In the 8 weeks leading up to April 2020, US e-commerce penetration of retail sales jumped from 16% to 27%. It may not seem that much, but considering that it took 10 years for e-commerce penetration to go from 5.6% to 16%, this jump is beyond compare. The last time such a unique jump happened anywhere in the world, was when China was hit the SARS pandemic back in 2002.
From 2002 to 2003, the severe acute respiratory syndrome (SARS) epidemic left a huge mark on East Asia. In China alone from what’s known it affected almost 8000 people and killed almost 800. Many Chinese remember how quiet the streets were during those terrible months, as hundreds of millions remained at home to prevent exposure to the deadly virus.
But interestingly this isolation gave an unexpected boost to the emerging e-commerce sector in the country. Many started shopping online, being unable and unwilling to go out to buy anything. Although it caused much fear and devastation, it gave way to an incredible opportunity to a lot of innovators. Looking back, we look at the challenges faced by Chinese ecommerce giants Alibaba and JD.com and how they broke through them, back in the years of China’s emerging internet. By informally endorsing the modern mobile telephone service and the Internet in China SARS became the turning point for mass internet adoption in China.
The virus gave texting a major boost, increasing business for telecommunications companies such as China Mobile. On the back of accelerating numbers of new users, Sina, Sohu, and NetEase shares began to rise, and so did investor interest in Chinese technology firms.
For many Chinese, the SARS epidemic resulted in the arrival of high-speed Internet at home. It was only when people started to have internet connectivity and people were isolated at home, they started to understand what they could do. Even the full force of China’s e-commerce boom wouldn’t have been felt for a few years, that’s where it all started.
Transformation of Alibaba
Founded in 1999 as an online B2B marketplace, Alibaba was aimed at connecting Chinese companies who wanted to export their products to buyers all over the world.
The SARS outbreak was a major challenge for China’s economy and Alibaba was hit at the worst possible time. It threatened to limit the early growth of the young company. Several countries issued travel alerts for people traveling to China and that risk was exacerbated when one of Alibaba’s own acquired SARS, and their entire office had to be isolated and quarantined. But, demand was still there and people wanted solutions. Businesses tried and switched to the Alibaba to import Chinese products. Starting in March 2003, Alibaba’s B2B E-Commerce Company added 4,000 new members, and increased their revenue by 40%. From 400 employees to more than well over 100,000.
Jack Ma and the Alibaba Team During the SARA Epidemic (Source: Alibaba.com)
JD.COM’s Epic Pivot
JD.com was a small chain of electronics stores that launched an e-commerce website. Richard Liu ‘s company had 12 offline shops at that time. But He had plans to extend to more than 500 stores and become a hub of electronics in China, kind of like the Chinese Best Buy. But business dropped sharply during SARS, and in order to conserve resources the founder had to close down all but one of his stores.
At the time, e-commerce was quite basic. When orders came, workers had to communicate updates manually via text messages to customers. Transactions were usually taking place in forums and chat rooms online.
The following year, by New Year’s Day, Richard Liu officially launched his e-commerce website 360buy with about 100 products, and contributed the bulk of his time to building up his online business. This rest is of course history as the company rapidly became one of China’s biggest e-commerce marketplaces. JD.com is now one of the biggest e-commerce players in the world, alongside the likes of Amazon and Alibaba.
Formation of Taobao
It’s more that apparent that, that self-imposed quarantine had become a watershed moment for China’s economy, especially for Internet based industries such as Alibaba. Chinese consumers, especially retail customers who have been stuck in their homes, were increasingly starting to turn to the Internet to order products.
Among the workers Alibaba founder Jack Ma, sent home during the worst time of the crisis, one team resided in a Hangzhou apartment, Alibaba’s actual birthplace. They were assigned with the task of coming up with a new plan. Meanwhile, a team of approximately half a dozen executives and developers remained in Ma’s own Hangzhou apartment to developing the plan that these executives were working on. Thus, came the consumer-focused Taobao and all this was done just within a week of the quarantine starting.
On 10 May 2003, Alibaba launched the Taobao website on time and by 2006, Taobao had a greater share of China’s online auction market than eBay, making them pull out of the country altogether.
Today, Taobao has more than 600 million monthly users and along with AliExpress, it has helped transform Alibaba into one of the world’s largest e-commerce companies, annual sales of over $56 billion.