Alibaba E-Commerce + China 3G = M-Commerce?
$200 million US dollars… Wait let me clarify - Alibaba Group announced last week that it intends to spend AT LEAST $200 million US dollars on new acquisitions. Here at The China Observer blog we have examined Alibaba Group’s organizational structure, taken a closer look at its C2C marketplace, Taobao.com, and even checked out the man behind the scenes Jack Ma. I believe this recent announcement is of particular significance because of the possible implications it holds for the future of mobile commerce in China.
With the emergence of 3G mobile capabilities in the Chinese marketplace, everyone from service providers, telecom operators, handset manufacturers, and web-based e-commerce companies are trying to position themselves to take advantage of 3G and benefit from the eventual widespread use of mobile commerce. Alibaba.com and Taobao.com have extensive operational experience and can potentially extend their current framework to the mobile realm; however, what they lack is mobile know-how and industry experience.
A strategic investment program aimed at acquiring mobile expertise may be exactly what Alibaba needs to take its success from web-based e-commerce and extend it into the mobile space. In fact, it has already started to do just that. According to China Tech News, Alibaba recently acquired an undisclosed portion of Guangzhou-based UCWEB, a mobile phone software technology provider. Zhang Wei, who heads strategic investment at Alibaba, was quoted saying that Alibaba plans to focus its future investments on areas like mobile Internet and e-payment over the next 2-3 years.
The Observer’s Thoughts
I believe we are still a long way from seeing widespread acceptance of mobile commerce in China. Beyond the simple fact that Chinese consumers need to grow accustomed to using their mobile phone to do more than simply place calls, send SMS messages and play games; myriad technical issues remain surrounding transaction security and potential for fraud. Everyone is learning. The users need to recognize why they could benefit from mobile payment and then they need to feel safe and comfortable using it. Companies need to figure out just exactly how to design their business models to maximize return on investment.
Who will become the biggest winner? Some gawk at Jack Ma’s brazen ambition, yet I admire what he seeks to accomplish. This is a man who not that long ago was teaching English and leading English language tours around Hangzhou. He now heads one of the most powerful e-commerce companies in the world and his team is allocating a significant portion of its resources in an area of extreme growth potential. I do not know who will become the winner, but I will surely be observing what Jack Ma and Alibaba continue to develop.
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3G in China: Look Towards South Korea for a Glimpse of the Future
Last week I came across this article while sipping a cup of extra-sweetened Singaporean morning coffee and eating a breakfast of peanut butter toast. I don’t know why but Singaporeans love their toast for breakfast; personally I’d prefer a Beijing jianbing, and then again nothing beats a Taiwanese breakfast, especially of danbing and roucong fantuan, but I digress…
The article from the International Herald Tribune, entitled “In South Korea, All of Life is Mobile,” is a nice complement to my previous interview with Asia mobile specialist Benjamin Joffe of plus8star. With everyone watching to see what 3G mobile technology will bring to China, I thought it would be nice to catch a glimpse of the possibilities by providing you with a few excerpts from the article.
The piece follows a day in the life of a South Korean University student named Kim Hee-young:
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She wakes up in the morning when her mobile phone detonates an alarm, a loud Korean pop song. She checks weather forecasts on its screen before selecting what to wear.
In the subway, Ms. Kim breezes through the turnstile after tapping the phone on a box that deducts the fare from a chip that contains a cash balance. While riding to school, she uses her mobile to check if a book has arrived at the library, slays aliens in a role-playing game, updates her Internet blog or watches TV.
On campus, she and other students touch their mobiles to the electronic box by the door to mark their attendance. No need for roll call — the school’s server computer logs whether they are in or how late they are for the class…
In 2005, South Korea became the first country in the world where mobiles could receive digital television signals — something Americans with their latest iPhones are just beginning to get used to. Like many other places these days, the phone is also a calculator, dictionary and stopwatch; a television remote control and navigator for your car. Newspapers are delivered to mobile phones. Ms. Kim measures her biorhythms with hers. Some even get fired by mobile: In March, a group of taxi drivers rallied after their company sent them a text message of dismissal — a practice that gained notoriety as the country’s economic downturn deepened.
