David Barboza
In the months leading up to his college graduation in June, Yang Fugang spent most of his days away from campus, managing an online store that sells cosmetics, shampoo and other goods he often buys from local factories. Today, his store on Taobao.com?China?s fast-growing online bazaar?has 14 employees, two warehouses and piles of cash.
?I never thought I could do this well,? said Yang, 23, who earned $75,000 last year. ?I started out selling yoga mats, and now I?m selling a lot of makeup and cosmetics. The profit margins are higher.? Taobao fever has swept Yang?s school, Yiwu Industrial and Commercial College, where administrators say a quarter of its 8,800 students now operate a Taobao shop, often from a dorm room. Across China, millions?recent college graduates, shopkeepers and retirees?are also using Taobao to sell clothes, mobile phones, toys and just about anything else they can find at neighbourhood stores and wholesale markets or even smuggle out of factories.
Internet analysts say this booming marketplace?reminiscent of the early days of eBay, when Americans started emptying their attics for online auctions?has turned Taobao into China?s newest Internet darling.
Though just six years old, Taobao (Chinese for ?to search for treasure?) already has 120 million registered users and 300 million product listings. Its merchants produced nearly $15 billion in sales last year.
The company claims that sales through its Web site are larger than any Chinese retailer. And, Internet analysts say, sales on its site this year will surpass Amazon.com?s expected sales of about $19 billion. ?This is the next big segment for China?s Internet,? said Jason Brueschke, an Internet analyst at Citigroup in Hong Kong. ?It?s their Amazon and eBay combined.?
Like eBay, Taobao does not sell anything itself; it simply matches buyers and sellers. It has a firm foothold in China because many parts of the country still have poor transportation, and some local authorities favour their own government-owned outlets, making the retailing system inefficient.
The global recession also left once-booming factories overflowing with goods the rest of the world does not seem to want. The so-called Taobao addicts are helping to pick up the slack in a sluggish economy. ?I can?t live without Taobao,? said Zhang Kangni, a student in Shanghai. ?First, it?s cheaper. I found a dress at a store in Shanghai. It?s a Hong Kong brand that sells for $175. I found it on Taobao for $33.?
But sceptics ask: Can Taobao actually make a profit and emerge as a true Web powerhouse?
The company is not publicly traded and therefore does not disclose financial information, but listings are free on Taobao and the company makes no money from online transactions. Almost all Taobao?s $200 million in revenue comes from advertising, which the company says covers virtually all its operational costs.
The company has been criticised, however, for contributing to a flourishing trade in counterfeit goods. Taobao brushes aside such criticism, saying it has a new programme that is effectively cracking down on counterfeits.
Company executives say Taobao is poised to earn huge profits, but that their first priority is creating an online community. ?Our vision for Taobao is to build a consumer?s paradise, where people can shop online and have fun,? Jonathan Lu, Taobao?s president, said. ?If you make the company better and better, profits will naturally follow.?
His confidence in Taobao?s future comes from the company?s lineage. It is a division of the Alibaba Group, which was founded by Jack Ma. In the past decade, Ma has created an Internet conglomerate with strong financial backing from Yahoo!, Goldman Sachs and the Softbank Group of Japan. Yahoo! owns about 40% of Alibaba.
Alibaba.com?the conglomerate?s flagship Web site?connects small businesses globally with Chinese exporters. Taobao.com does something similar for consumers who want to sell to other consumers.
When Taobao was founded in 2003, it appeared to have no chance. EBay and its Chinese partner, EachNet, controlled 90% of China?s online shopping. But Ma, a former English teacher, quickly undermined eBay?s fee-based service by offering free listings on Taobao, essentially giving away ads to anyone who wanted to sell. At the time, eBay executives ridiculed the strategy, with many repeating that ?free is not a business model.?
But almost immediately, the site took off, and in 2006, eBay pulled out of China, citing dwindling market share and large losses. Today, it is Taobao that commands 80% of China?s e-commerce market. ?Taobao is dominant,? said Richard Ji, an Internet analyst at Morgan Stanley in Hong Kong. ?They?re like an online Wal-Mart.?