App Strategies: Taobao Refinances Auctions with Apps and Ads

Taobao, China’s biggest online retail platform, is taking an interesting approach to financing its operations. Unlike eBay, who charges fees to sellers, Taobao is completely free to use, both for sellers and buyers. The auction platform is completely financed by advertisements.

Additionally to the adverts, Taobao will also sell third-party developed applications which serve the needs of users who require customized access to the platform:

“The apps will mainly target PC users at first, but there will be some for mobile phones. The company is calling its download site the Taobao App Store, adding it to the ranks of companies seeking to emulate the success of Apple's App Store for the iPhone and iPod Touch.”

To bring some momentum to the app store’s ecosystem, besides standard revenue sharing models, Taobao is also offering additional incentives for developers:

“Taobao each year will invest 10 million yuan ($1.46 million) in independent developers making apps for its service, it said. The first batch of investments will be awarded to developers who made the top 30 apps in a recent contest, and their apps will be the first available in the store.”

Even if you add up ads and app-generated revenues together, the total volume of possible income is likely to lie beneath what could be earned via direct fees.

But this can also be a possible strategy to gain market share, particularly for newcomers who need to siphon business away from a dominant player in the market. Even if the monetizable volumes are lower, it still makes sense: in markets with networking effects (such as with online auctions), the alternative is usually little or even no revenues at all.

Naturally the strategy is also useful for the dominant players themselves, such as the case with Taobao, to further solidify their positions in the market.

eBay has also launched an App Store last year.

Originally posted in German by Marcel Weiss, adapted for excitingcommerce.com by Jason Soo.