Alibaba Taotian: After getting rid of the burden, where is it aiming this time?
Since the largest organizational transformation in the history of Alibaba Group, Alibaba has transformed into a 1+6+N organizational structure. Taotian Group, which encompasses the most important Taobao and Tmall businesses of the group, has recently cleared up its historical burdens and is now able to focus on the future after months of organizational and business restructuring.
At the industry level, with JD.com's high-profile launch of a hundred billion subsidy in March and the rapid follow-up of Taobao and Tmall in terms of cost-effectiveness, competition in the domestic e-commerce industry seems to be heating up rapidly. However, according to the latest second-quarter earnings report, Taotian and JD.com's performance is better than expected, and Pinduoduo's performance is even more outstanding, raising doubts about how market competition will evolve in the future and whether it will have a significant impact on e-commerce performance as feared by the market.
At this critical juncture for Taotian and the industry as a whole, Dolphin Research recently attended the annual product launch of Alibaba's subsidiary Ali Mama under Taotian Group and had discussions with relevant business leaders, gaining a lot of new information about Taotian Group's future strategies and directions.
The content of this exchange was extensive and complex. After digesting it, Dolphin Research believes that Alibaba Group's new CEO, Wu Mama, has recently set two strategic priorities: putting users first and driving with AI (technology). These top-level directions are also in line with Taotian's future direction.
Therefore, in the following sections, we will discuss how Taotian plans to operate its user and merchant ecosystem from these two perspectives, as well as how to leverage technology to serve customers while benefiting the platform itself.
I. Putting Users First - Achieving this through store operations, live streaming, and affordable prices
1.1 How will Taotian counterattack? Leveraging strengths and learning from competitors
For Taotian Group and investors, seeing the declining market share of the Taobao ecosystem in recent years and the continuous underperformance of the company's stock price, a lingering question must be: Does Taobao and Tmall still have advantages compared to other platforms (and what are they)? And in the face of endless and increasingly fierce competition, what methods can be taken to reverse the trend of consumer shopping behavior shifting to other platforms?
Only by knowing oneself and the enemy can one avoid danger. Therefore, the first question to clarify is: What are the strengths of Douyin and Pinduoduo compared to Taotian?
From the perspective of consumers, Pinduoduo's core advantage is simple and clear - offering the lowest prices and maximizing benefits for consumers, which naturally attracts profit-seeking consumers to Pinduoduo. As for interest-based e-commerce, in addition to the traffic advantage of short video platforms, its biggest differentiating advantage lies in intervening in the shopping process of "generating demand, searching and comparing, and purchasing goods" at the "generating demand" stage (commonly known as "grass planting" or "finding goods for people"), thus gaining an advantage and diverting shopping demand at an early stage.
In response to the advantages of competitors, the new management of Taotian has adopted a counterattack strategy summarized as "leveraging our own strengths and learning from others". In response to the advantages of competitors, Taotian has launched various channels such as "hundred billion subsidies," "Taobao good prices," and "Taobao Factory" to enhance the cost-effectiveness of its products, countering Pinduoduo. At the same time, Taotian is also focusing on live streaming and the integration of grass planting content and stores. Similarly, by advancing the timing of intervention to the "grassroots stage," we can counterattack Douyin.
Moreover, in terms of Taobao's own advantages, the company believes that Taobao's nearly unique store assets are its biggest differentiating and competitive advantages. The goal is to attract and maintain a long-term loyal user base through better merchant services and private domain operations, thereby breaking free from endless price competition and achieving long-term and stable growth based on a stable user base.
To summarize Taobao's current three key battles in the company's own words: price power, live streaming/short videos (i.e., browsing and grass planting functions), and store & private domain operations.
1.2 What is "store assets"?
According to the company's emphasized priorities, let's start with the focus on store assets and private domain operations. So the first question is, what exactly are "store assets" in the jargon of the Internet? In my understanding, Dolphin Research, I believe that the selling logic of retail channels can be simply divided into two types: one is the product logic with the product itself as the core, and the other is the store logic that focuses on the channel and service value of the store.
In the case of the product logic, as the name suggests, the focus is on the price and quality advantages of the product. Consumers do not particularly care about who the seller is. In this mode, the main value of merchants and platforms lies in facilitating transactions quickly and efficiently. Therefore, it is more suitable for standard products and daily necessities, and it is also more in line with shopping behaviors with clear purchasing goals and budgets.
