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In my previous posts, I talked about the challenges of e-commerce in China, and the competition between local Chinese e-commerce site Alibaba / TaoBao and global online auction site eBay China / EachNet. Six months later, the competitive landscape has changed dramatically. e-Commerce is clearly picking up momentum in China.
The latest China Internet Network Information Center (CNNIC) data revealed that TaoBao had a 67.3 percent share of China’s customer-to-customer (C2C) market in terms of user numbers by the end of March, while eBay China had only 29.1 percent market share. The most popular transactions in China’s C2C market were for clothes, cosmetics, computers, cell phones and home appliances.
According to Jack Ma, founder, chairman and CEO of Alibaba, that owns TaoBao which has now over 15 million users, the most critical factor for TaoBao being successful at C2C e-commerce in China is its payment system AliPay, the PayPal equivalent in China.
One of the key issues that hindered e-commerce in China in the past is the under-developed payment systems that resulted in the settlement risk – the risk of ensuring the goods are delivered and payments are made between buyers and sellers. AliPay, different from other payment systems in the market, solves this problem by escrowing cash until the goods are delivered. In a way, AliPay acts as a temporary bank between buyers and sellers. In the meantime, it increases the liquidity in the TaoBao marketplace. AliPay is a key driver of the company’s success and e-commerce in China.
 Ambitious Ma is also aiming to make Alibaba the No. 1 search engine in China, taking on Baidu and Google. He plans to take Alibaba IPO in the near future. His vision is to make his company one of the world’s top three most powerful Internet companies and a Global Fortune 500 company a decade from now.
China business, Jack Ma, e-commerce, China Internet, Alibaba
 According to some estimation, China has about 150 – 200 million Internet users, contradicting with the official number of 111 millions. That means China’s Internet users may have very well surpassed the United States (154 million). While this may be a shocking news to some people, it’s not shocking to me. Overtime, I have heard from many of my friends that official data is under-estimated and actual numbers are much higher.
However, what’s real shocking is the amount of time Chinese spent online. Chinese Internet users spend on average15.9 hours per week, while Yahoo!, with the largest user community in this country, can only get its users stick around less than one hour per week. That’s 1.765 billion hours per week online in China, compared with 129 million hours per week online in the U.S.
So, what are Chinese doing by spending so much time online? Apparently, people log onto the Internet surfing the news, chatting with friends and families, etc. Although there is certain degree of censorship, the Internet is still a place where the media is relatively free. According to the CNNIC, 67.9% of online use in China is spent devouring news. By contrast, only 3% of Yahoo!’s U.S. traffic clicks over to news.
Another important fact is that there are 400 million cell phone users in China, and 80% of them have the mobile phones with the capacity connecting to the Internet. With the roll-out of 3G, there will be more mobile Internet access. I would expect China will lead the innovations in mobile search, which includes search for news, local business listings, entertainment, shopping, etc.
Update: eMarketer has more detailed analysis about China’s Internet users with comparison of the data from several sources. However, I do believe the under-estimation of China’s Internet users.
China, Internet, China business, emerging market, technology
 Last week, there were many criticisms about Google, Yahoo!, Microsoft, and other technology companies’ submission to the Chinese government’s request to censor the information on the Internet. It has become a public concern that these companies are doing business there at the peril of human rights.
As a native Chinese, I completely understand these concerns and critics. However, I have to agree that the presence of American companies in China provides much greater benefit to the Chinese people. It will help democracy in the long run.
For a country that has three-thousand years of history in feudalism, democracy is a gradual and long term process. It won’t happen overnight. It’s a matter of changing people’s hearts and mindsets rather than changing the government and system.
Economic progress, technology advancement, and globalization are all part of this process. The State Department’s proposal to form a “Global Internet Freedom” task force to address censorship issues at the international level is one step closer toward that end.
I believe democracy in China as well as in other parts of the world is not only imminent, but also inevitable.
