Why has Taobao been gradually eroded by Pinduoduo？

37.3 percent.

This figure lands like a heavy blow in Alibaba’s annual report—and strikes a chord with every e-commerce practitioner in the industry.

A decade ago, Taobao was synonymous with online shopping. If you couldn’t find something on Taobao, it was practically nowhere to be found online. Today? Pinduoduo has seized the low-price market, Douyin has taken over casual shopping, and JD.com holds fast to fast logistics and reliable delivery. Caught in the middle, Taobao stands like an aging king surrounded on three sides.

Yet the truly bitter truth is this: Taobao was not defeated by Pinduoduo or Douyin. It slowly bled itself dry through arrogance over traffic and indifference toward merchants.

Many attribute Pinduoduo’s success solely to low prices. That’s far too superficial. Low prices are merely the result; its real weapon is a set of rules that fully tilts in favor of consumers.

Think back to the days before Pinduoduo. When you had problems shopping on Taobao—sellers refusing to ship, mismatched goods, endless haggling over returns—how did the platform respond? Customer service mediation would take three to five working days, often ending with you footing the return shipping cost. The whole process was a drawn-out tug-of-war.

What did Pinduoduo do? Just three words: Refund only.

That single option shattered users’ psychological defenses overnight.

Critics say it enables bargain hunters and refund abusers. But look at it another way: For ordinary county-level consumers trying online shopping for the first time, what do they fear most? Being scammed, being dragged into complicated disputes. Pinduoduo tells them: Don’t worry. If you’re unsatisfied, you get your money back instantly—no need to send the item back.

The trust built this way is something Taobao could never buy with a decade of marketing.

So Pinduoduo didn’t just capture budget shoppers. It won over ordinary people intimidated by overly complicated platform rules. There are a billion such consumers across China. They care nothing about brand stories; they only want to shop without worry. Taobao gave them hundreds of pages of fine print. Pinduoduo gave them one simple button.

If Pinduoduo merely perfected Taobao’s existing rules, Douyin E-commerce flipped the entire game board.

Taobao’s core logic has always been people searching for goods: you know what you want, you search, compare prices, and place an order. This model thrived in the PC era. But in the short-video age, users no longer have the patience for active searching—they shop on impulse while scrolling.

How does Douyin work? You casually swipe a video: “I’ve used this mop for three years—it never tangles hair.” You never planned to buy a mop, yet three seconds later, you place an order. This isn’t rational shopping; it’s consumption driven by content and emotion.

By the time Taobao woke up, it was already too late. It launched its own content channel, Guangguang, and rolled out grass-planting videos. But users had already formed a fixed mindset: open Taobao to buy something, open Douyin to kill time and shop along the way. One is a chore; the other is entertainment. They are no longer competing on the same dimension.

Even more fatal: Douyin has drastically cut merchants’ traffic costs. On Taobao, new sellers get almost zero exposure without paying for paid ads. On Douyin, great short videos can make you explode in orders overnight with free organic traffic. As a result, countless small and medium merchants have shifted their marketing budgets from Taobao to Douyin, draining Alibaba’s advertising revenue from two sides at once.

How did Taobao end up in this predicament? Three words explain it all: affluenza.

Around 2015, Alibaba aggressively pushed Tmall. The logic seemed sound: branded goods mean higher profits, higher unit prices, and bigger ad spend. But the cost? Massive organic traffic was diverted toward Tmall stores, leaving small Taobao sellers struggling to get free exposure.

A friend who ran an eight-year-old Taobao store put it plainly: In 2016, he got 200 visitors a day without spending a cent on ads. By 2020, selling the exact same products, he only got 20 visitors without paid promotion. He wasn’t unwilling to build a brand—he simply couldn’t afford the skyrocketing cost of Taobao’s pay-per-click ads. Eventually he shut down his store and moved to Pinduoduo. Selling the same products, he could price them even lower, because Pinduoduo charges far fewer platform commissions.

Taobao’s mindset back then was: Let low-end merchants leave. Our users are upgrading their consumption habits.

But users never upgraded. They simply left for cheaper alternatives.

This is digging one’s own grave. Driving away your foundational merchants drains your pool of affordable goods. Users notice prices rising, and they leave without a second glance.

A 2024 survey shows Chinese netizens spend an average of 2.5 hours daily on short-video apps, but less than 20 minutes on general e-commerce platforms. Of those 20 minutes, Taobao accounts for merely seven to eight minutes.

What does this mean? Users no longer linger and browse on Taobao. They only open the app when they have a clear purchase intent, compare prices quickly, and leave. Meanwhile, Douyin captures the bulk of their daily attention, and a single live stream can easily drive impulsive consumption.

Another telling data point: In the first quarter of 2025, Pinduoduo and Douyin E-commerce together captured over 45 percent of China’s e-commerce market growth. Alibaba’s growth has nearly stagnated. This is not just competition between rivals—it is a fundamental shift in user traffic and consumption habits.

Where lies the next opportunity? AI.

Alibaba’s biggest trump card is no longer Taobao itself, but Tongyi Qianwen and Alibaba Cloud. If AI is deeply embedded into the shopping experience—where you simply tell AI: “I want to buy a birthday gift for my dad within a budget of 200 yuan”—and it automatically compares products, filters options, places orders, and handles after-sales service—Taobao could redefine the traditional “people search for goods” model. This is a technical barrier Pinduoduo and Douyin cannot easily surpass in the short term.

The question, however, is whether Alibaba can set aside its obsession with short-term traffic monetization and truly invest in underlying technological innovation. For the past decade, it has consistently failed to do so.

The cruel rule of business is simple: No one will pay for your past glory. Users only care whether you can offer better prices, greater convenience, and more engaging experiences right now.

Taobao was once the undisputed king. Yet a king’s greatest enemy has never been its competitors—it is the complacency of believing it can rest on its laurels for another three years.

37.3 percent is not the end. If Taobao continues to hesitate and drift aimlessly, that figure could drop to just 30 percent next year.