In the case of store logic, the "quality" of the store or channel will also influence consumers' purchasing decisions. In addition to the basic selling function, the personalized shopping guidance, benefits, and even social and emotional needs provided by merchants also have considerable value for consumers. In return, buyers, out of habit or trust, will prioritize purchasing from these stores even if the product price/quality may not be the best. Store logic is more suitable for non-standard products and for consumer behaviors of "browsing while buying."
1.3 Which major e-commerce platforms in China focus on "stores" and which focus on "products"?
Based on the classification criteria mentioned above, Taobao clearly emphasizes store logic, while other mainstream e-commerce platforms in China, Pinduoduo, for example, clearly lean towards (explosive) product logic and have no concept of stores. The cost-effectiveness of products is the first criterion consumers consider, and most consumers buy and leave. The platform even does not provide a shopping cart function, reflecting the goal of simplifying and speeding up the consumer's shopping process.
On the other hand, platforms like Douyin and Kuaishou, which are interest-based (live) e-commerce platforms, clearly lean more towards store logic. Most consumers make purchases based on recommendations from hosts or videos. In terms of platform characteristics, interest-based e-commerce platforms excel in grass planting and real-time interaction but lack efficient product shelf construction.
As for JD.com, it is relatively balanced between store and product logic. For JD.com's self-operated business, consumers are willing to pay a premium for excellent delivery and after-sales service, which clearly leans towards store/channel logic. However, on the other hand, JD.com has relatively fewer live streaming and grass planting content, and most consumers also buy and leave, which leans more towards the pure selling logic of products. From the perspective of the positioning and platform functions of different platforms mentioned above, the similarities between Taotian and Doukuai in live-streaming e-commerce are not only reflected in the composition of product categories, but more importantly, both platforms focus on the key elements of "store" and "browsing". On the other hand, Pinduoduo and other mainstream platforms such as Taotian have significantly different core selling logics.
This partly explains why Pinduoduo is almost unaffected by the emphasis on cost-effectiveness by JD and Taotian. It also indicates that the key signal for the turning point of Taotian's growth/market share is the inflection point of Douyin's growth rate.
1.4 Integrating the complete shopping process from browsing to payment into one store
Corresponding to the company's vision and goals in terms of "store" and "private domain operation," Taotian has recently made significant changes to the pages and functions of the Taobao App, including:
Live streaming has been given the highest priority in terms of traffic placement, with over 2/3 of the homepage displaying the current live content of stores.
The original product tag page only pops up after scrolling down, and the main change is the addition of "works," "impressions," and "members" tag pages in addition to the original product recommendation and display tags such as "recommendation," "products," and "categories."
The "works" tag page displays recommended or reviewed short videos or images related to store products, while the "impressions" page consists of text-based product or store evaluations.
The "members" tag page is a major carrier for Taotian's implementation of private domain operation. From the page, it can be seen that member services include point accumulation and redemption, new product experiences, exclusive products, and other member-exclusive services.
According to the company, the goal of the aforementioned changes is to achieve "store integration," which means integrating the Taobao and Tmall stores controlled by the same merchant, the live streaming accounts for live sales, and the accounts for publishing short videos and images into one, connecting the data and user flow between the three, and integrating the previously fragmented "short video recommendations," "live sales," and "store shelves" into one, allowing users to complete the entire consumer process of discovering needs, comparing products, and making payments within the same store/page.
However, the coverage of "store integration" is currently limited, mainly limited to the redesign of some brand stores, while many small and medium-sized merchants still use traditional shelf-style pages.
1.5 "Private domain operation" - a return to the original form of retail?
So, what is "private domain operation" under the "Internet jargon" of Alibaba, and what does it reflect about the company's intentions? How will it be implemented? Although the specific measures have not been fully developed yet, Dolphin Research believes that Taotian's concept of "private domain operation" can be understood as transplanting the offline store's sales service system to the online platform. The company provides examples of "private domain operation" in its communication: 1) Shop customer service can monitor users browsing a certain product in the store and proactively contact consumers for recommendations; 2) Shops can provide exclusive pricing for loyal customers that is not visible to non-loyal customers, thus providing special discounts for loyal customers without affecting the public domain pricing system; 3) Providing loyal customers with points, exclusive events, special promotions, or products, and so on.