Internet, democracy, censorship, politics, China
“Search is the crown jewel of the Chinese Internet market.” Thus came China’s search engine war, fueled by the outpouring money from foreign investors and the overwhelming number of competitors in the market.
 Shortly after Baidu’s phenomenal IPO last August, Tim Draper, managing director of Draper Fisher Jurvetson, which invested $10 million for 28 percent stake in Baidu, said: “the war is already over, Baidu owns the market.”
Well, maybe not yet. Recent survey results by Keynote Systems, an Internet performance authority, show that Chinese users prefer Google to Baidu. According to Keynote, Google won the highest user ratings in 11 of 13 categories including general search, news search and image search, while Baidu came first only in music search.
This shouldn’t be a surprise. Even at Baidu’s IPO frenzy, CNNIC data revealed Google beats Baidu in traffic share for individuals 25 years old and up with higher education. People who use Google tend to be professionals with higher income, and they use Google to search for information and knowledge. On the other hand, the majority of people who use Baidu as their primary search engine use it to search for downloadable music.
In my previous post, I talked about local players having an upper hand against their global counterparts because of their intimate customer knowledge. So far, foreign Internet companies don’t have a good record of success in China. Yahoo!, for example, entered the market early and bled money for years, but couldn’t overtake the dominant Chinese portals.
 There are certainly plenty of reasons that Google may be humbled in the China Internet market.
“History has shown us again and again,” Sohu’s CEO Charles Zhang said bluntly, “just like Yahoo! failed, Google will fail. I don’t worry about Google – it’s not even on my radar screen. To us, it’s only Baidu.”
History may or may not repeat itself. I bet Google is on Charles Zhang’s radar screen now. The competitive landscape is changing quickly. Who will be the final winner of the crown jewel of the Chinese Internet market still remains to be seen.
China Internet, serach engine war, competition, China business
Most people in this country have never heard of Taobao – an online aution site owned by Alibaba in China (See my previous post).
On the other side of the globe, the situation is very different. Sitting in the hotels in Beijing and Shanghai, I noticed the ads about Taobao popping up on TVs almost every 15 minutes. Since its name “??” means  “digging for treasures” in Chinese, it gets a lot of attention very cleverly.
Fierce competition between eBay EachNet (eBay China) and Alibaba / Taobao is apparent (see this). Morgan Stanley analysts estimated Taobao’s market share increased from 9% to 40% in 2004. For the first quarter of 2005, eBay EachNet reported 100 million in gross merchandising value while Taobao reported 120 million.
I believe that understanding the customers’ preferences and tastes gives the local players an upper hand against their global counterparts. Taking Taobao and eBay EachNet as an example:
- With most users not sophisticated for auction, auction accounts only 10% of Taobao’s listings, while eBay EachNet has about 40% of its listings for auction.
- Taobao offers free listings. As a result, its listings reached 10 million in September of 2005, almost 10 times more than eBay EachNet’s.
- Taobao also offers longer listing periods (14 days) and let customers extend for one more period automatically. eBay EachNet does not have this flexibility.
- Taobao’s listings appear to be more customer-centric while eBay EachNet’s listings more product-centric. For example, Taobao’s listings are organized into several categories, such as “Men,” “Women,” etc., while eBay EachNet sticks to its “global platform” grouping users into “Buyers” and “Sellers.”
- Taobao has higher customer satisfaction than eBay EachNet. According iResearch, the user satisfaction level was 77% for Taobao versus 62% for eBay EachNet.
I have to say I am impressed with Taobao’s performance. I remember only about a year ago, I was having a conversation with a senior executive of Alibaba at its headquarter in Hangzhou, I couldn’t help asking:”Aren’t you afraid that eBay will buy you out?” To my surprise, the answer was:”No, we will buy eBay.”
China business, competition, online auction
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Ambitious Ma is also aiming to make Alibaba the No. 1 search engine in China, taking on Baidu and Google. He plans to take Alibaba IPO in the near future. His vision is to make his company one of the world’s top three most powerful Internet companies and a Global Fortune 500 company a decade from now.