The Death Spiral of Ali Taote

Taote (formerly "Taobao Special Edition") was relaunched in March 2020 and is expected to decline and return to its parent company, Taobao, as a sub-module by February 2023, abandoning its position as an independent operation. Over the past three years, it has come full circle.

Whether for Taote's employees or for Alibaba Group itself, this is definitely not an ideal outcome. As someone who has experienced it firsthand, I will record what I have seen in the past three years of Taote. (Original article mirror link: https://mirror.xyz/arthurwu.eth/M2ZzsjTz4R9AFwKl7WmjfCFO2-MOPMZgHhOq5vh3yl0)

Three Years of Taote#

In the three years of Taote, there was a core indicator for each year. The first year: DAU, the second year: AAC, and the third year: DAC (MAC). The development was planned step by step, but except for the successful DAU in the first year, the other two years were failures.

Taobao Special Edition was first launched in 2018, and in 2019, after the failure of Juhuasuan's attack on Pinduoduo, the group saw the value of low-priced factory goods and further integrated Taobao Special Edition with 1688, establishing the C2M business unit, focusing on the "sinking market." This is also why when Taote developed rapidly, everyone thought that Pinduoduo would be nervous, as the two were in direct competition.

The new Taote was relaunched in March 2020, taken over by a group of former Taobao employees. The top positions in Taote were held by the General Manager of 1688, the Product Manager of the original Taobao Store, and the General Manager of Tmall's Fast-Moving Consumer Goods.

DAU#

I personally divided the growth of Taote's DAU into three stages: the first stage was the cold start, the second stage was the new mode after C2M, and the third stage was the market leverage.

First Stage: Cold Start#

Some traffic was redirected from Taobao/Alipay to Taote for testing purposes.

How it was tested: The basic logic was to highlight the advantages of "Taote" at the traffic diversion point, encouraging users to buy products on Taote at a cheaper price, to see if users would download Taote and make purchases as a result. The products selected were the lowest-priced products from Taobao, and the users selected were older users.
What indicators were observed: DAU, first purchase rate, retention rate

When the indicators reached a specific value (based on the curve, time period, and overall requirements of the group), the next stage could be entered.

Second Stage: C2M Mode#

After the cold start, preparations were made for expansion, but the team encountered the first obstacle. With the help of the Double 11 event on Taobao, Taote opened a traffic diversion entrance on Taobao. The strategy was to provide relevant benefits to users after they downloaded the Taobao Special Edition app. The team thought that by incentivizing users and leveraging the high traffic of Double 11, they could quickly expand the DAU data. However, it turned out that after these users downloaded the app and received the benefits, they uninstalled the app directly.

The problem encountered here is crucial for anyone working in product/operations in the Internet industry. The essence of the problem is: What value does Taote provide to users that would make them not use Taobao and instead use the Taote app independently?

Because Taote was integrated with 1688 in the same business unit, it found a new supply system for goods that was different from Taobao, which involved selling factory goods directly without intermediaries to achieve extremely low prices (instead of redirecting Taobao's traffic to Taote and lowering prices through incentives like red envelopes on Taote, users did not perceive the difference between the two).

At this point, Taote found its differentiation from Taobao and embarked on its own path in e-commerce. After the subsequent explosive growth in overall data, we called it the "4th tier of e-commerce" (Taobao, Pinduoduo, JD.com, Taote).

Third Stage: Market Leverage#

After determining that Taote would follow the C2M factory direct sales route, the overall product entered a phase of healthy growth. At this point, Taote naturally chose to increase commercial investment and market leverage.

The market leverage consisted of three parts: second-party cooperation within the group, commercial investment, and viral marketing.

Second-party cooperation within the group: Leveraging the Alibaba commercial ecosystem to achieve a win-win result by mutually redirecting traffic.
- If the cooperation is simply one-for-one, it won't achieve incremental results; sometimes it may even be one-for-zero (directly siphoning off the other party's traffic), which is not a sustainable cooperation method.
- Having second-party traffic cooperation is an advantage for large companies (which smaller companies cannot learn from), but as a partner, it is necessary to consider the perspective of "win-win" and achieve a result where 1+1 > 2.
Commercial investment: This is a stage that every commercial company must go through to quickly expand its user base. When making commercial investments, the main focus should be on two indicators: quality and desire.
- Quality is generally measured through ROI (LTV), with a focus on the long-term value brought by users.
- Desire cannot be measured by indicators, but the money spent on advertising is real. Sometimes the growth curve looks good, but afterwards, it is discovered that 80% of the users brought by the advertising are useless traffic. Therefore, it is important to control one's desires and balance the quantity and quality, adjusting the advertising strategy goals on different platforms at different stages of the product.
Viral marketing: In today's Internet environment, social virality can be an effective way to quickly increase user base, in addition to paid advertising.
- The premise of viral marketing is that the product has reached a certain stage, has a certain level of influence among a specific target audience, and has a certain number of highly active users. Based on this foundation, by adding incentives at the level of benefits, it is possible to achieve better results with less effort.
- Most products, if they do not consider the prerequisites, will end up wasting money on vanity metrics, and the retention rate will be very poor.

