While Alibaba's Taobao is the preferred choice to start an e-commerce business in China, is it the perfect environment for all businesses?
China is a lucrative market that attracts many overseas businesses. However, considering the fragmented retail landscape and significant operating costs of running physical stores in China, many businesses often enter the country through e-commerce. In fact, total e-commerce transaction value in China has reached US$197 billion (RMB1.2 trillion) and accounted for over 6 percent of total retail volume in 2012 (source: CNNIC, 2013). China has emerged as one of the world’s most wired retail markets. The growth of online shopping has far outpaced the broader economy as e-commerce retailers gain the trust of the country’s consumers with better communication networks and ubiquitous Internet access via mobile devices.
Given the growing importance and huge potential of China’s online retail industry, one cannot avoid talking about the biggest e-commerce player, Alibaba group, when deciding to set up your e-commerce site in the country. From the perspective of audience traffic, Alibaba’s Taobao and Tmall together have accounted for 70 percent of total online shoppers in 2012, and there are already over 6 million online shops that have opened on the Taobao platform (source: iResearch, 2013).
Taobao sells almost everything and is a regular part of the daily web activities for many Chinese netizens. In China, there’s a claim that those e-commerce players who are making a profit are all gathered in the Taobao platform. Indeed, this claim is true. Taobao isn’t only capable in capturing a tremendous number of users to your store, because of its dominant position in the market, the users generated to your store often drive a much higher conversion rate as they have a higher purchasing intent in general.
Intuitively, Taobao is the preferred choice to begin an e-commerce business. However, is it a perfect environment for all businesses? The competitive environment in the Taobao ecosystem has become extremely fierce with intensified competition. Taobao has provided a wide array of marketing options to increase product visibility by enhancing your ranking via keyword bidding.
However, the huge drawback has been that as there are more competitive players in each of the product category, the bid price has been lifted quite significantly in recent years. Additionally, these marketing options are all limited within the Taobao ecosystem. The marketing costs spent in the Taobao platform can sometimes add up to 4-5 percent of the gross margin of each sales transaction. On the other hand, Amazon weighs customer reviews and credibility they receive in determining a page rank, making it a more cost-efficient platform for stores in the long run.
For businesses with low margins/high volume in nature, running a store outside of the Taobao ecosystem and looking for a broader marketing option to gain visibility would be an ultimate choice.
Take Tencent’s GDT (Guang Dian Tong) as an example. GDT is a RTB (real-time biddable) platform that aggregates the majority of Tencent’s social media inventories and data. Despite the fact that social media users show less shopping intent compared to those in Taobao and Jingdong, RTB allows online shop owners to take advantage of social’s virtues – its ability to target potential customers based on in-depth behavioral insights and make an impact on the social media universe a more suitable place for some niche businesses. Recently, a case study from GDT has demonstrated that a Chinese game application developer has reached over 1.1 million daily active audiences and earned over 3,000 new application installations in a month.
China is set to be the world’s largest e-commerce market by 2015 and is expected to continue its significant growth at a steady pace. However, marketers must realize that the dynamics of e-commerce in China is very different from the West. In some ways, China’s e-commerce development is very impressive but many players are still struggling to become sustainably profitable.
The rise of RTB and programmatic have reaped results for early adopters, and all of these new innovations are evident in driving a widespread traction in the social media space. Marketers are advised to keep abreast of the programmatic trends to realize its full potential and hedge against the ever rising media costs in China.
By Sammy Hsieh, CEO and co-founder for iClick Interactive.
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