Is e-commerce portal Taobao, China’s eBay equivalent, capitalizing on a lack of e-business regulation in China?
ILLUSTRATION BY YANG GUANG
“We will not tolerate or bend to violence and malicious acts against our vendors.”
Small merchants selling through China’s largest retail website have discovered their total dependence on e-commerce giant Taobao has revealed a darker side.
In early October 2011, Taobao’s businesses-to-customer (B2C) portal Tmall announced its new terms and conditions of use which included a fourfold increase in the website’s annual service fee and vendor security deposit, catching users off guard. Only a matter of months before, Taobao had made a formal announcement that it wouldn’t increase any of its membership fees.
There had long been grumbles among Taobao’s small-scale vendors that they were being marginalized in favor of large-scale business-to-business (B2B) wholesalers, however this move was seen as unexpected even by the website’s harshest critics. Taobao declared that the new policy was adopted to ensure the provision of quality goods and services and to prevent the selling of fake, faulty or non-existent goods, an issue which has plagued the website since its inception.
Soon after the statement was released, small vendors who planned to quit Tmall and relocate to Taobao Marketplace, the customer-to-customer (C2C) retail website which had not initiated any fee increases, began dumping their inventories, while protests were reaching a crescendo on the voice chatting platform YY, similar to Skype.
By the evening of October 11, the day after the Tmall fee increases were publicized, an anti-Taobao group on YY had swollen to include over 3,000 members. An organizational structure soon formed comprising more than 10 departments, including human resources, operations, public relations and planning, all of which were staffed by volunteers.
In order to express their dissatisfaction with Taobao’s new rules, the group’s organizers ordered all 3,000 followers to embark on a buying spree in Hstyle, a top womenswear company operating through Tmall, of which Jack Ma, president of Taobao’s parent company Alibaba, was a key investor.
Immediately after placing an order, protesters would demand a refund and enter negative feedback on the item’s Tmall page. According to Tmall’s terms and conditions, a refund can be required with no explanation up to seven days after purchase, meaning the protesters’ actions were not illegal or even in violation of Taobao’s own rules. The attack was referred to by protesters as “group shopping.”
Hstyle was forced to suspend sales in less than an hour. The incident spread so fast across e-commerce platforms that a few hours after midnight on October 11, the operation was joined by another 4,000 protesters. Soon several other major clothing retailers also had to shut up shop to prevent massive financial losses.
In a hurried statement released the same night, Taobao branded the incident “hooliganism” carried out by “gangsters” working with Taobao vendors. Taobao CEO Daniel Zhang reinforced his company’s position, stating that Tmall contracts would only be renewed with vendors who agreed to abide by the new policy.
“We will not tolerate or bend to violence and malicious acts against our vendors,” said Zhang. “Resorting to violence only harms our law-abiding vendors.”
Zhao Yingguang, founder and CEO of Hstyle, was infuriated by the attack, condemning the activists’ “irrationality” in a vitriolic post on Sina Weibo, China’s Twitter equivalent. One Taobao employee added inflammatory comments on Weibo likening them to “tiny loaches that can never make big waves.”
Protesters responded to the strongly-worded criticism of Taobao’s management with indignation. The posts from Zhang and the Taobao employee were repeatedly posted in the activists’ forum, leading to further coordinated “group shopping” attacks on over 100 major Tmall retailers. Some protesters even changed their online pseudonyms to “tiny loach.”
In the next two days, thanks to widespread coverage and condemnation of the attacks in the State media, the anti-Taobao protest group experienced a rush of traffic, and by noon on October 12, the number of registered users had swelled to 50,000, with a further 10,000 joining in the following 24 hours. A system of online debate was created whereby an administrator could freely speak to all other users, however regular members had to take a number and wait in line to speak. During busy periods, tens of thousands were waiting in line to share their Taobao experiences with others.