AAC#

AAC refers to the Annual Active Buyers (AAC) (the "annual" here refers to Alibaba's fiscal year), which is a very important indicator in the e-commerce field, as it intuitively represents the platform's attractiveness to users.

AAC consists of: first-time purchases by new users + repurchases by existing users (new users: new to the platform, have never made a purchase on Taote; existing users: have made a purchase on Taote before, but not in the current fiscal year). Taote established a dedicated "user acquisition" team to address the issue of first-time purchases by new users, while the growth team primarily served the repurchases of existing users.

First-time purchases by new users: The main goal was to complete the user's first purchase at an extremely low price and with a short process. In the end, Taote achieved 300 million AAC before the end of the fiscal year.
- Extremely low price: The factory goods from 1688 were already priced very low, so how could the user get an even lower price? Taote's answer was to give each new user a 10 yuan unconditional red envelope. This strategy allowed many new users to get products without spending any money (compared to the extreme 1 cent purchase offered by competitors).
- Short process: Abandoning the traditional e-commerce "new user zone" operation model, Taote directly selected dozens of 0 yuan products and presented them to new users. Users only needed to click "purchase" and could even place an order without opening Alipay.
Repurchases by existing users: Fine-grained operation throughout the user's lifecycle was key, with a focus on segmenting users and providing tailored incentives (broad incentives, such as red envelopes, products, games, etc.) at different stages of the user's lifecycle to maximize ROI.

Although the AAC indicator reached 300 million and through a series of marketing campaigns, the general public became aware of the "Taote" product, and Taote's position within the group was also elevated.

However, I still believe that these achievements were made to meet the group's goals through certain extreme measures. One piece of data can prove this point: after the fiscal year ended, Taote reduced the new user red envelope from 10 yuan to 5 yuan, and both the first purchase rate and retention rate saw a significant decline.

At the same time, I believe that the strategies used to achieve 300 million AAC and the subsequent decline of Taote may have laid the groundwork for its ultimate demise. This logic is similar to the 10x or 100x goals set by investors and entrepreneurial teams. When you have a sword of Damocles hanging over your head, it is difficult to focus on doing many difficult but correct things. You must turn to some potentially extreme measures.

DAC (MAC)#

After surpassing the milestone of 300 million AAC, Taote shifted its focus to "harvesting users" and immediately set its target on GMV.

GMV = Number of Users x Purchase Conversion Rate x Average Order Value

Number of Users: There was no significant change in the short-term natural growth of the user base. If rapid growth was desired, it could only be achieved through advertising. However, Taote's strategy at this time was to reduce costs and increase efficiency, so this approach was not feasible.
Purchase Conversion Rate: The main focus was on enhancing interaction and improving user perception of benefits to increase the conversion rate (CVR). There was no significant change in the short term, so this approach was not feasible either.
Average Order Value: Taote's average order value had always been very low, driven by the previous indicators. When both of the above approaches were not feasible, increasing the average order value seemed to be the most effective and fastest way.

Based on these three indicators, Taote ultimately placed its bet on "products." The industry constantly searched for products with higher average order values, and the recommendation algorithm incorporated factors that led to higher average order values. From the user's perspective, the front-end result was that the prices of products became more expensive.

From the performance of the result indicators, it was clear that users did not accept this sudden change. While the average order value did increase, the number of orders decreased, resulting in no overall improvement and a negative impact on user reputation.

Therefore, after several months of unsuccessful attempts, Taote adjusted its focus back to DAC (MAC) to increase platform activity.

At this point, Taote's "Interactive Games Department" became the most important weapon, hoping to achieve the goal of "users making purchases while browsing" following the example of Pinduoduo.

Human and material resources were heavily invested in games, and the main indicators were penetration rate, user activity rate, and commercial recovery.

Penetration Rate: By placing game-driven traffic diversion tools at user touchpoints (e.g., when users enter the homepage, a guide banner pops up, and clicking on it takes them directly to the game area), the goal was to increase the number of users entering the game area.
User Activity Rate: By combining multiple games, splitting game rewards into multiple days, and other methods, the goal was to increase user activity over multiple days.
Commercial Recovery: Due to the excessive investment in games, commercial recovery also needed to be considered to ensure ROI. The main approach was to increase the proportion of high-commission advertising products in the most exposed areas of the game.

It is evident that from the user's perspective, these strategies were not optimal. They were merely actions taken to achieve specific data indicators, and some strategies even harmed the user experience.

Users vote with their feet, and based on the feedback, while the user activity rate did increase to some extent, it still fell short of the set target. The approach of feeding the entire platform into the game ecosystem to increase user activity may have accelerated Taote's decline.

The Good and the Bad of Taote#

After three years, the outcome of Taote was already predetermined. Here, I would like to discuss the good and bad aspects of Taote as an innovative incubation project, which can serve as a learning and reference for us.