It can be clearly seen that the private domain operation of online stores is very similar to the experience of consumers' daily offline shopping, and its essence is also a method that has been proven feasible in offline retail to achieve the goal of "establishing a bond between merchants and consumers".
However, although Dolphin Research recognizes the role of private domain operation and the goal of cultivating consumer loyalty, the "limitations" of offline stores actually enable them to provide one-on-one and personalized services to customers, forming a real connection between customers and salespeople. On the other hand, the "borderless" online platform means that stores have to serve thousands, or even more, different consumers remotely, which is much more difficult than offline stores. Therefore, the effectiveness of private domain operation depends heavily on whether Taotian can launch effective operational tools in the future.
1.6 Public domain traffic on the homepage, emphasizing price competitiveness and the "browsing" attribute
In the previous section, we focused on the layout of the store's homepage, which leans towards the private domain. On the public domain homepage of the app, we can also see that "price competitiveness" and the "browsing" attribute (live streaming & short videos) occupy the main positions for traffic exposure. Although the importance of distinctive stores and private domain operation in Taotian's strategy is emphasized, the company has not relaxed its competition in terms of price competitiveness and live streaming/short videos.
In terms of price competitiveness, the billion-yuan subsidy mainly subsidizes branded products and offers relatively low prices for quality shopping, while Taobao Factory mainly produces white-label products at absolute low prices, competing directly with Pinduoduo.
At the same time, Taobao Live and the "Browsing" tab are also positioned as the primary entry points for traffic on the Taobao homepage. The "Night Taobao" feature that opens after 8 PM is mainly focused on content related to grass-rooting and entertainment. It can be seen that Taobao has a strong desire to regain its position as the first traffic entry point for "grass-rooting products" from Douyin and Xiaohongshu, and is not satisfied with being just a tool-oriented platform for selling goods.
2. AI-driven: What can new tools bring to merchants and platforms?
In the first half of this article, we mainly discussed how Taotian can operate the merchant ecosystem well from the perspective of users and merchants, with the goal of "putting users first". In the second half, we will mainly look at the recent changes in Taotian from the perspective of technology and the platform itself, combining it with the release conference of Alibaba Mama.
2.1 Universal Edition of Wanxiangtai: A further centralization of traffic distribution? First of all, as a commercial department under the Taotian Group and also a money-making tool for the Taotian platform itself, Alibaba Mama's focus in this press conference is the introduction of the "Universal Platform Unlimited Edition," a new marketing tool. Let's skip the internet jargon and mystification. In simple terms, the "Universal Platform Unlimited Edition" integrates various advertising tools such as search ads (Direct Traffic), audience targeting (Gravity Magic), homepage banners, and information flow ads into a single entry. Merchants only need to set their target ROI and advertising budget, and the system will intelligently allocate and distribute them across all advertising tools on the platform.
On the one hand, this integrated tool, the "Unlimited Edition," does reduce the time and effort that small and medium-sized merchants need to spend on advertising budgeting, planning, and execution, reflecting the efficiency driven by technology. However, from another perspective, this black-box tool also means that the platform has centralized control over the distribution of public domain traffic, reducing the merchants' choice.
Taking reference from Pinduoduo, which promoted a similar "Platform-wide Promotion" advertising tool and gradually phased out old advertising tools, there is a clear example of an increase in Pinduoduo's platform monetization rate. Even if we don't speculate on whether Taotian intentionally wants to increase the platform's monetization rate, the most likely result is that after the launch of the "Unlimited Edition," Taotian's monetization rate for individual merchants may not necessarily increase. However, due to the increase in the number of merchants using platform advertising tools (i.e., higher penetration rate), Taotian's overall monetization rate can still be further improved.
2.2 Empowering merchant operations and not relying solely on advertising budgets, is it good or bad for the platform?
Corresponding to Taotian's desire for shops to strengthen their service quality and cultivate customer loyalty, the company also claims that it will give certain traffic advantages in the platform's traffic distribution mechanism to merchants with good service quality, affordable product prices, and high customer ratings. The company hopes that merchants will not overly rely on advertising and buying traffic, but instead invest the saved budget into improving fulfillment and after-sales services. Through this mechanism, Taotian aims to let the good merchants naturally drive out the bad ones in the ecosystem.
