rate in Chinese main land has arrived at 93% in just 5                                years which is now widely used for social commerce as well.  

This two platforms are chosen as our analysis context for the following                        reasons. As a C2C trading platform, Taobao (www.Taobao.com) has the                    highest number of product listings and the highest volume of transactions with                        500+ million registered users and almost 423 million active buyers in 2016.                       

What is more, there are more than 60 million regular visitors per day with                            more than 800 million products presented on­line and it is estimated that                        48,000 products could be sold out per minute on the average. Taobao is not                            only a simple Chinese online retail platform but also a popular community in                          which consumers can exchange information and personal opinions through                  the comments after purchase. In other words, Taobao has basically changed                      the traditional seller­buyer relationship and also changed people's lifestyles to                    a degree. Futhermore, with its powerful on­line market influence, it is still                        continously changing people’s purchase habits in recent years, by operating                    the first type of social commerce model.  

On the other hand, Wechat was initially identified as an instant messaging                        application but nowadays it is also a typical social commerce platform with the                          second type characters as we mentioned before. Tencent’s Wechat was                    launched in early 2011 as a mobile application through which users can send                          graphic, voice and video information. Other functions such as group chatting                      and daily life sharing on the personal space are supported as well. In the                            fourth quarter of 2013, the Wechat monthly active users reached 355 million.                       

Along with the expansion of Wechat Pay and O2O business development,                      Wechat has become a integrative platform of social e­commerce. Similar with                      the first type operated by Taobao, Wechat has not only the dynamics of social                            commerce but also the characters of traditional e­commerce that support the                      basic system. We chose to analize these two platforms because of their                        representativeness and influence. However, it can help us to figure out the                        inner dynamics of social commerce model and its difference with the                      traditional model. 

Recently, the discussion on the social e­commerce model has been brought to                        public attention. The term “Social media” is referred to websites and                      technologies that allow people to write, share, comment, discuss and                    communicate with each other. The so­called social media should be identified                      as a dissemination process through which a large number of net citizens can                          contribute, extract, create information. Social media can be widely used by                      people to share ideas, insights, experiences and perspectives. Nowadays, the                    main platforms of social media are various, including bloggings, internet                    forums, podcasts and so on. It is generally believed that social e­commerce                        can be also called new media commerce which refers to the importance of                          social media platforms shown in the new marketing model. In the new era of                            web 2.0, the people’s traditional way of thinking has been changed by the                          huge innovation of technologies. In other word, the way how people evaluate                        experience, communication, variation, creativity and relevance has been                improved in accordance with the emergence of on­line magazine, such as                      Sinaweibo (microblogging), Wechat and so on. 

As we know, social e­commerce is closely connected with the concept of                        SNS, which was firstly conceived by Stanley Milgram, who was a psychology                        professor of Harvard University. According to the theory of six degrees of                        separation, there won’t be more than six people between each individual                      person and a stranger, which means, it’s won’t surpass six people through                        whom you will be able to recognize any stranger. Further more, each                        individual person may create the social circle that can be continously enlarged                        and crossed with each other. Ultimately, a large network will be formed based                          on that. The main role of the social network is forming a community created by                              people with same interests. Such theory and service are widely used for                        providing users with a variety of links of interactive communication channels                      such as Facebook, Linkedln an so on. 

However, why is the dicussion on social media platforms pretty                    indispensable? One of the most important reasons is that a new e­commerce                        entrance is emerging based on the dramatic change of people’s daily life,                        which is known as social e­commerce. Currently, social networks has greatly                      enhanced the efficiency of the transmission of information. Customers are                    able to recognize products recommended by their friends or by the key                        opinion leaders (KOL) they are following, the later being always identified as a                          kind of celebrity with a large number of followers on their social media such as                              Facebook, Instagram, Twitter or Snapchat. The potential buyers can get a                      fascinating filter on merchandise through which they are going to make                      decisions more convincedly and maybe, at the same time, impulsively.  

Social e­commerce is qualified by the nature of making the supply chain of                          information more efficient when it comes to products with high quality.                     ​In this    situation, information supply chain will encourage consumers to make                  decisions faster. When consumers are stuck in a dilemma caused by                      excessive product information, the role of product information on high­quality                    will be more important in a society which is full of online products. Based on                              social e­commerce model, new business opportunities will be created though                    social networks. 

Lots of studies have shown the inherent regularity of the traditional                      e­commerce model and how it works for improving sales progress but a few of                            them have studied how the social e­commerce model works. Our aim is to                          examine the general structures of Taobao and Wechat separately to                    answerthe following questions: (1) what are the mechanisms of these two                      types of social e­commerce model through which the value is created? (2)                        How can social media affect the consumer’s urge to buy impulsively? (3) Does                          the trait of information have interaction effects on the buyer­seller                   

relationship? (4) Is the social e­commerce model a meteoric business model                      or not? 

