Build story · China · 1999–2014
Alibaba's Taobao: how a local start-up beat eBay in China
Facing eBay's takeover of China's leading auction site, Jack Ma launched Taobao with free listings, built-in chat, and escrow payments — and pushed eBay out of China within about three years.
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
by the numbers
- Starting capital (1999)
- about $60,000
- Taobao seller fees
- free listings
- Yahoo investment (2005)
- $1 billion for about 40%
- eBay exit from China
- 2006
- IPO (2014)
- about $25 billion raised, a record at the time
What happened
Jack Ma, a former English teacher, founded Alibaba in Hangzhou in 1999 with 17 co-founders and about $60,000, starting with a B2B marketplace linking Chinese exporters to buyers. In 2003 eBay bought full control of EachNet, then China's top consumer auction site, and appeared set to dominate.
Alibaba launched Taobao in 2003 and made listings free for sellers — while eBay charged fees. It added AliWangWang, an instant-chat tool that let buyers bargain with sellers as they would in a Chinese market, and in 2004 Alipay, which held the buyer's money in escrow until goods arrived, solving a deep trust problem. eBay, meanwhile, moved EachNet onto its global platform, slowing the site and frustrating users.
Taobao's share of Chinese online auctions overtook eBay's, and in 2006 eBay handed its China site to a joint venture and effectively withdrew. Yahoo invested $1 billion for a 40% stake in Alibaba in 2005. Alibaba's 2014 New York IPO raised about $25 billion — then the largest IPO ever.
Timeline
- 1999
Alibaba founded in Jack Ma's apartment.
- 2003
eBay takes over EachNet; Taobao launches.
- 2004
Alipay escrow launches.
- 2006
eBay withdraws from China's consumer market.
- 2014
Record IPO on the New York Stock Exchange.
what made it work
- Free listings removed the main barrier for small sellers.
- Products designed around local habits — bargaining chat and escrow trust.
- Fast local decisions versus eBay's centralised global platform.
- Solving payment trust, the real bottleneck of e-commerce in China.
the lesson
A local player who understands customers' habits and trust problems can beat a far bigger global competitor.
Apply it to your business
- 1Find the trust barrier in your market and remove it.
- 2Design for how your customers actually behave, not a global template.
- 3Making one side of a marketplace free can win the whole market.
Laws at work in this story
Figures are rounded and drawn from public reports, company filings and widely cited coverage at the time. Check the company's latest filings before relying on any number.