While this method does help improve the overall service quality of merchants on the Taotian platform, a question arises: does the decrease in the weight of advertising in the traffic distribution mechanism mean a reduction in platform advertising revenue? Similarly, the company has emphasized shop private domains multiple times. Will this undermine the value (and monetization) of platform public domain traffic?
Regarding this issue of balancing long-term development quality and current profitability for the company, Dolphin Research did not perceive a clear inclination from the company's response. Therefore, Dolphin Research does not have a definitive answer, but we tend to believe that while Taotian promotes shop operations and private domains, the platform's monetization rate is unlikely to be greatly affected. 2.3 AI Technology Empowers Content Production
In addition to the aforementioned advertising tools, Alibaba's strategic focus on AI technology is also reflected in providing more efficient tools for merchants' operations, including:
AI tools for content production: This corresponds to the emphasis on "Browsing" and live streaming & short videos on Taotian. Based on Alibaba's large-scale models and AICG technology, Taotian has developed AI tools that can intelligently generate product introduction images, promotional copies, and even short videos for merchants. This helps merchants reduce the time required to generate relevant content.
"Alibaba Damo Platform" provides more detailed business data: In order to meet the needs of merchants' private domain operations (which may also be a make-up lesson for previous shortcomings), Alibaba's business management tools not only display revenue indicators such as GMV, income, and ROI, but also provide merchants with personalized data such as user sources, store visits, order frequency, and long-term purchase products. AI technology is utilized to generate analysis charts, helping merchants accurately expand and serve loyal buyers.
3) AI benefits not only merchants but also platforms: From the perspective of merchants, the aforementioned advertising, production, and analysis tools are all aimed at improving their operational efficiency. However, from another perspective, although these tools may be free during the initial promotion and technological maturity stages, they also represent potential paid opportunities for the platform.
Based on the above discussion, Dolphin Research believes that Taotian's strategic approach is logically "reasonable." Moving away from price wars and achieving stable and long-term development through user loyalty is indeed a better and more sustainable development model. Emphasizing the quality of store services and not relying on the flow distribution mechanism of advertising budgets (leaning towards brand merchants) is also healthier for the platform's ecosystem. Therefore, in terms of goals or vision, Dolphin Research agrees with Alibaba's choice.
However, there is still a gap between vision and final effectiveness in terms of practical execution methods. How to achieve good private domain operations for stores within a public domain traffic platform without harming the platform's own interests is a problem that requires the company's consideration and solution.
Nevertheless, regardless of the outcome, after completing the organizational adjustments, Taotian is at least heading in the right strategic direction, and the aforementioned changes are unlikely to have a negative impact on the company's short-term performance. Let's remain optimistic, but the ultimate outcome will depend on the actual execution and implementation of Taotian.
Longbridge Dolphin Research's Previous Relevant Studies:
January 18, 2023: "The Final Battle of E-commerce: Can Taobao Compete with Douyin?" 2023 January 5th, "The Tide Turns: 'Alibaba, Ctrip, Didi' are Ready to Counterattack"
2022 September 30th, "Pinduoduo vs Vipshop: Their 'Hard Times' are 'Good Times'?"
2022 April 27th, "Alibaba vs Pinduoduo: After the Battle, Can They Coexist?"
2022 April 22nd, "Meituan, JD.com: Why Are They Thriving in the Face of Intense Competition?"
2022 April 13th, "As the Cycle Declines, How Much Value Do Alibaba and Tencent Still Hold?"
2023 May 19th, Conference Call: "After Restructuring, Alibaba is Ready for Another Three Years (Conference Call Summary)"
2023 May 18th, Earnings Report Review: "Is Alibaba Finally Ready to Rise after Lingering at the Bottom?"
2023 February 24th, Conference Call: "Alibaba Conference Call Summary: 'There Will Always Be Subsidies, but Have We Seen Anyone Subsidizing Their Way to a New Landscape?'"
2023 February 24th, Earnings Report Review: "Alibaba's 'Deep Squat' Has Begun, but How Far is the 'Jump'?"
2023 January 18th, "The Final Battle of E-commerce: Can Taobao Outperform Douyin?"
2022 November 18th, Conference Call: "Alibaba: 'Actively Preparing for the End of the Pandemic'" 2022 November 18th Earnings Report Review: "Alibaba: Massive Loss is Just a Paper Tiger, 'Competitive Deadlock' is the Fatal Blow"
Risk Disclosure and Statement of this Article: Dolphin Research Disclaimer and General Disclosure