At 9: 00 a.m. on April 10, China announced its decision to impose administrative penalties on BABA's monopolistic behavior, fining 18.228 billion yuan and ordering it to lift restrictions on "one of two" restrictions on merchants and strengthen internal control and compliance management. and to continuously submit self-inspection compliance reports to the General Administration of Market Supervision.

The punishment decision was sent to BABA on the 6th of this month. Upon receipt, it waived the right to present, plead and request a hearing. Very cooperative.

The fine set a record for administrative fines in China, far exceeding the 6.088 billion yuan antitrust penalty imposed on Qualcomm Inc in 2015. This is to be expected. In the middle of last month, the Wall Street Journal quoted people familiar with the matter as saying that China was considering imposing a record fine on BABA.

If money is the key to problems, BABA, who needs to open the door, already has too many. By the end of 2020, BABA's net cash balance was as high as 328.5 billion yuan.

For it, it is clearly not a bad thing to be able to settle the investigation with a fine equivalent to about 4 per cent of its revenue in China in 2019 (which is also about 10 days' revenue in 2020). You know, six years ago, Qualcomm Inc was equivalent to fining 8% of the previous year's revenue.

It is government restrictions outside the business sector that BABA or Jack Ma are worried about. The Financial Times reported that the lakeside university founded by Jack Ma had suspended its new freshman course, which was scheduled to begin at the end of March.

As for the reaction of the capital markets to the punishment, it will probably not be known until next Monday, Beijing time. Not knowing whether it was intentional or unintentional, the State Market Regulatory Administration chose to issue a penalty document an hour after the complete conclusion of U. S. stock trading this week. BABA's share price is down 27% from its all-time high.

In its formal penalty decision, the Market Regulatory Administration said BABA's illegal act of forcing merchants to "choose one of the two" dates back to 2015, either in writing or orally. Requirements have been made for merchants, including a ban on opening stores and participating in promotions on other competitive platforms. For businesses that do not do so, BABA will "punish" businesses by reducing activity resource support, disqualifying participation in promotional activities, and implementing search rights.

For merchants, the greatest value of the platform to them is exposure and traffic, which means they have the opportunity to sell more goods. And "choose one of the two" cut off is the flow that businesses need most.

The evidence obtained by the competent department includes BABA's inquiry transcripts, internal nail group chat records, e-mails, meeting briefs, written cooperation agreements with merchants, and so on.

"We sincerely accept this punishment and resolutely obey it. BABA said in an official statement on the morning of the 10th. In the afternoon, Zhang Yong, chairman of BABA's board and CEO, issued an internal letter saying that the group would receive a lot of social attention in the coming period of time, and would also hear a lot of criticism and suggestions, encouraging everyone to "face it frankly and spend it together." BABA intranet, Zhang Yong's internal letter below the comments section, BABA employees are saying "come on".

"the absolute amount is not small, but the relative amount is not large. Monopolies can be fined up to 10% of a year's revenue, and only 4% means that education is still dominated by norms. "said a BABA employee.

Professor Xue Jun, a professor at Peking University School of Law and a researcher in the field of e-commerce and Internet law, also said on Wechat moments, "unlike people who focus on 'numbers', I think these words are worth paying attention to: adhere to the principle of combining punishment with education in accordance with the Administrative punishment Law." "

China has stepped up its anti-monopoly legislation after Jack Ma's "Bund speech" last year and ant group IPO came to an abrupt end. It includes the introduction of the draft Anti-monopoly Law and the draft Anti-monopoly Guide on the platform economy, defining and standardizing big data's actions such as killing acquaintance, signing an exclusive agreement, and "choosing one of the two" on the platform. it makes up for the legislative gap in the field of the Internet.

The meeting of the political Bureau of the CPC Central Committee on December 11, 2020 mentioned "strengthening antitrust and preventing disorderly expansion of capital." In less than a week, the Central Economic work Conference listed the anti-monopoly issue as one of the priorities of its work in 2021. On December 24, the State Market Regulatory Administration launched an antitrust investigation against BABA. On the day the investigation team arrived, BABA's share price plummeted by more than 13%.

Sun Jinxia, chief strategist at Oriental Securities, expects this to be an exemplary case in the antitrust process of large e-commerce.

Previously, JD.com reported BABA to the former State Administration for Industry and Commerce to disrupt the e-commerce market on the eve of Singles Day in 2015, coercing merchants to "choose one of the two" in promotional activities. Two years later, JD.com took Tmall to court, saying that he had abused his dominant market position by "choosing one of the two" by merchants and was filed by the Beijing High Court. The case is also known as the first case of "choose one of two".

BABA raised a jurisdiction objection to the Beijing High Court, which was rejected in 2019. At that time, Wang Shuai, chairman of BABA's Market Public Relations Committee, publicly spoke out that "choosing one of the two" was normal market behavior, and said, "the platform is not a tuhao, nor is the cost caused by a strong wind, and the resources for promoting activities are naturally scarce. We can only tilt to the brands who are most sincere and actively participate in the promotion activities. Wang Shuai's response was also widely spread today when BABA was fined.

"later LatePost" has summed up BABA's defense against competitors. BABA is good at combined punches, which can be summarized as upper, middle and lower three ways-- the traffic matrix Taobao is used to fight on the road, with the lowest cost and the least change; the middle way is to build a new service place to change the user's mind; the next way is to make foreign investment and seize time.

In this combination of boxing, "choose one from two" is the most direct and powerful means of defense. Because the e-commerce platform is a typical bilateral market-- that is, merchants and consumers-- the more merchants, the more attractive the platform is to users, and the more users the platform can attract more high-quality merchants to move in (small profits and quick turnover).

According to late LatePost, the ratio of annual active buyers between BABA and JD.com narrowed to 1.76 times in the fourth quarter of 2017 and has since expanded. By mid-2019, the number of active buyers of BABA had doubled that of JD.com, with a gap of 340 million between the two platforms.

In addition to JD.com, in October 2018, Pinduoduo, who had just been on the market for less than three months, said that some brands on his platform had also encountered BABA's "choose one from two." Huang Zheng, founder of Pinduoduo, took the initiative to talk about "choosing one from two" in his 2019 shareholder letter. He said that the unprecedented "choose one from two" would last for some time, but it is inevitable to form an innovation-and increment-oriented concurrence (competition and cooperation).

Pinduoduo's appeal was supported by microwave oven manufacturer Galanz. In June 19, Galanz said in Weibo Corp that since its visit to Pinduoduo in May, its Tmall flagship store had appeared abnormalities in the search end of the platform, and the sales of its six core stores in Tmall during the "618" period had dropped sharply compared with the same period the previous year. Tmall then filed a lawsuit on suspicion of abusing his dominant market position and other related issues. In June last year, Galanz withdrew its lawsuit and announced the signing of a cooperation agreement with BABA.

Pinduoduo is different from JD.com. It uses business logic different from Amoy to open up user dividends in low-line cities. With the huge passenger flow of Wechat and its own low-fee strategy, it attracts a group of merchants who are not valued by Tmall or Taobao. Therefore, there is no difficulty in expanding merchants and increasing commodity categories in the early stage, and its user purchase frequency in 2017 was also the highest e-commerce platform except Amoy at that time.

But by 2019, when there is no significant difference between its user structure (high-and low-line cities), user size and Taobi, it is not surprising why Huang Zheng said those words in the shareholder letter.

And we all know the rest of the story: in 2020, about 788 million people in China bought things at Pinduoduo, about 9.4 million more than Tmall on Taobao. Pinduoduo has become the largest e-commerce platform in China by head count. For BABA, this is a bit of a mess.

"this punishment is an opportunity," Zhong Ruiqing, executive director of the International financing and M & A Research Center of Guanghua Law School of Zhejiang University, told LatePost later. BABA's bed-like management structure leads to internal overstaffing. If the interior is not improved, the rate of decline will be very fast. "

A BABA employee is also worried about the company's internal management. "BABA's middle managers have too much power of life and death, and too many people don't work." "in fact, the disease of big companies is not unique to BABA, but the degree of fierce competition in the e-commerce field may magnify some organizational defects.

The business adjustment is the first to be carried out. Yang Guang, vice president of BABA, who is in charge of Tmall's industry on January 19, 2021, said that in the new year, Tmall fully respects the right of merchants to operate independently and does not support "choosing one of the two." "later LatePost" also learned from people close to Pinduo that a number of brands may be "lifted" in the near future.

With BABA canceling "choose one from two", some people in the industry also said that they are beginning to look forward to seeing WeChat Mini Programs of Taobao in the ecology of Wechat. In the past, Wechat and Taobao blocked links to each other, but starting this year, BABA's special version of Taobao has submitted an application for Mini Program to Wechat. Some people tease that if BABA uses a fine of 18.2 billion to get Wechat's release of traffic, it's worth it.

Behind the joke is a set of reality in front of the Internet giants: China's suspected monopoly of the platform economy is not only BABA, suspected of illegal monopoly behavior is more than "choose one of the two".

In the past, these enterprises objectively improved the efficiency of economic operation. However, with the reduction of efficiency, the limited space for the growth of small and medium-sized enterprises, and the spillover of negative social effects, regulatory investigation and peer reports may come at any time. To sum up, in the words of Zhang Wenyu, an analyst at Sino-Thai Securities, "the increase in the intensity of antitrust is often accompanied by the differentiation between the rich and the poor and the imbalance of the labor force."

However, judging the advantages and disadvantages of monopoly effect is a dynamic process, and there is no ready-made answer. More often, it will gradually approach the optimal solution in the actual process. Professor Zhong Ruiqing also cited the antitrust law enforcement process in the United States, saying that apart from the original split of Rockefeller and AT&T Inc, the regulatory authorities had no good way to deal with it except fines, and "the antitrust work of the United States was not successful."

On December 22 last year, the General Administration of Market Supervision held an "administrative guidance meeting" to standardize the order of community group buying, requiring BABA, Tencent, JD.com, Meituan, Pinduoduo, DiDi Global Inc., and other companies to attend the meeting. and put forward to them, including the prohibition of low-price dumping, restrictions on competition, commercial slander, big data kill, and so on, "nine forbids."

In March this year, the competent department fined 10 enterprises that illegally carried out cases of concentration of operators, involving enterprises such as BABA, Tencent, JD.com, Baidu, Inc., and byte jumping. Today, shortly after Guan Xuan Ali decided to punish him, 58.com CEO Yao Jinbo criticized KE Holdings Inc. for "choosing one of the two" and called on the state to impose an antitrust fine of 4 billion yuan on him on WeChat moments.

BABA's punishment opened the first antitrust cycle of China's platform economy. As for how enterprises deal with it, the former has made an example:

"sincerely accept and resolutely obey".