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:
To bring some momentum to the app store’s ecosystem, besides standard revenue sharing models, Taobao is also offering additional incentives for developers:
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.
Originally posted in German by Marcel Weiss, adapted for excitingcommerce.com by Jason Soo.