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To read the entire article, click on this link
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Why build a community when you can borrow someone else’s? Tapping into Taobao to reach your target consumer
Why build a community when you can borrow someone else’s? The stage is set: according to your market research, you and your online marketing team have completed the most attractive website targeted at the 20 year-old urban middle class Chinese consumer. To build up buzz for the site you have your team start posting on BBS message boards to attract traffic. You have found that most young white-collar workers use MSN messenger in the workplace so you purchase advertising space on MSN and make a cute cartoon pop up whenever the mouse scrolls over to entice users to click and visit the site. The China-focused web consultants you hired also informed you about the mass appeal of the Kaixin social network and how companies have been using it as an indirect channel for online advertising. So you create a game for Kaixin where users interact with your virtual product and receive special bonus prizes if they visit your site. But after all the dollars and man-hours that went into launching the site, you still barely met your market goals. Was it all worth it? Was there an easier and more cost-effective alternative? McDonald’s, along with other companies seem to think so.
This past February McDonalds opened its Super Value online store on Taobao to promote its Super Value meal. Although McDonalds is best known for its burgers and fries, the products available at the online store varied from electronics to gift vouchers (take a look at the screen shot above to see some of the other available products). The chief marketing officer for McDonalds in China was quoted in the Wall Street Journal China Journal article saying that the online store was a strategic move to reach 20-something urban adults.
Why create your own site and build your own community when you can create a presence on an existing site whose target audience is the same as yours?
Alibaba Group’s Taobao consumer-to-consumer (C2C) marketplace does exactly that for companies who seek to tap into China’s urban 20-something white-collar consumers. As of December 31, 2008 Taobao had 98 million registered users and“48 percent are between the ages of 25 to 32 and 35 percent are between the ages of 16 to 24. This demographic distribution demonstrates that Taobao’s user base is driven by young consumers in China who have grown up in an increasingly wired world.”
McDonalds is not the only company to set up a virtual store on a Chinese C2C marketplace. According the WSJ – China Journal article:
“Other major brands, such as Proctor & Gamble, Dell, Lenovo, and Samsung have set up e-stores on Taobao. Skyworth, a major Chinese TV producer, and Digital China Holdings, a large IT products distributor in China, partnered with Baidu Youa for their online businesses. One recent entrant is Uniqlo Co., a casualwear brand under Japan’s leading apparel retail group Fast Retailing Co. Ltd. Last week, Uniqlo announced a partnership with Taobao to launch set up a virtual flagship store.”
With a total of over 300 million total netizens, China is home to the world’s largest Internet user population. Companies may be overwhelmed by the different choices that exist for reaching Chinese consumers through online mediums. The Taobao online storefront is one example that helps illustrate why the most expensive/complex choice may not always be the most effective. The moral for companies is to think hard before choosing to build their own online communities around an advertising campaign, because there may very well be an existing community out there that they can “borrow.”
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What Do Chinese Consumers Buy on Taobao (C2C)?
While researching for tomorrow’s post I came across the “Taobao 2008 Full-Year Key Metrics” report.
Take a look at what Chinese consumers were buying on Alibaba Group’s Taobao.com during 2008:
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Observer’s Thoughts on The ASEAN Economic Community
A few weeks ago I attended the Fulbright Association of Singapore’s annual dinner keynoted by Ambassador Ong Keng Yong, former Secretary General of the Association of South East Asian Nations (ASEAN). I was looking forward to hear him speak, because while my specialty is Greater China, I enjoy any opportunity to build on my understanding of the broader Asia-Pacific region.
For those readers who are not the most familiar with ASEAN, it is a geo-political and economic organization of 10 Southeast Asian countries. Initially formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand, it has since expanded to include Brunei, Burma (Myanmar), Cambodia, Laos and Vietnam. ASEAN seeks to promote economic cooperation/growth, social progress and stability within the region.
