So what will happen when two local giants compete head to head? Chinese tech watchers and consumers are about to find out. Eager to capture more of that country's online search and e-commerce revenues, recent investments by Baidu and Alibaba Group have turned two of China's largest internet companies into rivals.
"This is going to be an excellent time for consumers, who are finally getting a choice of trusted companies offering e-commerce platforms. This is also going to be excellent for brands who are looking for relatively painless ways to start selling directly to consumers online," said David Wolf, CEO of management advisory firm Wolf Group Asia.
Alibaba and Baidu are both market leaders
Both sites strongly dominate the industry in their respective core businesses.
Baidu has an 80% share of all online search traffic in China, according to iResearch. And the company generated 70% of Chinese search-market revenue in the second quarter of this year, according to Analysys.
Now Beijing-based Baidu is looking for a piece of China's e-commerce market, forecast to be worth $65.9 billion this year.
Nearly 34 million Chinese shopped online for the first time during the first six months of 2010, bringing the total number of online shoppers to 142 million, according to the China Internet Network Information Center. Deutsche Bank predicts that online sales will grow to 7.2% of China's total retail market by 2013, from 2% now.
Baidu launches e-commerce site with Japan's Rakuten
In late October, Baidu and Rakuten, Japan's largest e-commerce company, launched their own online shopping mall in China called Lekutian. The name is a combination of the Chinese words for Rakuten and the word used by Chinese youth to express the English word, "cool." (Le means "happy," ku means "cool" and tian means "day.")
The two companies announced plans in January 2010 to spend $50 million over the next three years to open an online retail site. In the past ten months, Lekutian has signed up about 2,000 registered merchants and plans to launch marketing programs, such as special shopping "marathons," a point rewards program and free shipping.
Lekutian also hopes to lure customers away from other sites by strictly screening merchants and monitoring their compliance to detect and eliminate counterfeit goods through the use of anti-counterfeit measures and expertise learned from Rakuten Group's PriceMinister in France. Rakuten also owns Buy.com, a big U.S. e-commerce site.
Wal-Mart Stores, meanwhile, plans to launch an e-commerce site dedicated to the Chinese market and offering products available in Wal-Mart's Sam's Club warehouse stores. Wal-Mart currently has four Sam's Clubs in China.
Alibaba relaunches Taobao
Alibaba is fighting back by relaunching Taobao Mall, its business-to-consumer e-commerce platform, on an independent web domain www.tmall.com.
The new site emphasizes product verticals, such as Electronics Mall, Hong Kong Design Gallery Mall, Taiwan Mall and Designer Footwear Mall. Future verticals will feature home furnishings, skincare and cosmetics, fashion accessories and an online supermarket. The new domain also has a standardized framework for supply chain partners and merchants and provides consumers with an easier shopping experience and better customer service.
Taobao Mall launched as an off-shoot of its parent company's business-to-business e-commerce site in April 2008, and quickly signed up online stores for marketers like Procter & Ganble Co., L'Oreal Group, Uniqlo, Lenovo Group, Dell, Li Ning Co., Kohler, Samsung Group and Adidas. The mall currently has merchandise sold under more than 30,000 local and global brands.
Alibaba is promoting the new mall's web location and site improvements over the next three months with a $30 million brand-building campaign called "Where are the shoppers?" that broke Nov. 1 in eight Chinese cities including Beijing, Shanghai and Chengdu. Ads depict shopping malls that should be packed but instead are empty, because consumers are staying home to shop at Taobao Mall.
The Shanghai offices of Lowe Worldwide and Zenith Media were hired in September to handle creative and media, respectively.
"By linking up merchants, third-party vendors and logistics partners in a standardized framework, we hope to create a more effective and economical distribution channel that will allow merchants to not only offer quality products but also differentiate themselves through quality point-to-point service to consumers in a crowded retail environment," said Ye Peng, who joined Alibaba last month as VP in charge of Taobao Mall from Baidu, where he was chief operating officer.
Taobao search engine will compete with Baidu
"The question is where advertising fits into the picture," Mr. Wolf said. One possibility is that "brands may well discover that online marketing budgets are better served through investments in promoting their e-commerce sites, and will pull online ad budget from search and display to support it. I think the opposite will happen. Once more brands develop an online presence driven by e-commerce, online advertising becomes instantly more measurable directly against sales, thus provoking greater online spin."
Alibaba, which is partly owned by Yahoo, is also encroaching on Baidu's traditional territory. Hoping to capitalize on Google's shrinking presence in China, Alibaba introduced a search engine called Etao on its Taobao site last month.
Etao primarily offers search options for online shoppers but is powered by Microsoft's Bing search engine. Given the popularity of Taobao in China, Etao could be a strong rival to Baidu.
"There is room enough in China for at least three major players in the e-commerce platform game, but it is early days yet. The eventual winners may not have even taken the field yet," Mr. Wolf said.
Return to the Ad Age China home page here