“Finally my turn! I’ve waited for two days and two nights!” was, unsurprisingly, the first remark made by most participants, followed by an account of the difficulties they faced running a small business through Taobao. Most closed with a tirade against the company’s recent “arrogance.”
A small number of activists identified themselves as Tmall merchants unhappy with the annual fee hikes, however the vast majority were small-scale vendors with Taobao Marketplace who were angry with Taobao’s diverting customer traffic away towards the more-profitable Tmall. Upon the launch of Tmall in 2008, five years after the founding of Taobao Marketplace, Tmall shared the address taobao.com, funneling traffic away from its B2B sister site.
However, after October 13, the online furor began to lose momentum as group shopping attacks ceased. Organizers explained that they wanted to give Taobao “a break,” so that it might think twice about its new policies. However, speculation arose that the protest forum’s administrators had been bought off by Taobao, with some activists predicting the group’s dissolution “as soon as the leaders got paid.”
These rumors went viral and caused the group to hemorrhage members. By noon on October 14, only 36,000 remained, forcing the organizers to begin a second round of group shopping simply to prevent a total collapse. This tactic paid off, and before evening numbers had recovered to above 50,000.
On October 15, the Ministry of Commerce (MOFCOM) announced that it would “look into the anti-Taobao incident,” with a MOFCOM spokesperson attributing the attacks to the absence of e-commerce law in China. Some activists responded with calls for a stepping-up of attacks on Taobao to force the company’s hand, others calling for a “ceasefire” to avoid a government backlash against the protest movement. New attacks were halted before November 17, when Jack Ma held a press conference to announce “adjustments” to the new terms and conditions that had caused the incident.
Ma declined to talk to representatives of the anti-Taobao activists, instead announcing a new clause in Taobao’s revised terms and conditions granting a nine month “grace period” to vendors with good ratings, during which they would be exempt from the fee increases, as well as a 50 percent reduction in all vendors’ liability deposits.
Ma’s offer fell far short of the protesters’ demands, which by this point included consultation in Taobao’s rulemaking and the “fair distribution” of customer traffic. The group responded by asking over 5,000 vendors to withdraw all funds from their accounts with Alipay, an Alibaba-affiliated third-party payment tool similar to Paypal, between 8PM and 9PM on October 21, severely disrupting Taobao’s financial operations and drawing further fire from the company.
This new tactic generated more media interest, but also gave Taobao a chance to fight back. As the Alipay accounts were tied to vendors’ Taobao store IDs, Taobao could easily pinpoint activists and slow or cut customer traffic to their individual pages.
A Jiangsu-based clothing retailer, who only wanted to be identified by his surname Yang, disclosed that the day after the mass withdrawal, in which he had participated, traffic to his store dropped by more than 90 percent and did not recover.
However, the protesters continued to attack Taobao, turning attention to advertising platform Taobao Express. Thousands of protesters were guided to click selected ads simultaneously, crashing servers and leaving vendors reluctant to use Taobao Express, cutting revenue for businesses which earned money for each time their ad was clicked. In a last-minute attempt to legitimize their actions, protesters targeted ads for controversial businesses, notably retailers selling fur.
By the end of October, the YY protest group had been blocked by the authorities and the protesters, denied their main forum, dissolved into smaller groups, many of which have continued to attack large Tmall stores and Taobao Express. However, some have attempted to negotiate peacefully with Taobao’s management.
A small group of activists appeared in person at Taobao’s headquarters in Hangzhou, Zhejiang, intending to negotiate with Jack Ma and Taobao’s top management, however, they were told to remain outside. On October 16, representatives from the group submitted a list of demands to Taobao. Shi Yefei, the group’s spokesman and a seller of wedding accessories from Zhejiang Province, said that his comrades would travel from all over the country to camp in front of Taobao headquarters to wait for an answer.
“Now we are determined to solve a real problem in the real world.”
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Badeling Pass | Beijing
Sep 2011 | Submitted by Brian Snelson
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