One of the main topics of Ong Keng Yong’s speech was the ASEAN Economic Community (AEC), targeted to be realized by 2015. He spoke of a South East Asian region in which labor moves freely across borders. He explained that under the proposed plan a worker from one nation can easily work in another member nation, thereby assuring the most effective use of labor. This is only one aspect of the proposed community (for more of an introduction please click here), but to be frank it seems like it would be difficult to put into practice. With many economies in the region in such poor shape and unemployment on the rise how can governments overcome citizen unrest as foreign workers come in and take “their” jobs?
I watched a recent TED talk the other day given by Alex Tabarrok of the Marginal Revolution blog. His speech emphasizes how much the world benefits from globalization. He contends that the more globalized the international economic community is, then the more ideas get passed among nations, in turn fostering a tremendous amount of innovation and causing the true benefits globalization to emerge.
There are still six years until the ASEAN Economic Community is set to become reality. In theory an open economy with no barriers to movement of labor would ensure the optimal use of resources, but in the real world regardless of whether it is six years or twenty years it is extremely challenging to appease domestic opinion to justify the employment of foreign laborers on their home soil, especially in times of economic downturn or crisis.
A note from The China Observer
For RSS subscribers, you may not have seen the updated side-bar on The China Observer blog that shows The China Observer has been based out of Singapore for the past two months and will continue to be based here with frequent travel to China and around the Asia-Pacific region. The focus of The China Observer blog continues to be Chinese consumer trends and China’s Internet space; however when fitting I will include posts categorized under “Greater Asia Observations.”
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A Modernizing China, A Rising Middle Class - Difficult Decisions To Be Made
In a previous post from The China Observer about Twitter in China I wrote the following:
This past weekend my belief in the power of Twitter to keep people connected around a mutual area of interest was once again reaffirmed. @thehumannaught of The Humanaught blog tweeted this article from The National Geographic website. The article, titled “Gilded Age, Gilded Cage” is by Leslie T. Chang, author of Factory Girls. Although the article is from a year ago, it presents a superb look into the lives of contemporary Chinese middle class families and the challenges they face as they continue to modernize.
The following are two excerpts from the article:
“In the five years since I met Bella and her family, their lives have transformed. They moved into a new three-bedroom apartment—it is almost twice the size of their old one, which they now rent out—and furnished it with foreign brand-name appliances. They bought their first car, a Volkswagen Bora, and from taking the bus they went straight to driving everywhere. They eat out a couple of times a week now, and the air-conditioner stays on all summer. At age 12, Bella got her first mobile phone—a $250 Panasonic clamshell in Barbie pink. Her parents’ annual income reached $18,000, up 40 percent from when we first met.”
“The past decade has seen the rise of something Mao sought to stamp out forever: a Chinese middle class, now estimated to number between 100 million and 150 million people [May ‘08]. Though definitions vary—household income of at least $10,000 a year is one standard—middle-class families tend to own an apartment and a car, to eat out and take vacations, and to be familiar with foreign brands and ideas. They owe their well-being to the government’s economic policies, but in private they can be very critical of the society they live in.”
By the end of the ten-page article the reader gets a great glimpse of what it is like for a child growing up in a modern middle-class Chinese family. It also brings to the forefront many of the difficulties parents face as they struggle to decide which aspects of their upbringing to pass on to their children, and which ones they should adapt to modern times.
Long time “China-Hand” James L. McGregor author of One Billion Customers has been previously quoted as saying:
“China is Modernizing, not Westernizing”
By simply observing China’s growing middle class population it is easy to attribute their changing habits as “adapting” to Western culture; however, this explanation is too simplistic. As incomes rise and a new generation reaps the material fruits of economic reform, Chinese people are not merely imitating Western models. Rather they are purposefully engaging with the complex question of how to move forward, and with that comes difficult questions about what to pass on in the modern setting and what to leave behind.
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Omegle, Moluren, Luguode: Making Friends With Strangers
I recently found out about Omegle, one of the latest websites making news in the global blogosphere. Omegle allows users to have anonymous conversations with strangers. When you reach the website you choose to “Start a chat” and within a few moments the website randomly pairs you with another user. If you don’t like what the person on the other end has to say, you can simply choose to end the conversation and Omegle helps you find a new stranger to talk to. After less than a month in existence there are already at least two Chinese “山寨” shanzhai versions aka blatant copies.
