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  China's E-Commerce Yuan Volume To Reach 1.7 Trillion In 2007
January 16, 2008

CCID Consulting expects China's e-commerce Yuan volume to reach 1.7 trillion Yuan in 2007, with an accelerated growth rate over 2006. In the first ten months of 2007, online revenues accounted for 0.8% of the total consumer goods revenues, more than triple that of 2006, at 0.25%.

China's e-commerce activity is no longer simply an extension of traditional brick and mortar stores. Rather, the e-commerce activity has permeated into all corners of the Internet, and has stimulated even more consumer demand.

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Source: CCID Consulting, November 2007

Vibrant e-commerce services activity

In the B2C category, online shops including Redbaby (www.redbaby.com.cn), Leyou (www.leyou.com), and 360buy (www.360buy.com) are the sites to watch, as they strove to meet the consumer demand such as easy side-by-side comparison shopping. They were also successful in attaining financing.

In the C2C category, Chinese consumers and small and mediume enterprises (SMEs) have been establishing online stores on various e-commerce hosting platforms, while also gaining statistical and customer information. Less well-known hosting platforms, such as ShopEx (www.shopex.cn), have quickly built an impressive customer base by providing a one-stop shop for all website hosting needs, including marketing support, tools, and services.

Well-known players are also moving into the website hosting space. Alibaba (www.alibaba.com), known for its record-breaking IPO and Chinese manufacturing directory, deftly moved form its proven B2B Internet advertising model to online shopping malls.

At the same time, Alibaba expands on advertising by launching Alimama (www.alimama.com), an online ad exchange that connects advertisers with SME Chinese websites.

Common to the successes of these companies and initiatives are their knowledge of the customer. They know the customer better than the customer themselves, because they know how the Internet's potential and promise can translate to their customers' benefit.

Leveraging online search into e-commerce, and vice-versa

In October 2007, Baidu's announcement of entering the Chinese e-commerce market by offering a C2C service was big news in China. Baidu would be in a strong position, as it can leverage of its high user traffic and large online communities. Very simply, search enables e-commerce to happen, while e-commerce enables profits for search.

However, the planning of online search and e-commerce has been going on for some time in China's B2B space:

  • Alibaba acquired Yahoo China in 2005, which serves as a foundation for strengthening its search capabilities and launching its e-commerce services mentioned above.
  • Netsun (www.netsun.com) owns a number of Chinese vertical business portals, and plans to leverage these assets into e-commerce.
  • Ninetowns Internet Technology Group subsidiary Tootoo (www.tootoo.com) engages in B2B search, but is offering value-added services in e-commerce.
  • B2B8 (www.b2b8.com) is currently an e-commerce search engine and is moving towards B2B commercial search with its vision of the “Baidu of B2B” search.

Utilizing Web2.0 to establish buyer-seller trust

As e-commerce is relatively new in China, buyer-seller apprehensions need to be first addressed. Websites are quickly incorporating Web2.0 to their e-commerce platforms to help build trust by building platforms for community-generated, relevant, information.

Most Chinese e-commerce websites have some sort of communication forum. Some have added buyer and seller rating capabilities, while others even have blogs for their users.

As e-commerce websites build trust between buyer and seller, they are also building a customer-based credit system. We see “E-commerce2.0” as the integration of a profitable e-commerce model with the user community-based interactivity of Web2.0. E-commerce2.0 will be one vehicle to Web2.0 profit realization.

To charge, or not to charge, for e-payment services?

In March 2007, Alipay (an online payment services provider founded by Alibaba), announced it would charge for its e-payment services. Shortly thereafter, 99Bill announced that it would charge 1% for its e-payment services.

The strategies of these e-payment services providers was to first grow scale, quality of service, trust, and ultimately brand by providing their services free initially. Then, with key advantage of scale and brand, they were able to charge.

This illustrates that there is a delicate balancing act between the various factors of scale, service quality and innovation, and profitability. Add to that the dimension of timing.

3C Convergence: Even more players

CCID Consulting expects to see even more and different players entering the e-commerce space in China, given China's huge, yet fully tapped, consumer and SME base. To start, we do not expect to see Yahoo and Google to sit idly in China while Baidu dives headlong into its C2C business.

But China is a highly mobile society. According to CCID Consulting, there were 547 million mobile phone subscribers in China. 3C convergence will be another factor to watch. The convergence of ecommerce, search, Web2.0, and IM to enhance customer experience and reach, for example, will be powerful.

CCID Consulting expects in the near future, leading IM service providers such as Tencent, to leverage its large mobile user base into e-commerce. Large user base means more transaction potential, and more profits. Watch for these, and other mobile services to enter e-commerce as well.

For more information

Please contact us for these and other China-related data, information and products.

Unless otherwise specified, all information provided is sourced from CCID Consulting.

 
         
         
     

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