The mainland’s online retail market is heating up with the two internet powerhouses bolstering their positions amid intensifying rivalry.
Taobao, the mainland’s largest online auction site, has received a 5 billion yuan (HK$5.7 billion) injection from its parent, Alibaba Group.
At the same time, Baidu, the country’s largest search engine, is proceeding with its online auction and online payment offer.
“We welcome the competition,” said Joseph Tsai, the chief financial officer of Alibaba, which set up Taobao in 2003.
“Baidu can only be successful [in customer-to-customer or C2C initiatives] if it provides customers with the best shopping experience that includes safe payments, good delivery service, trustworthy sellers, quality products, comprehensive selection, competitive prices and consumer protection.”
That is what Taobao is going to do with the 5 billion yuan investment - improve its overall infrastructure and the “ecosystem” of its e-commerce platform, which it believes will push its penetration of the online shoppers market from about 33 per cent to close to 90 per cent, the level in more mature e-commerce economies such as the United States, South Korea and Japan.
Online shopping development has always been behind other internet sectors such as online games and search engines on the mainland, most often because of the lack of infrastructure.
“E-commerce is not just a click on a website. Payment, logistics and many other offline services have to be in place,” said Jacky Huang, a digital marketplace research analyst at IDC China.
Taobao has solved the payment problem with Alipay, launched in 2004. It is partnering third-party couriers EMS, Yuantong Express and ZJS Express for delivery services. It recently said it would soon open its technology platform so that independent software makers can design special add-ons, such as a three-dimensional cyber storefront, for Taobao users.
A multitude of mainland female office workers frequent “the Taobao mall” looking for discounted clothes, cosmetics and fashion accessories. “They go to Taobao during lunch break, making it like a hobby,” Mr Huang said.
However, there is still much to do before the site can attract mainstream shoppers. For example, critics say there are lots of fake goods sold on mainland e-commerce sites.
In response, Taobao introduced a consumer protection plan last year whereby sellers can join various plans, such as a seven-day money back guarantee, compensation for fake goods bought, and a 30-day warranty for digital products and electrical home appliances.
The number of Taobao users has grown a spectacular 95 per cent annually since 2005, reaching 72 million in the first half of this year. Trading volume has grown 132 per cent a year in the same period. For the first half of this year, trading volume reached 41.3 billion yuan, not far from the 43.3 billion yuan for all of last year.
Baidu began its own C2C market this month. It generated considerable interest; the beta phase saw 10,000 sellers sign up.
Baidu has also developed its own online payment system, Bai Fu Bao, partnering leading domestic banks.
“We expect to formally launch the full service under the domain name youa.com, which means ‘we have everything here’, in the fourth quarter,” said a Baidu spokesman.
However, analysts said Baidu did not show the same commitment to e-commerce as Taobao.
“Baidu is not interested in working on offline services,” Mr Huang said. “It will have some market share but not enough to threaten Taobao’s dominance.”
Others doubted Baidu’s readiness to spend on improving its platform.
“It would take at least US$200 million to build a decent e-commerce site. Baidu does not plan to invest that kind of money in its C2C market,” said Jason Brueschke, the head of Asia internet/media research at Citigroup.
Tencent, which operates the dominant instant messaging platform QQ, launched a rival C2C market in 2005 but it failed to threaten Taobao’s position. Paipai has only 9 per cent market share against Taobao’s 76 per cent, iResearch says.
Mr Tsai believes Baidu has even less advantage than Tencent: “Paipai has a natural market in its QQ users, Baidu does not. Although Baidu’s traffic is high, its users come mostly for entertainment, not e-commerce.”
Nevertheless, Dick Wei, a China internet analyst at JP Morgan, believed Baidu’s new C2C market still has a chance against Taobao.
“Baidu has the most traffic among Chinese sites. It probably can gain special insights on what consumers want by analysing their search patterns. Such insight might allow it to launch innovative services to compete with Taobao.”