The Good#

Independence from the parent company: As an innovative product incubated by a large company, having the courage to separate from the high-traffic parent company and grow independently was crucial. The team understood that developing within an already established national-level product would be greatly influenced by speed and constraints. To maintain the entrepreneurial spirit, they even left the company's headquarters and developed externally.
Flat organization: Short reporting lines, and to some extent, everyone's opinions were heard. For the execution team, it was mainly based on capabilities and ideas. Even interns had the opportunity to take on a lot of responsibilities.
Strong execution of the team: The team recruited young people (willing to work overtime) who had ideas and could execute them. They did not hire people who were not capable. Compared to other teams at Alibaba, there was still a strong entrepreneurial atmosphere, with rapid iteration and trial and error, and strong execution.

The Bad#

Serving the boss: Unable to withstand the pressure from above, the strategic goals were often modified due to the boss's ideas, resulting in constant changes for the execution team and an inability to establish long-term stability.
Internal politics: This is probably an unavoidable issue for innovative projects in large companies. Taote did not effectively weaken this culture of internal politics, and it was difficult for those outside the inner circle to integrate, leading to a loss of motivation and a vicious cycle.

The key measure that allowed Taote to develop independently and grow stronger was its separation from the parent company. After three years, it ultimately failed and will likely return to the parent company as a sub-module, which is only a matter of time.

I have had conversations with former Alibaba colleagues who had high expectations for Taote. The reason was that they saw the entrepreneurial spirit and hard work of the team when there were only a few dozen people. Everyone was focused on solving the problems users encountered. With the continuous growth of data, the project's prospects seemed bright. Many people even regarded Taote as the last stop in their Alibaba career.

However, after three years, everyone has come full circle and is back to where they started. Many people will likely spend time searching for their direction again and looking for the next "pre-Taote" organization.

Professional Managers vs Founders#

In 2021, Taote was doing well in the market and within the company, but after just two years, it declined. People in the Internet industry have always criticized Alibaba's acquisitions, except for Gaode, none of them have been successful.

The better innovative products within Alibaba always achieve great results in the beginning but are likely to decline later. The ones that are not as good may not even survive for half a year, and it is always the execution team that suffers.

Alibaba's market share is being eroded by Douyin, TikTok, and Pinduoduo, and only cloud computing and local services rely on a large amount of cash to support their operations. Other innovative businesses never emerge because they end up "separated from users, serving the boss, serving the business."

So why did Alibaba, which was once at its peak, end up in its current state?

I don't believe that someone who created the Double 11 Shopping Festival, rented hotels for office space year-round, and secured Alibaba's ticket to the mobile Internet boat cannot see Alibaba's current predicament. The people at the top are unwilling to step down, the people at the bottom cannot move up, and those in the middle only pass messages.

But the root cause may indeed lie with the top leadership, whose role is that of a "professional manager" rather than a "founder." Because of their different roles, many things that founders can do, they cannot. They have to be responsible for the business and shareholders of Alibaba.

Compared to Pinduoduo, which has around 10,000 employees, Huang Zheng can single-handedly make any strategy work without compromise. The overseas product TEMU uses the profits earned from Pinduoduo in China to burn money and expand overseas without considering costs. So, if Huang Zheng were not the founder, would he be able to implement this strategy without obstacles?

Alibaba has over 200,000 employees, and Huang Zheng's ideas, after being filtered and processed by multiple executives, ultimately end up in the hands of the execution team, layered with multiple meanings. Each executive is surrounded by a group of people waiting to be fed, and human nature dictates that each person must consider their own interests and the interests of their trusted allies.

When there are too many conflicting interests in one matter/strategy, it is likely that the result is a compromise. The life or death of a project, a person's promotion, and the handover of a business all follow this pattern.

Alibaba has become too large and has been at its peak for too long. From the perspective of the business operation of an organization, it has indeed entered a period of decline, transitioning from its prime to old age, with various organs showing signs of disease. When it is time for surgery, the difficulty lies in determining which organ to remove. Some organs may not be severely affected and can be replaced or repaired. If the knife cannot penetrate, how should it be handled?

This is probably an unsolvable problem.

Conclusion#

I cannot see any signs of Alibaba returning to its peak. It has not found a solution to its multiple challenges. It is both the organization's success and failure.

The decline of Taote is just a microcosm of the Alibaba ecosystem and does not affect the company's foundation. However, the problems reflected behind this microcosm may be the key factors leading to Alibaba's lagging behind. I hope the disintegration of Taote does not become the last straw that crushes Alibaba in the market.

Alibaba is still a giant company with good benefits and a strong brand. To achieve its vision of living for 102 years, it may indeed need to undergo surgery to regain its vitality.

As an Internet practitioner, I sincerely hope that young people with ideas and ambitions can keep their eyes open when choosing their careers. You can refer to my personal thoughts on the relationship between "workers" and "companies" during the job search process.

I hope Alibaba gets better and better, and I also hope that my entrepreneurial journey goes smoothly.