Vendors rebel against Taobao Mall changes

China Daily, October 13, 2011

China's largest business-to-consumer online marketplace, Taobao Mall Co, on Tuesday announced significant increases in the commission rates and premium fees it charges to all online shops, which outraged small dealers. [China Daily]

Taobao Mall Co, China's largest business-to-consumer (B2C) online marketplace by transaction value, has experienced two successive waves of online rioting since it significantly increased fees on online vendors on Tuesday.

The organized unrest is a measure of the widespread discontent with Taobao Mall's growing reliance on bigger merchants, and it highlights the crisis of the industry monopoly, analysts said.

The company, a unit of Chinese e-commerce giant Alibaba Group Holdings Ltd, announced on Tuesday it would overhaul its business management system. One major change was to significantly raise the commission rate and premium fees it charged all online shops.

Depending on the category of goods, sellers on Taobao Mall now have to pay either 30,000 yuan ($4,710) or 60,000 yuan as the "technology service fee". The previous agreement had set the annual fee for all sellers at 6,000 yuan.

Also new is a system for refunding vendors the following year based on their performance and reliability ratings. Vendors with an average of at least 4.6 out of 5 points in a customer satisfaction index can get either a 50 percent or 100 percent fee refund depending on their revenue scales.

Daniel Zhang, president of Taobao Mall, said in an open letter that the company is firm in its commitment to "zero tolerance" with fake products. Therefore the rising costs will serve to guide and regulate online merchants to improve their service quality for the sake of consumers.

However, the move quickly raised speculation about Taobao Mall's intentions.

"Clearly, they want to squeeze us out," said a vendor who sells wedding dresses and gave her name only as Quan.

"We gathered on YY.com (a voice-chat forum) to form the anti-Taobao union on Tuesday night, and joined the price-hike fray," Quan, whose company had registered capital of around 200,000 yuan, told China Daily over the phone.

"We (small vendors) are the ones that helped Taobao prosper in the first place. How can they treat us so harshly now?" she asked.

In the revolt against rising costs, groups of small merchants attacked bigger sellers in various ways, such as maliciously making massive online orders, then canceling them immediately after payment, and leaving countless negative comments in an attempt to lower their customer satisfaction ratings.

Victims in the battle against Taobao Mall include big players such as Hanyidushe (Korean-style dress shop), Uniqlo and Osa, among many others. Most were forced to temporarily shut down transactions.

On Wednesday, Taobao Mall reiterated its principles in a new notice. "Quality and service will always stay the top priority of Taobao Mall. This is in the shared interests of all consumers and qualified merchants, and we will do everything to defend them."

Jack Ma, chairman of Alibaba Group, wrote on his micro blog that the company has acted as it should and will unremittingly work on building the trustworthiness of online sellers.

Zhao Yingguang, founder of Hanyidushe, wrote on his micro blog of his weariness with the actions against his company and said it not bow to online attacks that are "highly irrational and dangerous to the health of China's digital commerce industry".

Chen Shousong, an analyst with the domestic consulting firm Analysys International, said Taobao Mall has been positioning itself as a "high-end" marketplace since it restructured in June. Most recently, it got more than three dozen of its smaller rivals to open stores with it, and so consolidate its unassailable position in online trading.

According to Chen, the tipping point came when Taobao Mall's strategic focus shifted from small and medium-sized vendors to larger ones, and he expected the trend to continue.

Liu Huafang, an IT critic, said Taobao Mall may gain some ground in its reshuffling, but it has challenged business ethics by thwarting the many small players that once contributed to Taobao's e-commerce empire.