The Most Important Web Company You've Never Heard Of

Last Updated Apr 13, 2011 12:00 PM EDT








It's larger than Amazon and has more users than eBay. Yet, most Americans have never heard of it. But this company's implications for the global economy hold vast potential.



Taobao headquarters
The company is Taobao (translated as, "digging for treasure"), a shopping website that connects buyers and sellers of products and services, mainly in China. You can think of it as the eBay of China. In fact, it was created in 2003 partly to counter eBay's entrance into the Chinese market. One of its distinctive features is the embedded proprietary instant chat program, called AliWangWang that allows buyers to "chat" with sellers prior to making a transaction.

According to its own website, Taobao is the largest online retail website in China, if not the world. It currently boasts over 800 million product listings coming from more than 550 million registered users. It claims that it receives more than 50 million unique visitors each day and that it is one of the world's top 20 most visited websites. In the last few years, according to one of the VPs I spoke with when I visited recently, the company has consistently increased its share of all retail transactions and this year it expects to account for 5 percent of all retail sales in China.

One of the reasons that Taobao is poised for continued success is because its parent company is the Alibaba Group, a conglomerate of several high-tech companies based in Hangzhou and Hong Kong. Its most popular company is Alibaba.com, a trade facilitation platform who's core business connects global companies to Chinese manufacturing. The group also includes Alipay, the PayPal of China and Alibaba Cloud Computing. Its founder, Jack Ma, might be the most famous entrepreneur in the People's Republic.

Taobao's potential influence goes well beyond its ability to make profits through advertising, which is it's main source of income. (According to Goldman Sachs, Taobao earned an estimated $36 million on $640 million in sales in 2010.) It has the capability to provide access to the global economy for hundreds of millions of small Chinese companies by lowering the cost of entry -- Taobao is a free service. In fact, according to Chinese government data, Taobao accounted for nearly half of all parcels shipped within China last year.

And it can provide the experience of entrepreneurship and owning one's own business in a country where this has only recently been possible, which in turn could lead to more individual freedom, the reduction of households living below the poverty line, market reforms, and potentially even political reforms more human rights.

Finally, because Taobao is a privately held Chinese company, it will likely face less government intervention than U.S.-based companies have faced when they have tried to compete in the Chinese market. Google, Walmart, Home Depot, and Best Buy have all infamously tried to break into China, but have so far not been successful. Facebook is blocked altogether in China. The Chinese government seems much more inclined to provide more freedom to homegrown companies, so its chances of intervening in Taobao's affairs seems less likely. Plus, Ma is personal friends with many of the party leaders in Beijing, including President Hu Jintao.

But Taobao's biggest days may be yet to come. First, it is still privately held, so if the company decides to go public, it could create tremendous value. Along with a long-rumored IPO by Facebook, Taobao could be one of the largest offerings to look for in the near future. Second, Taobao has been collecting massive amounts of data on all of its transactions. This data set could provide a gold mine of information on the shopping habits of its customers. Taobao has yet to monetize this information, but its easy to imagine the hordes of advertisers that would kill for this kind of consumer data.

But maybe Jack Ma and Taobao have something else up their sleeve. Ma hopes to help 10 million small companies get a boost online, create 100 million new jobs and serve a billion consumers worldwide. He believes that through his companies, maybe he can change the way China does business -- and maybe politics as well.

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  • Cameron Cushman

    Cameron Cushman is a Senior Analyst at the Ewing Marion Kauffman Foundation where he leads the Office of the President and works closely with the President and CEO, Carl Schramm. In this capacity, Cushman directs the Foundation's efforts to educate policymakers about the importance of entrepreneurs as job creators.

    Prior to joining Kauffman, Cushman served in the U.S. Department of Commerce's Market Access and Compliance division of the International Trade Administration. At Commerce, Cushman led the effort that launched the website www.entrepreneurship.gov. Prior to joining the Department of Commerce, Cushman served in the Domestic Policy Council and the Office of Presidential Correspondence at The White House.