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.
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.”
There are several challenges of e-commerce in China.
The most quoted reason is the poor credit and payment systems. Credit cards are still new to most Chinese people. There are about 650 million bank cards in circulation, but the majority of them are debit cards.
My friend in Beijing asked me about the benefit of using credit cards. “why do you need to use a credit card to make the payment?” she said, “it’s not convenient.” It’s actually a bank card/debt card for her. She has to transfer the money to that “card” account before she can use it. People are used to use cash for payments.
However, this may change in the next a few years. Two mobile payment companies: SmartPay and 99Bill Corp, received venture fundings led by RRE Ventures of New York and DOC-Doll in August. The firms enable people to make payments from their bank accounts through mobile phones. My friends – the founders of YeePay told me that they are rolling out three new payment methods including SMS payment, fixed line phone payment and mobile prepayment.
Another reason is the insufficient logistics and distribution channel. The under-developed distribution channels make long distant shipping very difficult and unreliable. Again, this can be changed too as a result of China’s modernization. In addition, DHL and UPS are all going to China.
I see there are two major social-economic reasons that inhibit e-commerce from taking-off, and these are not likely to change anytime soon:
Culture of Negotiating and Bargaining Chinese love to haggle; everyone wants a deal. This century-long practice of negotiating and bargaining deals is part of business culture. e-Commerce does not allow people to do that.
Low Levels of Trust I think trust is the biggest issue in e-commerce in China. My friends told me that they would never buy anything without seeing and touching it. There are no established brands. High levels of fraud and cheating make on-line shopping risky.
Like Meg Whitman, eBay’s CEO, said, “Whoever wins China wins the world,” I would say whoever solves these two problems solves the e-commerce problems 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.
