BEIJING—Chinese online auction site Taobao.com announced its official entry into the business-to-consumer market on Wednesday, where it will compete with leading e-commerce site Dangdang.com and with Joyo.com, which is owned by U.S.-based Amazon.
Hangzhou-based Taobao.com is owned by China’s leading business-to-business (B2B) platform Alibaba.com, which gained international attention when it acquired Yahoo’s operations in China in August (see Yahoo’s $4B Alibaba Move).
Taobao has surged since its launch in 2003 to become China’s leading consumer-to-consumer site, according to results announced earlier this week of a survey conducted by the ChinaInternetNetworkInformationCenter. That survey put Taobao’s total share of the C2C market in the cities of Beijing, Shanghai, and Guangzhou at 67.3 percent to No. 2 eBay’s 29.1 percent.
The company said that in keeping with the model it has used to gain dominant share in key Chinese markets, Taobao will not charge either merchants setting up online storefronts or online customers.
The company said it has already signed on retailers including cellular phone makers Nokia and Motorola, electronics and white goods manufacturer Haier, consumer electronics maker Aigo, and sportswear brands Li-Ning and Adidas.
“It’s like adding a large shopping mall with name brands to what is already the largest online marketplace in China,” said Porter Erisman, vice president of international marketing for Alibaba.com.
Mr. Erisman said that the online shopping habits of Chinese consumers make the move a natural fit, where the overlap between B2C and C2C—“merging Amazon and eBay”—would make less sense in the United States or other developed markets.
“People in China, even on C2C sites, are shopping for brand new products online,” said Mr. Erisman, “and not for secondhand goods and collectibles, as they are on auction sites in the U.S.”
Taobao will process online payments through its parent company’s payment platform, AliPay, but it will not hold physical inventory, and will not directly fulfill orders, said Mr. Erisman. “We don’t want to become a retailer,” he said. “We think Nokia and Haier are going to do that much better than we ever can.”
“What we can do is bring them the buyers,” he added. “We just cut out the middleman, rather than trying to revolutionize the channel at too early a stage.”
Virtual StorefrontsTaobao will offer its major customers customized storefronts on the Taobao site—a service not available to smaller vendors, said Mr. Erisman.
“We’ve set a high threshold before we’ll consider customizing a storefront,” he said. “It’s pretty clear. If it’s a large national business with thousands of employees and a well-known brand and products, then we’ll do it for them—not for a mom-and-pop shop or an individual entrepreneur. But they’ll still have access to all the services and can create their own storefront.”
Mr. Erisman said Taobao is competing directly with the “Amazon model” at Joyo and Dangdang.
“Our model is very different. I don’t believe that the Amazon model will work in China right now,” he said. “That model is based on all the planets [being] aligned, and infrastructure just hasn’t reached that point yet in China.”
But Peggy Yu, co-CEO of leading Chinese B2C e-commerce site Dangdang.com, said she is not concerned that Dangdang will lose customers.
“I’ve taken a look at their site, and most of the links [in the B2C area] are not directly to manufacturers, but rather to distributors, and to different layers of distributors—not even level-one distributors,” said Ms. Yu.
“I don’t think consumers will get price advantages with Taobao,” she said. “We have many more brands and a better price, so I don’t see any benefit from the customer’s point of view to what they’re offering.”