Alibaba.com started in 1998, offering  eBay-like trading services to smaller Chinese firms who wanted to grow business globally but found existing options too expensive. In spite of the apparent potential from serving either consumers or larger firms, Alibaba maintained this focus on SMEs, and limited itself at first to simply connecting buyers and sellers. Having initially not charged for the service the company started selling advertising space and research reports to users in 2000, but revenues were still just $1million. It started charging for its core service in 2001, but its well-known quality kept membership climbing, passing 1 million in 2002.
From this focused start, however, the company was able easily to extend its activities in several directions, first establishing a within-China service in the local language, but then making a major thrust to develop business-to-consumer (B2C) and consumer-to-consumer (C2C) services, taking eBay head-on. By 2007 the group was serving 24 million users and had effectively sealed victory over eBay, who exited the market.

Seems from extensive analytical research and interviews with top management in both sectors, it was because they misunderstood the ‘value network’ model – thinking it was all about linking Chinese<>others generally, when the key was linking Chinese<>Chinese consumers.

A timely warning to check whether our sources of ‘competitive advantage’ translate well into new settings.