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Taobao, Baidu Intensify Online Retail Rivalry
Sherman So
28 October 2008
The mainland’s online retail market is heating up with the two internet powerhouses bolstering their positions amid intensifying rivalry.
Taobao, the mainland’s largest online auction site, has received a 5 billion yuan (HK$5.7 billion) injection from its parent, Alibaba Group.
At the same time, Baidu, the country’s largest search engine, is proceeding with its online auction and online payment offer.
“We welcome the competition,” said Joseph Tsai, the chief financial officer of Alibaba, which set up Taobao in 2003.
“Baidu can only be successful [in customer-to-customer or C2C initiatives] if it provides customers with the best shopping experience that includes safe payments, good delivery service, trustworthy sellers, quality products, comprehensive selection, competitive prices and consumer protection.”
That is what Taobao is going to do with the 5 billion yuan investment - improve its overall infrastructure and the “ecosystem” of its e-commerce platform, which it believes will push its penetration of the online shoppers market from about 33 per cent to close to 90 per cent, the level in more mature e-commerce economies such as the United States, South Korea and Japan.
Online shopping development has always been behind other internet sectors such as online games and search engines on the mainland, most often because of the lack of infrastructure.
“E-commerce is not just a click on a website. Payment, logistics and many other offline services have to be in place,” said Jacky Huang, a digital marketplace research analyst at IDC China.
Taobao has solved the payment problem with Alipay, launched in 2004. It is partnering third-party couriers EMS, Yuantong Express and ZJS Express for delivery services. It recently said it would soon open its technology platform so that independent software makers can design special add-ons, such as a three-dimensional cyber storefront, for Taobao users.
A multitude of mainland female office workers frequent “the Taobao mall” looking for discounted clothes, cosmetics and fashion accessories. “They go to Taobao during lunch break, making it like a hobby,” Mr Huang said.
However, there is still much to do before the site can attract mainstream shoppers. For example, critics say there are lots of fake goods sold on mainland e-commerce sites.
In response, Taobao introduced a consumer protection plan last year whereby sellers can join various plans, such as a seven-day money back guarantee, compensation for fake goods bought, and a 30-day warranty for digital products and electrical home appliances.
The number of Taobao users has grown a spectacular 95 per cent annually since 2005, reaching 72 million in the first half of this year. Trading volume has grown 132 per cent a year in the same period. For the first half of this year, trading volume reached 41.3 billion yuan, not far from the 43.3 billion yuan for all of last year.
Baidu began its own C2C market this month. It generated considerable interest; the beta phase saw 10,000 sellers sign up.
Baidu has also developed its own online payment system, Bai Fu Bao, partnering leading domestic banks.
“We expect to formally launch the full service under the domain name youa.com, which means ‘we have everything here’, in the fourth quarter,” said a Baidu spokesman.
However, analysts said Baidu did not show the same commitment to e-commerce as Taobao.
“Baidu is not interested in working on offline services,” Mr Huang said. “It will have some market share but not enough to threaten Taobao’s dominance.”
Others doubted Baidu’s readiness to spend on improving its platform.
“It would take at least US$200 million to build a decent e-commerce site. Baidu does not plan to invest that kind of money in its C2C market,” said Jason Brueschke, the head of Asia internet/media research at Citigroup.
Tencent, which operates the dominant instant messaging platform QQ, launched a rival C2C market in 2005 but it failed to threaten Taobao’s position. Paipai has only 9 per cent market share against Taobao’s 76 per cent, iResearch says.
Mr Tsai believes Baidu has even less advantage than Tencent: “Paipai has a natural market in its QQ users, Baidu does not. Although Baidu’s traffic is high, its users come mostly for entertainment, not e-commerce.”
Nevertheless, Dick Wei, a China internet analyst at JP Morgan, believed Baidu’s new C2C market still has a chance against Taobao.
“Baidu has the most traffic among Chinese sites. It probably can gain special insights on what consumers want by analysing their search patterns. Such insight might allow it to launch innovative services to compete with Taobao.”
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