E-commerce leader Alibaba loves to talk about how the business model for its popular TMall online mall gives it an edge over most of its rivals by letting it focus on its role as a web mall operator while leaving the actual business of managing online stores to third-party merchants. But the company is much less talkative about some of the downsides to such a business model, most notably the issue of quality control for the products and service provided by thousands of merchants that sell their goods on TMall. A sharp and sudden price hike in store rentals fees by TMall last year provoked a sharp backlash from many smaller merchants, creating huge headaches and a publicity nightmare for Alibaba. Now, many of those same small- and medium-sized merchants, known in the industry as SMEs, are complaining once again about new policies that Alibaba says are designed to improve quality and customer service, even as the SMEs argue those policies discriminate against them and lack transparency. (Chinese article)
Before I go any further, I need to take a step back and discuss more broadly the very real challenges that Alibaba faces in operating TMall. In particular, TMall has come under regular attack by big-name brands, both western and Chinese, that complain about the large number of fake products being sold by TMall merchants.
This kind of problem is unique to Alibaba due to its business model, since most other major e-commerce firms like Jingdong Mall and Suning.com (Shenzhen: 002040) operate more traditional sites that see them sell only their own products over their platforms. Such a model makes it much easier to control product quality and customer service, since all products must pass through a single channel and customer service comes from a single source.
In order to tackle the quality control problems, Alibaba has rolled out a number of policies to weed out knock-off products from TMall and make sure its merchants provide good customer service. As it take such steps, it has also embarked on an aggressive campaign to have its name removed from a list of web operators published periodically by the US government that singles out companies which facilitate piracy and the sale of fake goods on their sites. (previous post)
But to return to the main issue, lots of SMEs suspect that many of TMall’s recent new policies are quietly designed to encourage them to close up their shops. They say their departure would leave TMall as a platform for a much smaller group of major merchants like PC giant Lenovo (HKEx: 992) and sporting goods maker Li Ning (HKEx: 2331), which are larger and more experienced at quality control and customer service.
Such suspicions led to the revolt I previously mentioned, which occurred last October when thousands of TMall merchants complained that the big and sudden fee hike was aimed at getting them to close up their shops. (previous post) That revolt caused huge headaches and business disruptions for TMall, including a “denial of service” attack by the merchant group that reportedly made the TMall web site difficult to access for a period of time.
These new early signs of discontent by TMall merchants could be the first warning signs before a new crisis for Alibaba, which is facing pressure on all sides as it tries to please both its critics that accuse it of encouraging piracy as well as the merchants who do business on its site. I expect this latest looming crisis will probably peak over the next 2 weeks, and then quietly recede as the ongoing clean-up forces more and more SMEs off of TMall.
At the end of the day, TMall itself will emerge as a better place to do business for consumers, though I do suspect that it will ultimately become dominated by the big-name merchants. In the meantime, look for a steady stream of this kind of conflict between Alibaba and its smaller merchants, as it tries to clean up its business in preparation for what’s likely to be a multibillion-dollar IPO for the entire group as soon as 2014 or 2015.
Bottom line: Alibaba is likely to face a new revolt of smaller merchants on its TMall site as it takes steps to clean up the popular B2C e-commerce platform.
Related postings 相关文章: