618 has just passed, and small and medium-sized businesses are facing even more difficulties

With the intensive introduction of new regulations for e-commerce platforms, small and medium-sized businesses are facing unprecedented challenges. Taobao's recent merchant policy adjustments seem to be exacerbating this dilemma. While canceling annual fees, introducing basic software service fees, and attaching importance to "experience points" are all testing the operational wisdom and cost control capabilities of small and medium-sized businesses. In this transformation, the survival status and response strategies of small and medium-sized businesses have become the focus of attention in the e-commerce field.

Just over a month away from the "most difficult" 618 in history, merchants have been forced to open a new "difficult copy".

According to media reports on July 26, Taobao has intensively released new regulations for merchants, including canceling annual fees and starting to charge a basic software service fee of 0.6% of the confirmed transaction amount of each order.

At the same time, it is clearly stated that "experience points" are the core basis for store traffic allocation, and for merchants whose store experience points exceed 4.8 points, Taotian will no longer actively intervene through Wangwang to support consumers in refunding only after they have received the goods, and will adjust it to allow merchants to negotiate with consumers first.

Among Taobao's many "new rules", merchants are not very interested in canceling the annual fee, because before, as long as the annual turnover of the store reaches a certain amount, the fee can be reduced. However, the new action of charging basic software service fees has undoubtedly increased the burden on small and medium-sized merchants.

Previously, Taobao C stores did not have to pay fees to the platform based on the store's order turnover, but now all Taobao merchants face an additional expense of 0.6% basic software service fee. Coupled with Taobao's strengthening of the value of "experience points", small and medium-sized merchants, who are already weak in operation and after-sales, are now facing a greater threat.

1. Free traffic is gone, and operating costs have increased

Generally speaking, the operating costs of merchants on Taobao include a relatively fixed store opening deposit, annual fees, and dynamically increasing and decreasing platform service fees, operating tool usage costs, after-sales costs (freight insurance, refunds only, etc.), warehousing and logistics costs, and traffic promotion costs.

According to LatePost, traffic promotion costs account for the largest proportion of the above operating costs, and the traffic promotion costs of many merchants account for more than 50%, and some even reach 70%. And through Alibaba's third quarter 2020 financial report data, it can be inferred that among the various fees collected by Taotian from merchants, traffic revenue accounts for at least more than 60%.

Combined with the intensive adjustments to the merchant policy, we can see that Taotian’s core purpose is to improve the efficiency of traffic promotion costs, which account for the largest proportion of merchants’ costs. While the new policy seems to reduce or exempt the annual fees for merchants, the operating costs of many merchants have not actually been reduced.

In fact, Taobao e-commerce's intention to boost traffic revenue growth was already revealed when Alimama launched site-wide promotion in April this year.

At that time, the official platform claimed that full-site promotion was to connect paid traffic and natural traffic from the bottom up, thereby activating the global traffic of the Taobao system and helping different types of merchants in the Taobao system to achieve a double breakthrough in traffic and growth. However, some people believe that full-site promotion is a harvesting tool of the platform, selling junk traffic at the same price as high-quality traffic, and then automatically bidding and ranking products through the system.

The reason why merchants have such an interpretation is that for a long time in the past, the core of operating a store on the Taobao e-commerce platform was not products, services, or supply chains, but digital operations. Simply put, the platform decides whether to give product traffic to a certain store based on the data performance after the product is released.

For example, after the same product is released, products with higher sales can get more traffic recommendations; when sales are the same, products with higher click-through rates can get more exposure; if sales and click-through rates are the same, data such as collections and repeat purchases will be compared.

From the platform's perspective, this evaluation standard has a certain logic, but its flaw is also very obvious - it is not equal enough.

Assuming that the sales of stores A and B are equal, if store A wants to obtain traffic support, the most efficient way is not to improve product quality and service, but to falsify store sales, improve store reviews and credibility through fake transactions.

In addition to fake transactions, the platform also provides merchants with a variety of promotional tools. When more and more stores find that they can gain traffic and increase sales simply through operational means, the focus of business has gradually shifted to channel operations. Even if there is no source of goods and one product is listed with multiple links, it can still gain traffic on Taobao e-commerce.

As a result, the sales of merchants and platforms continued to break records, but the quality of the goods purchased by consumers did not improve much. Over time, merchants neglected supply chain management, product strength continued to shrink, and the user value of the platform began to decline, so traffic growth stagnated and even user loss began to occur.

Finally, merchants began to wonder why it was getting harder and harder to sell goods despite the rising operating costs. But in fact, while merchants were stuck in the operational quagmire, the platform traffic had also reached its peak. Whether it was opening up traffic or emphasizing traffic payment, it was essentially a reuse of the stock market. Therefore, when traffic was not enough to be allocated to merchants at different levels, the platform used the method of assessing the traffic utilization rate of merchants to "target" merchants who could continue to contribute value.

In addition, the platform also wants to capture the top merchants to ensure its own survival.

When driving traffic revenue growth becomes the core goal of the platform, which merchants are more worthy of the platform's "care"? The answer is obviously the leading merchants with larger business scale and more ability to increase commercial investment. Therefore, the annual fee reduction and relaxation of the "refund only" policy seem to reduce the burden on all merchants, but in fact, for small and medium-sized merchants with limited GMV and limited service capabilities, they are all illusions.

It is worth noting that even before the release of this round of new merchant regulations, news that Taobao will adjust its merchant tiering policy had already spread wildly in the merchant operation circle. According to this policy, the amount of commercial investment (on-site paid promotion, etc.) of merchants on the Taobao platform will become the core indicator for subsequent merchant tier evaluation.

This means that the more money a merchant invests and the higher their level, the more impressive the search quality and search traffic they will get from the search side. It is even rumored that a Taobao clerk clearly mentioned in a message posted in the operation group that the adjustment will have a "great impact on the search side" and that merchants need to "ensure the level of commercial investment in advance."

At that time, there was also a view that the impact of the platform's new tiered policy on top merchants was basically negligible, but the increased commercialization of top merchants could bring the most direct revenue increase to the platform. This in turn passed on pressure and chill to merchants - especially small and medium-sized merchants.

In fact, in recent years, many platforms have been supporting small and medium-sized businesses, and businesses have been wavering between platforms. In contrast, top businesses have been working on the Taobao platform for a long time and are not likely to leave. Although top businesses may also have plans to cut their budgets, for current platforms, it is better to maintain the current "basic plate" and create new value in the existing market rather than seeking new growth from small and medium-sized businesses.

Therefore, the real intention of Taobao's intensive release of new regulations for merchants is to reduce the burden on leading merchants and enable them to increase their paid promotion efforts, purchase high-quality content, and achieve certain growth. The platform also realizes revenue from payments, but this win-win situation can only be a partial "victory."

2. Abandoned Small and Medium-sized Businesses

When Taobao was first launched, the slogan “Let’s make business easier for everyone” enabled thousands of small and medium-sized businesses to achieve business success with the help of e-commerce.

From women's clothing and daily necessities to skin care and beauty products, maternal and child products, and from local specialties to rural agricultural products, merchants in every niche market, no matter how low their starting point, can find ways to expand their business on Taobao. Taobao has even produced successful entrepreneurs such as Xiao Shanglue, the founder of Yunji Weidian, and Liu Nan, the founder of MiYa Baby.

However, as the platform grows and more big brands enter Taobao, Taobao begins to upgrade through Tmall, and the platform is no longer "flat". From the perspective of business model, the e-commerce platform and merchants have a cooperative relationship of common growth and mutual benefit. However, from the perspective of business efficiency, the value of the top merchants and small and medium-sized merchants to the platform is not equal.

Because the Matthew effect exists naturally in the market. Therefore, the top merchants are far superior to small and medium-sized merchants in terms of market appeal and business scale. Even though the commission rate of top merchants is lower than that of small and medium-sized merchants due to the stratification of merchants, the actual revenue contributed to the platform by multiplying their huge scale by the commission rate is far greater than the value created by small and medium-sized merchants.

Taobao is not an isolated case in terms of over-reliance on top merchants. Almost all traditional e-commerce platforms that follow a centralized search traffic distribution mechanism have this problem.

A report released by Orient Securities pointed out that traditional e-commerce platforms adopt a "centralized search traffic distribution" mechanism, where the strong will always be strong, and the GMV concentration of top merchants is high. Tmall has more than 100,000 active merchants, and the top merchants, which account for about 1% of the total number of merchants, contribute 30%-40% of the GMV. On Taobao, which has more than 1.2 million active merchants, the top merchants (about 6%) contribute 40% of the GMV.

According to Alibaba's 2020 fiscal year financial report, as of March 31, 2020, 80% of the brands in the consumer category of the 2019 Forbes Top 100 Global Brands have settled in Tmall. As the concentration of big brands and top merchants on traditional e-commerce platforms continues to increase, the platform's focus is gradually shifting towards top merchants who are more likely to generate profits, and the distance between small and medium-sized merchants and platform resources is getting farther and farther.

In fact, from the development and growth of Taobao, we can see that the platform did not have much traffic in the initial stage, but it was precisely because of this that some small and medium-sized businesses willing to try e-commerce were able to "take the lead" and be packaged as successful cases, attracting more conservative big brands to join in.

However, when the growth rate of platform traffic lags behind the growth of the number of merchants, the "involution" among merchants begins to intensify. Driven by profit, the platform is more willing to earn easy money from the top merchants, while small and medium-sized merchants, because of their smaller business scale and low profit efficiency, naturally do not get the attention of the platform.

Especially in the current stock competition environment, the platform mechanism of "centralized search traffic distribution" has further determined that traffic will only flow to a few players. Therefore, the new merchant policy aimed at improving the efficiency of traffic promotion costs actually focuses the already limited traffic on a few leading merchants, further compressing the survival space of small and medium-sized merchants.

Taotian’s intention to make the top merchants “get stronger and stronger” can also be seen in the new policy’s enhancement of the value of “experience points”.

"Experience Points" is a new rating system that Taobao launched in June this year, including "Store Experience Points" and "Product Experience Points". Compared with the past, the new rating system has added various indicators of the service link, such as logistics timeliness, praise rate, return and refund rate, etc.

Before this, because the store score was directly linked to GMV, many small and medium-sized merchants paid more attention to GMV, and therefore did not have the same service team and service level as the leading merchants.

Nowadays, when small and medium-sized businesses already have obvious shortcomings, directly using "experience points" as the core indicator for store evaluation has a special meaning of "one size fits all" for small and medium-sized businesses.

3. Taobao’s confusion

In recent years, the biggest problem facing the e-commerce industry is that traffic is becoming more and more expensive and it is becoming more and more difficult to sell goods. But to be honest, the problems of traffic and sales did not appear suddenly.

Ten years ago, as the demographic dividend of the Internet gradually faded, e-commerce platforms had clearly seen the signal that the cost of online traffic was rising. In 2014-2015, the cost of acquiring customers online began to be higher than offline, and online channels no longer had a clear advantage. As a result, traditional e-commerce companies such as Alibaba and JD.com have aggressively deployed offline channels.

Alibaba has created a "new retail" map with Hema Fresh and Tmall stores, in cooperation with RT-Mart, and JD.com has also followed suit with a combination of unmanned supermarkets, JD convenience stores, JD Daojia and Yonghui Supermarket. However, the exploration of these new channels has not solved Alibaba's traffic anxiety, nor has it been able to curb the trend of "traffic becoming more expensive."