Take a look for yourself at the screenshots of Omegle, 陌路人 Moluren and 路过的 Luguode:
(Omegle)
(陌路人－Moluren)
(路过的－Luguode)
All three anonymous conversation platforms do offer a unique outlet of expression, but like many social media sites, my question is how will Omegle/Moluren/Luguode monetize? Even when the operators of an SNS knows who the users are (ex: Facebook) it is hard to find ways to profit from the user base. These websites do not even require users to register to participate. How can you monetize a product when you do not know whether the user is a 13 year old teenage boy or a 50 year old bored white collar middle manager? I feel that anonymous conversation may be a good feature to incorporate into a more robust SNS. For example, have an Omegle-like Facebook application that allows users to remain anonymous to one another during the conversation, but the operators of the site will still know what demographic the users represent. I guess these sites can always hope that a Google or a Baidu will swoop in and make a quick acquisition…
I will leave you with an excerpt from my first conversation on Moluren:
(你=The China Observer）
What do you think about these anonymous conversation platforms? Why do you think people use them? How scaleable are these sites? Leave a comment and join the conversation…
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China’s Stimulus Package and Its Consumers: Interview with Shaun Rein
Shaun Rein - Managing Director at the China Market Research Group (CMR)
In order to find out more about the impact of the Chinese government’s stimulus package on China’s consumers I interviewed Shaun Rein, Managing Director of the China Market Research Group (CMR). CMR conducts ongoing research into Chinese consumer culture and Rein writes extensively on the subject in publications such as SeekingAlpha, BusinessWeek, the Harvard Business Review, The Wall Street Journal and many others (for more on Shaun Rein’s background click here).
I asked the following questions:
The stimulus package does not include tax breaks for Chinese citizens, but the government has been distributing spending coupons -how large of an impact do you see this on overall consumer expenditure?.
Given that China is trying to boost consumer spending to offset the sharp declines in exports, could the government have done more in this area?
Consumer packaged goods (CPG) multinationals in China are reporting more favorable numbers in March as compared to January and February; do you think this is an indicator of rising consumer sentiment and a perception that the economy has bottomed-out, or could this be an artificial spike due to Chinese consumers cashing in and spending their coupons? Is this sustainable?
China’s 4 trillion yuan stimulus package is largely focused onrural development, infrastructure and social programs; do you see any of this trickling down to the consumer and benefiting them in any way?
What are the different retail trends seen in urban China, and rural China? Do you see multinational CPG firms positioning their products differently between the two market types?
To see the complete interview see the Seeking Alpha article here.
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Wishing you a belated “Happy World Consumer Rights Day (国际消费者权利保护日)”
More than a few days have past since March 15, but given that one of the key topics of The China Observer blog is ‘consumerism in China’ I could not write another post without addressing March 15 World Consumer Rights Day in China (国际消费者权利保护日). On this day Chinese citizens are educated about their rights as consumers. In the past the emphasis has been on poor quality products, but what I feel made this year different was how much emphasis was put on exposing identity theft. I read a series of articles from Sina.com that described different variations of identity theft and how marketplaces have emerged in which hackers steal information and can sell it for a set RMB rate per person. Now that standards of living are rising in China, more and more people are using bank cards for their purchases. The Chinese, traditionally known as savers, are finding their years of hard earned RMB taken away from them in an instant as a result of these ‘identity marketplaces’.