Above all, the integration of online social networking and e­commerce is an                        inevitable trend which will lead on­line market to social e­commerce, but we                        are mostly concerned about how the integration can be realized. Here, we are                          going to investigate two typical types of social e­commerce model based on a                          case study: we define the first one an integration between mature                      e­commerce platforms and big on­line vitural community, and the second one                      as an integration based on a social network service (SNS) which is                        well­known in China as “Microbusiness”. Specially, following the reasearch of                    two types of social e­commerce model, we investigate the ecosystem of social                        e­commerce to figure out its advantages and disadvantages compared to the                      traditional one. Furthermore, we analyze the strategy system of social                    e­commerce to explore its status and trend in the future. 

2. The Social E­commerce of Taobao 

2.1 Development Review of Taobao 

The history of Taobao.com is not as long as that of other on­line shopping                            websites such as Amazon and Ebay, but it has had a great performance in the                              Chinese on­line market in the last decade. According to the review of                        Taobao’s development, we could have a glance at the process in which the                          social e­commerce model was established and improved by the cooperation                    between Taobao and the social media. However, the development of Taobao                      can be described as shown below: 

[2003] 

Taobao was established by Tecent Group on May 10, 2003, and it set up an                              online payment system called "Alipay" in October for securing its transaction                      process aiming at earning the consumers’ trust of on­line trading. The                      establishment of Taobao has opened a new era of the on­line market in                          China. 

[2004] 

In 2004, an instant messenger called “TaobaoWangWang” was launched for                    improving the on­line shopping experience and enforcing the interactivity with                    customers. It was designed with multiple functions: communication and                  transaction management. It is believed that “TaobaoWangWang” is the                  successor of “ ALITALK”, which was a former communication software of                      Tecent Group. However, these two softwares had been combined together as                      a new instant messenger client (IMC) called  “AliWangWang” in 2011. 

[2005] 

In 2005, Taobao surpassed Ebay and Japan’s Yahoo to become Asia's largest                        online shopping platform. At the same time, it defeated Wal­Mart by the                        turnover of $ 8 billion.  

[2006] 

In 2006, Taobao established itself as Asia’s largest online shopping platform                      and the amount of Chinese net citizen exceeded 100 million for the very first                            time. Furthermore, Taobao was used not only as an instrument of online                        shopping, but it also changed the way Chinese net citizens thought and                        treated online shopping platforms. Especially, young people’s buying                behaviour was intensively changed by Taobao. For example, lots of                    urban­living white­collar workers would choose shopping online instead of                  wandering in the commercial mall after work. It was shown that there were                          nearly 900 million people surfing on Taobao everyday. 

[2007] 

In 2007, Taobao was no longer a simple auction site, it created the largest                            network retailing business district in Asia. In the same year, Taobao’s annual                        turnover exceeded ￥40 billion, which was not realized only by the                      performance on C2C market nor B2C market but composed by an intergration                        of different retailing business forms. 

[2008] 

On September 4, 2008, Tecent Group announced that the platforms of                      Taobao and Alimama should be merged together according to the "Big                      Taobao Strategy" which aimed at building the largest e­commerce ecosystem                    in the world. In order to promote furtherly the "big Taobao" strategy, Tecent                          Group decided to invest 5 billion yuan in Taobao for the next five years. 

[2009] 

On January 13, 2009, Taobao announced that its transactions in 2008                      amounted to 99.96 billion yuan by a dramatic increase of 131%, and it had                            become China's largest integrated on­line stores. It should be noted that                      Taobao decided to achieve a strategic cooperation with Hunan Satellite TV on                        December 29, which is a leading media and entertainment organization in                      China. Based on the cooperation of Taobao and Hunan TV, a new era of                            social e­commerce had been opened by the integration of traditional media                      and an e­commerce platform. From now on, the seed of social e­commerce                        model began to germinate. 

[2010] 

In the first day of 2010, Taobao released a new homepage more clear and                            more delicate, which strengthened Taobao’s searching function and helped                  new users to navigate more easily. In March 2010, a new platform called                         

“JuHuaSuan” was lauched by Taobao as its own groupon website which                      aimed at offering on­line products to their consumers with the daily attractive                        discounts. Even though this groupon website was going to face the threats                        coming from some similar platforms in the following years, it was still one of                            the earliest groupon websites in China. In April, Taobao decided to create                        China’s largest advertising alliance called “Taobao alliance” based on one of                      its own subsystem called “Alimama”. However, at the end of October,                      Taobao's search engine called “Etao” launched a new function by which users                        could get access to Taobao by results shown on the searching engines of                          Sohu’s Sogou and Microsoft’s Bing. It was a huge step for Taobao to spread                            its own brand influence in Chinese market, and based on those previous                        efforts, Taobao finally got its own independent domain name:                 ​www.tmall.com  which was known as “Taobao Mall”. 

