E-Commerce in China Operated by

Size and demographic structure of Internet-Users Role of the Internet B2C & C2C Market Obstacles for E-Commerce Legal and Technical Requirements Case Study: eBay EachNet Content

Size and demographic structure of Internet-Users

Role of the Internet

B2C & C2C Market

Obstacles for E-Commerce

Legal and Technical Requirements

Case Study: eBay EachNet

China – World's Largest Internet Market Online population is now at 220 million , overtaking the US as the world's number one (BDA China 03/2008) China had 210 million Internet users, 163 million broadband users and 50.4 million handset mobile Internet users by December 2007 (CNNIC 01/2008) Growth rate was up to 53.3% Growth of Internet Users in China

Online population is now at 220 million , overtaking the US as the world's number one (BDA China 03/2008)

China had 210 million Internet users, 163 million broadband users and 50.4 million handset mobile Internet users by December 2007 (CNNIC 01/2008)

Growth rate was up to 53.3%

China's Internet Penetration Rate Still Very Low Internet penetration rate in tier 1 provinces: Beijing: 46.6% Shanghai: 45.8% Guangdong: 35.9% Comparison Internet Penetration Rate among Countries

Young and Educated Internet Population Opposed to total population, Internet users are groups with higher education background But Internet is diffusing to groups with lower education background Since 1999, the ratio of users with tertiary education has dropped from 86% to present 36% Chinese users are mainly youngsters 31.8% are aged 18-24 Student users account for a heavy proportion Age Structure of Internet Users in China Education Structure of Internet Users in China

Opposed to total population, Internet users are groups with higher education background

But Internet is diffusing to groups with lower education background

Since 1999, the ratio of users with tertiary education has dropped from 86% to present 36%

Chinese users are mainly youngsters

31.8% are aged 18-24

Student users account for a heavy proportion

Low Income Internet Population 74.9% or 157 million of the 210 million Internet users are urban users Rural Internet users increased sharply by 127.7% last year Urban users increased by 38.2% in 2007 Internet penetration rate for urban residents is 27.3% , for rural residents 7.1% Almost 3/4 Internet users have an income of less than RMB 2,000 per month (CNNIC 2008) Income Structure of Internet Users in China

74.9% or 157 million of the 210 million Internet users are urban users

Rural Internet users increased sharply by 127.7% last year

Urban users increased by 38.2% in 2007

Internet penetration rate for urban residents is 27.3% , for rural residents 7.1%

Almost 3/4 Internet users have an income of less than RMB 2,000 per month (CNNIC 2008)

Entertaining Role of Internet Is In Front Row 1 st Application used when going online Application Rate 1. Instant message 39.70% 2. Online news 20.00% 3. Others 14.30% 4. Online games 9.30% 5. Search engine 7.40% 6. E-Mail 3.50% 7. Online music 3.40% 8. Online Video 2.40%

Online Shoppers Are a Group of High Class Online shopping rate in China was 22.1% at the end of 2007 (CNNIC 01/2008) 41.4% Shanghai 36.0% Beijing 28.7% Sichuan 27.9% Zhejiang 26.6% Jiangsu 55 million Internet users have shopped online in 2007 (iResearch 2008) Over 80% of the shopping groups reside in urban areas The longer the history of surfing online, the higher the shopping rate is Online before 1999: 42.4% Online in 2007: 5.7% Online Shopping Rate of Users by Education Level

Online shopping rate in China was 22.1% at the end of 2007 (CNNIC 01/2008)

41.4% Shanghai

36.0% Beijing

28.7% Sichuan

27.9% Zhejiang

26.6% Jiangsu

55 million Internet users have shopped online in 2007 (iResearch 2008)

Over 80% of the shopping groups reside in urban areas

The longer the history of surfing online, the higher the shopping rate is

Online before 1999: 42.4%

Online in 2007: 5.7%

Level of Online Spending Remains Modest Online shopping turnover (B2C & C2C excl. Online-travel booking) reached RMB 59.4 billion in 2007 (iResearch 2008) Turnover of RMB 406 billion expected by 2011 (iResearch 2008) Level of online spending per consumer was about RMB 1,000 in 2007 (CNNIC 2008) Online Spending accounts for only 0.66% of total retail spending in China (total retail sales of consumer goods in 2007 reached RMB 8,921 billion; National Bureau of Statistics 2008) Shopping Amount of Internet Users within 6 Month

Online shopping turnover (B2C & C2C excl. Online-travel booking) reached RMB 59.4 billion in 2007 (iResearch 2008)

Turnover of RMB 406 billion expected by 2011 (iResearch 2008)