Aside from ‘identity theft’ there were some great posts in the China blogosphere focusing on additional aspects of World Consumer Rights Day that are worth your attention:
CIC China IWOM Blog: “Consumer Day and The Internet Community”
This post focuses on how the ‘Internet Community’ is changing the way companies and consumers interact:
…it is also important to understand this “reshaping” goes well beyond “scary” stuff related to PR/Reputation. This ‘direct to consumer’ feedback means that IWOM [Internet Word of Mouth] can serve as an intelligence platform…This means that within the marketing communications spectrum, everybody should be ‘listening’…
51minus1 – “3/15 & consumer rights online in china”
This post gives readers an introduction to how World Consumer Day was represented in China’s online space:
…The number 315 has become shorthand for consumer rights in China…In addition to merely filing complaints, netizens can pursue consumer rights issues in a variety of ways via special sections set up on major Web portals, ad-hoc complaint groups, blogs and standalone sites set up for particularly intractable problems…”
Danwei: “Chinese newspapers discuss Consumer Rights Day”
As the title implies, this post takes a look at Consumer Rights Day by analyzing key articles from the Chinese media.
Far West China: “Fake Goods + Flamethrowers = a Xinjiang Party”
Some of the worst quality products in China are not genuine merchandise after all. This post explains how the Xinjiang government organized a campaign to destroy fake and low-quality products:
It took a total of 19 military vehicles to transport all of [the fake/low-quality merchandise] to the Dongshan City Dump in Urumqi where it was then doused with gasoline and ignited with a flamethrower…
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UPDATED: Xiaonei, Taobao, Douban…And More: Open API in China
I do my best to stay up with the latest tech trends and am always looking for an excuse to research a topic in an area that I have not delved into before. A few weeks ago a reader of The China Observer, who is a web designer in Japan, sent me an email asking me to write a post on the state of Open API in China. He describes the situation in Japan: “the concept of Open API in Japan is almost non-existent. Very little integration is going on here. The biggest SNS [Social Network Service], Mixi, does not have any kind of Open API…Anyway it would be great to hear about the situation in China.”
While this is not my area of expertise, “Open API in China” is an interesting topic worth writing about. During my research for this post I came across multiple articles about specific web companies in China that have already opened their API. The best though was when I discovered this comprehensive post by a Chinese blogger by the name of Tangguyan (Readers of Chinese can read the original post here). The following are four popular sites in China that have Open API. Feel free to share additional companies with us by leaving a comment.
Douban
Douban is a customer review Web 2.0 site that allows users to share thoughts on books, music, movies and much more. I found Douban to be one of the earliest sites to open its platform for third party developers. Douban made Open API available as early as 2007.
Xiaonei
Xiaonei, otherwise known as “the Facebook of China,” is a popular SNS that initially targeted college students, and like Facebook, later expanded into the high school and young professional markets (See: In China It’s Xiaonei, Not Facebook). This past June Xiaonei announced that it planned to open its platform on a Beta basis to third-party application developers. There has been controversy among Xiaonei application developers as to just how “open” Xiaonei’s Open API really is.
51.com
51.com also made Open API available in June of 2008 at about the same time as Xiaonei. 51.com is another Chinese social network that has been highly successful. The site’s successes include receiving $10 million in second-round venture capital from Intel Capital, Redpoint Ventures and Sequoia Capital China.
Taobao
Taobao is the largest online shopping marketplace for consumers in China and is part of Alibaba Group’s E-Commerce Empire. In September, Taobao announced that it would open its application programming interface platform to third-party developers. TOP: “Taobao Open Platform” is intended for developers and companies to construct various e-commerce products and produce internal and external value-added applications based on Taobao’s data and model.
Other sites with available Open API in China include:
Sohu Blog (Sohu Open Widget-SOW), MySpace (MySpace Developer Platform-MDP), UCHome…
The Observer’s thoughts:
I would have to agree with the author of this post that there really is not a culture of openness in China, but rather of control. However, despite this control Chinese web companies are allowing for Open API, while in Japan it seems they are not quite ready. It may take some time before Chinese sites fully “open up” their API for third party developers, but from looking at the examples of Douban, Xiaonei, 51.com and Taobao, we can see that many Chinese domestic firms are ready to at least take the initial steps.
UPDATE: Kevin (@kevinkclee) over at the genYchina blog sent over this great link:
“What Are Top Apps on China’s Open SNS Platforms?” - China Web 2.0 Review
This post introduces Appleap.com (in Chinese), a website dedicated to monitoring apps on four major social network sites in China. If you are interested in what types of applications are being released out in China, this would be an excellent resource for you to check out.
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