Recently I read the article, 2010 Online Retail Sales are around $74.7 Billion in China, published by China News. This article reveals that the online retail market in China grows rapidly.
According to the 2010 China E-commerce Market Data Report, the online retail sales in China will break $150 billion in two years. The main approach to occupy this market is by “burning money,” and the market competition has become increasingly fierce in recent years. News media commented that 2010 was the most prosperous year for the online retail market in China. In 2010, the government enacted many laws to standardize the market, many traditional retail companies established online retail platforms, more venture capitals and angel funds preferred to invest in online retail companies, and many Chinese people began shopping online.
The 2010 China E-commerce Market Data Report shows that TaoBao occupied 85.4% of the market, followed by DangDang，PaiPai, Eachnet (The joint venture company formed by Tom online and eBay), and LeKuTian, the new joint venture company formed between the search giant Baidu and Korea based company LeTian.
Some companies even established the 3G online shopping platform. For example, Fermart introduced about 0.4 million 3G online shopping malls, which integrated over ten thousand production companies that sell over 100 thousand different kinds of products.
The 2010 China E-commerce Market Data Report also stated that the development of the online retail market was inseparable from venture capitals and angel funds. In 2010, the total investment from venture capitals and angel funds was over 55 million dollars. In addition, Mecox Lane and DangDang went public on Nasdaq in 2010.
I believe the online retail market in China will continue to grow rapidly in the following years. First, Chinese internet users were over 31.6 million in 2010, which was larger than the total American population. However, 31.6 million only accounts for about one fourth of the total population in China. So, the potential for the online retail market in China is huge. Second, many online retail companies have introduced open platforms. These open platforms will increase the competition among online merchants and attract more customers. Third, many traditional retail stores established their online shopping sites. For example, in 2010, Walmart opened its first online shopping website in China.
I predict that TaoBao will still be the largest online retailer in the following years. First, although TaoBao’s free transaction strategies “burned” billions of dollars in the past few years, it kicked out eBay and occupied most of the total market. Second, because of the online rating system, most TaoBao users will not give up their ratings or move to another company platform. Trust is the key for online business.
Although TaoBao will keep its postion, I believe that PaiPai will increase its market share. PaiPai is a subsidiary of Tencent, whose IM software has over 100 million users. Tencent built PaiPai into its IM and integrated its Q money, the ideal currency, into the payment system at PaiPai. So current Tencent users do not need to open a new seller or buyer account, nor do they need to connect their payment account to a new bank account. Current Tencent users have already authenticated their identity to access their accounts. So, if they use PaiPai, they can skip many complicated steps in the authentication process.
I also believe that DangDang will increase its market share. First, DangDang Open Platform gives users competitive advantages. Merchants at DangDang can use DangDang’s logistic system, customer service, and after-sale service. Second, DangDang continue to offer free shipping. Third, DangDang went public at Nasdaq improved DangDang’s awareness in China. People in China lack of trust, so DangDang as a public company, can gain more trust by online shoppers. Forth, the difference between DangDang and TaoBao will improve DangDang’s competitiveness. TaoBao only offer a platform for users to sell and buy products. DangDang, like Amazon, it sells products by itself and also offer platform for individual users. So DangDang has a broader target market.
Disclosure: I am long DANG.