Level of online spending per consumer was about RMB 1,000 in 2007 (CNNIC 2008)

Online Spending accounts for only 0.66% of total retail spending in China (total retail sales of consumer goods in 2007 reached RMB 8,921 billion; National Bureau of Statistics 2008)

Taobao dominates C2C Market 2007 Q3 Market Share C2C Platforms China Taobao trading volume in 2007 RMB 43.3 billion ~ 80% of C2C turnover ~ 70% of total online shopping turnover (B2C & C2C, excl. online-travel booking) 53 million users Taobao and Paipai charge no fees eBay EachNet charges listing and transaction fees  no C2C platform is making any money at the moment Top selling products on Taobao in 2006 in terms of number of transactions perfume and cosmetics (40 million items) telephone recharge cards (20 million) Health care commodities (20 million) Books (9.4 million) Shoes (4.5 million pairs) Lighters (4.3 million) Underwear (2.3 million pairs) Mobile phones (2.2 million) Top Selling Products on Taobao in 2006 by transaction volume Mobile phones and other communication equipment Cosmetics Notebooks Online game merchandise Computer hardware Digital cameras Jewellery Exercise equipment Mobile phone recharge cards and IP cards Mobile accessories

Taobao trading volume in 2007 RMB 43.3 billion

~ 80% of C2C turnover

~ 70% of total online shopping turnover (B2C & C2C, excl. online-travel booking)

53 million users

Taobao and Paipai charge no fees

eBay EachNet charges listing and transaction fees

 no C2C platform is making any money at the moment

Top selling products on Taobao in 2006 in terms of number of transactions

perfume and cosmetics (40 million items)

telephone recharge cards (20 million)

Health care commodities (20 million)

Books (9.4 million)

Shoes (4.5 million pairs)

Lighters (4.3 million)

Underwear (2.3 million pairs)

Mobile phones (2.2 million)

Top Selling Products on Taobao in 2006 by transaction volume

Mobile phones and other communication equipment

Cosmetics

Notebooks

Online game merchandise

Computer hardware

Digital cameras

Jewellery

Exercise equipment

Mobile phone recharge cards and IP cards

Mobile accessories

Obstacles for E-Commerce Fake goods, Credit card theft Small number of credit card users – 75 mil. credit cards in circulation by 2007 Payment systems are safer now – no longer a technical problem, but a problem of confidence E-commerce Logistics Size and vast distances in China – delivery for most companies limited to major metropolitan areas using couriers high delivery cost due to the small scale of some logistics enterprises Over 70% of all purchases in the B2C market are paid cash-on-delivery (Analysis International) COD presents challenges and risks for online merchants Buying online is a dramatic change from conventional shopping practices Consumers in China still prefer to look over the goods, determine their quality, and then, if satisfied, pay in cash Online commerce, in comparison, is an alien experience that only increases risk  Challenge for Internet companies to win consumers' confidence

Fake goods, Credit card theft

Small number of credit card users – 75 mil. credit cards in circulation by 2007

Payment systems are safer now – no longer a technical problem, but a problem of confidence

E-commerce Logistics

Size and vast distances in China – delivery for most companies limited to major metropolitan areas using couriers

high delivery cost due to the small scale of some logistics enterprises

Over 70% of all purchases in the B2C market are paid cash-on-delivery (Analysis International)

COD presents challenges and risks for online merchants

Buying online is a dramatic change from conventional shopping practices

Consumers in China still prefer to look over the goods, determine their quality, and then, if satisfied, pay in cash

Online commerce, in comparison, is an alien experience that only increases risk

 Challenge for Internet companies to win consumers' confidence

Failure of eBay EachNet In 2003, eBay entered China’s C2C market by acquiring EachNet (USD 180 million ) EachNet, founded in 1999, was China’s No. 1 auction with peak market share of more than 90% Alibaba invested USD 52 million in 2003-04 to enter C2C market (Taobao.com) In 2004, Taobao occupies over 50% of China’s C2C market; eBay’s EachNet about 35% The battle continues – eBay spent another USD 100 million to strengthen its presence in China In 2006, eBay sold 51% of it’s China division EachNet to Tom Online eBay Eachnet continued to lose market share to Taobao - today, Taobao has over 80% of the C2C market share in China

In 2003, eBay entered China’s C2C market by acquiring EachNet (USD 180 million )

EachNet, founded in 1999, was China’s No. 1 auction with peak market share of more than 90%

Alibaba invested USD 52 million in 2003-04 to enter C2C market (Taobao.com)

In 2004, Taobao occupies over 50% of China’s C2C market; eBay’s EachNet about 35%

The battle continues – eBay spent another USD 100 million to strengthen its presence in China