According to iResearch Consulting and Guotou Securities, Alibaba's customer acquisition cost was 298 yuan/person in 2019, which increased to 669 yuan/person in 2021. Pinduoduo's customer acquisition cost also increased from 163 yuan/person in 2019 to 558 yuan/person in 2021.

Looking back at the plans made in the past to solve traffic problems, they are now a mess.

In the first quarter of this year, Alibaba's Hema and RT-Mart were reportedly sold to COFCO Group, and Hema founder and CEO Hou Yi announced his retirement. At the same time, news that Alibaba would officially shut down Retail Link also spread.

Faced with the current industry situation of stagnant traffic growth, rising customer acquisition costs, and competitors approaching step by step, Taobao is both panicked and confused.

When Pinduoduo launched a low-price competition, Taobao only paid attention to low prices and responded by following up with 10 billion yuan in subsidies and launching an independent app, Taobao Special. However, overall resources are still concentrated on Taobao and Tmall, resulting in unequal resource acquisition for small and medium-sized merchants. Merchants chose to make concessions to help the platforms fight, but in the end they were "backstabbed" by the platforms' traffic policies.

In addition, when Taobao used Taobao Special and 1688 to counterattack Pinduoduo, it was unwilling to give up the top merchants and still wanted to maintain its advantage in average order value to consolidate its position. This led to users' perception of the platform's "low price" deviating, and small and medium-sized merchants were squeezed to the edge of the platform.

Right now, Taobao is trying to increase traffic utilization through comprehensive payment, and small and medium-sized businesses will still be the ones who suffer in the end.

In fact, Taobao’s confusion can also be seen from the frequent changes in its personnel structure.

Public reports show that in March last year, Alibaba announced the launch of the "1+6+N" organizational reform, and the original industry operation and development center, which controlled all the merchant resources of Taobao Tmall, was split into three industry development departments. At the same time, Yang Guang, the vice president of Alibaba Group and president of Taobao Tmall Industry Development and Operation Center, who was regarded as the number one in Taobao operations, resigned. At the end of the year, after Wu Yongming, the new CEO of Taobao Group, took office, he made a major change in the core management team and hired a new team of almost all post-80s.

As for this year, after several Alibaba-affiliated companies underwent industrial and commercial changes in February, it was revealed in July that Cheng Daofang, the "top leader" of Taobao Live, was transferred only half a year after taking office, and was replaced by Wu Jia, the head of the Taobao User Platform Division and Alimama Division. On July 12, personnel changes occurred again: according to reports from the Bianniu.com and Netease, Tmall's head Jia Luo will concurrently serve as the head of Taobao Live and content.

According to statistics from the Jingzhe Research Institute, Taobao Live has experienced five rounds of leadership changes in the eight years since it was launched in April 2016. Taobao's live broadcast business has also changed from a pioneer to a follower in the process of leadership changes.

Having missed out on the sinking market and live streaming e-commerce, and then chasing low prices and following the trend of "refund only", Taobao has now lost its own rhythm and is on the road of killing merchants when the platform's development stagnates. Perhaps now is the time for the platform to work together with the merchants.

As one of the greatest inventions of the Internet era, e-commerce has created many wealth myths, and has also enabled agricultural products in rural fields to take advantage of the e-commerce, helping farmers to get out of poverty and become rich. At present, e-commerce platforms should shoulder social responsibilities and consider the survival of small and medium-sized businesses. Because the people's livelihood economy is fertile ground for business opportunities.

Alibaba founder and group chairman Joseph Tsai once said in an interview with the media that Alibaba was wrong because it forgot who its real customers were. For Alibaba, whose annual revenue is still growing, there may still be time to correct its mistakes. After repeatedly paying for the platform's mistakes, small and medium-sized businesses should also see the platform's intentions in a timely manner, discover a platform environment that is more suitable for them, and regain vitality.