Taobao Mall’s IPO March Collides With Merchant Uprising 淘宝商城IPO或因商户“起义”被推迟

By newsdoug on October 13, 2011

Merchants create whirlwind at Taobao Mall China e-commerce visionary Jack Ma loves to talk about the power of the Internet, and now he’s experiencing that power directly, though not in the way he envisioned, as a group of unhappy merchants on his popular Taobao Mall platform rise up in rebellion over a recent massive fee hike. The uprising that has created chaos at the Taobao Mall, the B2C platform of Ma’s Alibaba Group, is just the latest in a string of crises that have plagued Ma and his company this year, each due to a big miscalculation. This time a large group of small- to medium-sized merchants have created chaos on the platform, flooding larger merchants with bogus orders and posting fake negative user comments on their sites, after Taobao hiked annual fees for merchants by up to 10 times, and implemented other policies that smaller merchants said were aimed at pushing them off the site. (English article; Chinese article) These smaller merchants are right, of course, at least in their argument that Taobao wants to get rid of them to create a site for mostly premier merchants that have better records for quality control and customer satisfaction as it prepares for an IPO as early as next year. I said earlier this week that the strategy is a smart one for Taobao Mall (previous post), as it seeks to avoid scandals like the one plaguing sister company Alibaba.com (HKEx: 1688), which has suffered since it revealed earlier this year that its B2B e-commerce site had become a major ground for fraud by some smaller, unscrupulous merchants. The only problem in Taobao Mall’s latest move is that it failed to understand the power of smaller merchants on its site to create havoc on its system. All this chaos will inevitably result in more negative publicity for Ma and Alibaba, and it could be months or even longer before business returns to normal, potentially scaring away some of the larger merchants that Taobao wants to keep. At the end of the day, this storm will probably pass, but not before dealing a blow to Ma and Alibaba’s image, and creating a delay that could push Taobao Mall’s widely expected IPO into 2013.

Bottom line: A new merchant uprising at Taobao Mall over fee hikes will deal a blow to the company’s business, pushing back a widely expected IPO into 2013 or later.

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