(Chinese Version)

In 2014, as Internet users were opting to go online with mobile devices rather than PCs, online shop owners on Taobao had quite a tough time as their shops’ traffic reached a halt. On the other hand, WeChat Business boomed. Taobao, as the popular saying goes, will possibly be defeated by something else instead of another similar platform. So what makes WeChat the more preferred platform for startups?

1. Business scale

Previously, Taobao was the primary choice for barehanded private business owners to make a fortune. Before 2009, as long as one opened a Taobao shop, he/she could sell something out. If one knew some tricks in promotion and provided customers with authentic products and good services, one could even make a living merely by opening a shop on Taobao. After that short boom, however, competition got fiercer as an increasing number of shop owners opened their shops on Taobao. Moreover, Taobao was forced to promote products only from larger shops since its own traffic also reached a halt. That’s why many small-sized Taobao shops were closed for good.

Xing Dian, CEO of Taobao, once commented on the calculation that 90% of shop owners on Taobao weren’t making money and argued that all those shops that made a fortune succeeded via Taobao. This way, he avoided responding to the calculation directly but in fact has admitted it. As venture capitals and big brands entered Taobao, the competition in this lucrative market heated up, to a degree that small-sized shop owners were gradually driven out of the market after raising their stores up.

According to Analysys International, there are already over 10 million WeChat shop owners in China and the total sales volume on WeChat in 2014 registered 150 billion RMB. I myself have heard numerous complaints from friends that their WeChat friend circles had been filled up with advertisements from WeChat retailers. Although most of them opened their stores only on the side, the scale of WeChat Business is bound to soar amid the popularization of mobile Internet. If 5% of the 600 million Chinese Internet users join the WeChat retailing group, there will be 30 million WeChat shop owners.

2. Start-up cost

I myself used to be a Taobao shop owner. In 2011, I opened my shop on Taobao with a deposit of 1000 RMB. Running a shop at that time was quite easy, since all I needed to do was put on new items, replace old ones and come up with item titles that appealed to the customers. Combined with quality products and good service, the traffic of my shop roared. On average, the turnout of my shop reached 10%, and repeated purchase rate maintained above 50%. Within a year and a half, the credit index of my shop reached over 100,000 and the annual trade volume registered 3 million RMB.

Since 2013, however, my business went sour. For one thing, the traffic of my shop dropped drastically; for another, my shop couldn’t apply for the Taobao Express and Taobao Exhibition service since I sold only health care products. To attract more customers, I set up a team of several web designers, shop managers and marketing experts. However, it just didn’t work. Previously I could run a Taobao shop on my own as long as I had a computer and access to the Internet. But at that time, even if I had enough capitals, experiences, as well as a team of experts, I still couldn’t make it. That’s when I decided to close my shop on Taobao and open a new one on WeChat.

Currently, the shop owners on WeChat can be divided into three groups: housewives, white-collar workers and college students. These people don’t have much money but have abundant time. Plus, they want to earn some extra money. WeChat is the very platform they needed. It’s much easier to start, since you can start your business via your smart phone in just a few seconds, a piece of cake, isn’t it? And it also doesn’t require lots of money nor much time to start a business on WeChat.

To become the sales representative of a particular company, a shop owner only needs to turn in a couple of hundred RMB. While the company will offer the owner advertisement lines, pictures, discount plans, and training on their products and marketing skills, the only thing that a shop owner needs to do is to sell as much as he/she could via friend circle. Merely a smart phone and a large amount of money is enough to open a shop on WeChat.

3. Business model

Online retailer Taobao is fundamentally an advertising company who makes profits by providing a platform that sells traffic instead of products. This is obvious through its slogan: there are no products that buyers cannot find, there are no goods that vendors cannot sell. This business model greatly benefits consumers and Taobao itself but also makes it tougher for shop owners to make profits, since they are forced to lower their price (even lower than the cost) in order to compete with shops that sell the same products.

Moreover, the vicious competition for the fixed traffic on Taobao Express and Exhibition results in higher cost when applying for the service. If this vicious cycle continues, application fee will reach a point that is beyond logic. Shop owners will even unite together and force Taobao to lower the application fee back to a reasonable level.

WeChat Business, however, is based on the shop owners’ own friend circle. WeChat shop owners don’t need to worry about traffic. Instead, as long as they provide quality products and good service to their customers, their reputation will spread across the social network and their business is bound to soar. For example, if a WeChat shop owner has 100 regular customers and each of them spend 1000 RMB annually, the trade volume will register 100,000RMB year in and year out and the owner will earn as much money as a white-collar does.

As Internet users were opting to go online with mobile devices rather than PCs, a shop owner will definitely make a good amount of money as long as he/she takes the time to communicate with consumers on WeChat. One might doubt that WeChat shop owners are actually making money out of their friends. However, this is exactly the advantage of WeChat e-commerce, since recommendation from a friend is much more trustworthy and appealing than TV commercials. Personally, I prefer to buy products recommended by my friends.

4. Revenue potential

Being equipped with enough capital and a team of experts doesn’t necessarily mean a shop owner on Taobao is going to succeed. Let’s do some simple math: first of all, since quality products are the basic requirements for a promising Taobao shop, cost, in general, takes up over 30% of the income. Management cost, including application fee for Taobao Express and Exhibition service takes up another 30%. Moreover, express and gift fee will take up 10%. What’s more, rent, water and electricity, office equipment and salary for managers, designers and storage managers will cost a great deal. How could a shop owner make a profit on Taobao given these circumstances? I strongly believe that it is already too hard to make a profit on Taobao right now.

How about WeChat Business? Take my own WeChat shop as example, I earn 2000 to 3000 RMB per month on average. It would take a lot more time and efforts to earn much more. For most WeChat shop owners, it is more reasonable to be retailers, instead of sales representatives of a particular company, since one can easily make 2000 to 3000 RMB a month (if the turnout is 10%) as long as he/she has around 200 friends on WeChat and can provide quality products, reasonable price and good service.

If the reputation spreads further, one’s income is expected to rise even higher. More time and efforts need to be invested into the shop if one wants to further expand the business. Also, one might need a whole team to help him/her run the shop.

While WeChat seems to have become a preferable platform for young people to start a business, Taobao remains a prominent online retailing platform. Although Taobao has reached its bottelneck right now, WeChat is not likely to replace it, but will become a necessary supplement. Whether you like it or not, the era of WeChat Business has already come.

(The article is published and edited with authorization from the author @Li Zhizhong, please note source and hyperlink when reproduce.)

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.