[2012] 

In January 2012, Taobao Mall announced that they would change its own                        Chinese name from “Taobao mall” to “Tianmao” for strengthening its brand                      positioning in China. In June, an on­line bookstore named by “Tianmao” was                        opened with 1.3 million kinds of books offerd by over 1000 on­line book                          vendors, which would change the traditional mode of book markets. Frankly                      speaking, there is no much difference between Taobaomall and Tianmaomall                    nowadays even though they have been seperated in two parts according to                        the strategy of the Tecent group. Until now, when it comes to shopping                          on­line, Chinese customers are still treating them as a same platform even if it                            is said that Tianmaomall is focusing on the B2C market while Taobao is aimed                            at the C2C market. 

[2013] 

In 2013, Taobao was split into a lot of small business units such as digital                              business division, integrated service division and consumer portal division for                    the accomplishment of business positioning and repositioning. On April 29, the                      Tecent group purchased the preferred stock and the common stock of                     

“Sinaweibo” at the price of $ 586 million through Tecent (China), which is the                            wholly­owned subsidiary of Tecent group. Sinaweibo is a Chinese                  microblogging (weibo) website which was launched by Sina Corporation and it                      is one of the most popular sites in China with a market penetration similar to                              US Twitter. More specifically, it can be identified as a hybrid between Twitter                          and Facebook that used by over 57% Chinese microblog users. In this                        circumstance, we could assume that Taobao and Sinaweibo had built a                      strategic relationship which could be extremely meaningful for the corporation                    between e­commerce platforms and social media in China. 

[2014] 

On September 19, 2014, the Tecent Group became listed on the New York                          Stock Exchange successfully, which was also an obvious good news                    Taobao’s development. 

2.2 Major functions of Taobao  

Compared with traditional trade, the e­commerce model is considered as an                      advanced platform with lower cost and higher efficiency of transactions. With                      the dramatic increase of net citizens, the e­commerce model has broken the                        traditonal definitions of time and space. Furthermore, it greatly improved the                      efficiency of    transmission of the information flow, the capital flow and                  logistics. It is said that this innovation opened up a new more extensive and                            competitive world for sellers and consumers, in which they could meet their                        needs with more opportunities. In this circumstance, the comprehensive                  application of the social e­commerce model would draw that market to a new                          advanced level. 

When asked about e­commerce development, quite a few people believe that                      China has come into a new era of on­line market since 1997, when the                            internet techology was applied to commerce for the very first time. To get a full                              understanding of how Taobao improved from a traditional e­commerce model                    to a social e­commerce model, we have to turn first to the major functions of                              Taobao as a platform, which could be seen as a bridge between vendors and                            customers.  

Compared with Tianmaomall, the platform offered by Taobao is closer to C2C                        market which means that vendors and customers are both considered as                      consumers in this case. Actually, Taobao is not the only C2C on­line platform                          in China. There are still some other similar sites that may threat Taobao’s                          leading position. For example, Tecent launched “Paipai” as its own C2C                     

on­line market and “Ebay” came back to China with its new name “Tom ebay”                           

aimed at local market. There is no doubt that Taobao is still leading the field                              and the reason for this advantage is not far to seek. Perhaps, a study of                              Taobao’s functional structure, homepage layout and communication tool will                  make this point clearer. 

2.2.1 Theoretical Framework of Taobao’s Major Functions 

The theoretical framework of Taobao’s major functions could be divided into                      several parts: the clients, the advertising system, the front­end applications                    and its own database. We describe the system in a general way, including the                            relationships between each part, and we also discuss how this framework can                        help Taobao to mantain its old clients and attract the potential ones. 

First of all, we demonstrate that Taobao’s clients could exchange information                      through the comment system before or after purchase. No matter what kind of                          shop is on Taobao, the customers could leave comments on that about the                          products they bought, the communication experience with vendors and the                    after­sale service without restriction. Briefly, clients can affect the position of a                        store in the C2C market and also the choices of other potential clients. On the                              other hand, the information flow between off­line clients reflects the trust issue                        and privacy issue on e­commerce platform, which is, undoubtedly, a potential                      threat for the persistent development of Taobao. 

Secondly, we discuss how Taobao’s clients can get access to the advertising                        system. It is pointed out that there are two types of information flows between                            clients and inner system in according with two different types of profit model.                         

One of them is called Sponsored Search Advertising (SSA), which is a method                          of placing online advertisments on web pages that show results from search                        engine queries that applied primarily on C2C market. Particularly, customers’s