In 2006, eBay sold 51% of it’s China division EachNet to Tom Online

eBay Eachnet continued to lose market share to Taobao - today, Taobao has over 80% of the C2C market share in China

eBay Did Not Focus on Building Up Trust eBay's listings fees were only one of the reasons why customers used Taobao over eBay Eachnet Many Internet users dislike eBay because of its service eBay's Paypal did not seamlessly integrate escrow into the sales process Taobao's popular Alipay made escrow an important component of the online buying experience Later attempts by eBay to incorporate escrow were too late to help it regain lost market share Initially EachNet did not allow buyers and sellers to communicate directly, while from the very beginning, Taobao allows for direct instant messaging between the two parties

eBay's listings fees were only one of the reasons why customers used Taobao over eBay Eachnet

Many Internet users dislike eBay because of its service

eBay's Paypal did not seamlessly integrate escrow into the sales process

Taobao's popular Alipay made escrow an important component of the online buying experience

Later attempts by eBay to incorporate escrow were too late to help it regain lost market share

Initially EachNet did not allow buyers and sellers to communicate directly, while from the very beginning, Taobao allows for direct instant messaging between the two parties

Regulatory System WTO-Protocol China's Regulation Telecom Services Basic Telecom Service "BTS" Value-Added Telecom Service "VATS" Registered Capital National/Interprovincial min. RMB 2 bn . I ntraprovincial min. RMB 200 m . Foreign Equity Ratio Limit: 49% Telecom Operating License Internet Information Service = any provision of Information through Internet to web users  Registration or VATS License + Registration Registered Capital National/Interprovincial min. RMB 10 m. I ntraprovincial min. RMB 1 m. Foreign Equity Ratio Limit: 50% Telecom Operating License

Registered Capital

National/Interprovincial min. RMB 2 bn .

I ntraprovincial min. RMB 200 m .

Foreign Equity Ratio Limit: 49%

Telecom Operating License

Registered Capital

National/Interprovincial min. RMB 10 m.

I ntraprovincial min. RMB 1 m.

Foreign Equity Ratio Limit: 50%

Telecom Operating License

Fundamentals for a High Quality Website Design Original CI guidelines can / should be followed Colorful designs possible Technology/Hosting Content Management Software and Web Server have to be UTF8 enabled Website Hosting in China recommended (Speed) Online-Marketing Baidu.com is the biggest player (> 60% market share) Google.com follows with about 20% Chargeable services are dominant (Keyword buying) Viral marketing strategies (Blogs, Forums)

Design

Original CI guidelines can / should be followed

Colorful designs possible

Technology/Hosting

Content Management Software and Web Server have to be UTF8 enabled

Website Hosting in China recommended (Speed)

Online-Marketing

Baidu.com is the biggest player (> 60% market share)

Google.com follows with about 20%

Chargeable services are dominant (Keyword buying)

Viral marketing strategies (Blogs, Forums)

The Meaning of Colors Meaning Color China Europe Black „ color of death“, darkness, glory, winter, north death, darkness, mourning White mourning, bad luck, age, autumn, west cleanliness, brightness, hygiene, virginity Red Traditionally: joy, good, wealth, bright, summer, south, recently: government, authority danger, forbiddance, war, sexuality Yellow traditionally: emperor, earth, middle and china, recently: pornography caution, envy, avarice, cowardice Blue algid, ill sky, water, reliable, authentic Brown misfortune laziness, old-fashioned Grey cheap, dull elegant Gold glory, royal, wisdom, perfection money, sun, nature, friendliness Green life, vitality, spring, east nature, hope

The Meaning of Symbols Meaning Symbol China Europe Magpie 鹊 que joy, fortunate marriage thievery, robbery, defraud Owl 鸮 xiāo disaster, scare, crime wisdom, clever, bright, intelligent Rat 鼠 shǔ wealth, avarice, demonical possession dirt, cloacae, illness Spider 蜘蛛 zhīzhū luck fear, disgust, threat Clock 送終 short life, wish death time Swastika 卐 wàn luck, numerousness, all war, death, terror Fish 鱼 yú wealth, luck Christianity, Jesus Christ Dragon 龙 lóng power, strength, wisdom, luck, emperor power, danger, chaos Bamboo 竹 zhú integrity, pertinacity, conservativeness, long life -

The Meaning of Numbers Positive 6 problem-free, promising, smooth 8 fortune, wealth 9 forever, long-lasting Negative 4 sì ( 四 ) sounds almost like death, dying ( 死 ), disaster 10 shì ( 十 ) sounds almost like „4“, therefore death 13 failure, imperfection 14 yao si sounds almost like “going to die”

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