Baidu is under Strong Criticism

Though Baidu.com, the biggest Chinese Internet search service provider in the world, recorded an increase of 119% in sales for the third quarter of 2008, its auction result ranking service is under criticism.

Recently some users of Baidu.com accused it of manipulating the search result based on how much money it gets from its users. Meanwhile, some Internet companies such as Sina, Sohu, Tencent, Netease, which used to be partners of Baidu, have put an end to the partnership with Baidu and ganged up together to boycott it.

Chinese B2B bellwether Alibaba.com alerted lately Baidu.com of its termination of advertising on Baidu.com.

Spokesperson from the public relationship department of Alibaba.com says that they chose to end advertising on Baidu.com for the poor advertising effectiveness.

Latest statistics show that website traffic of Baidu.com has been on the decline year by year. What is more, there are huge amount of ineffective anonymous traffic. And the page views brought by Baidu.com can hardly meet the specific need of small and midsize customers of Alibaba.com.

As early as the yearend of 2007, Taobao.com, a brother- sister company of Aliaba.com, stopped advertising on Baidu.com with a view to failed service offered by Baidu.com.

Taobao.com said today that instead of decline its website traffic soared 180% by the end of this September since it started to block off inappropriate Internet search services in November 2007.

And Taobao.com has blocked off all Internet search services of Baidu.com, the biggest Chinese Internet search service provider in the world.

The over-commercialized search ranking result of Baidu.com make profits at the price of equity and the attractiveness of the Internet search engine. A lot of rubbish websites and individual entertainment websites have been ranked top by taking the advantage of the SEO rules of Baidu.com.

Industry analysts say that such move of Internet companies will trigger far-reaching and wide-ranging discussions about the long-term sustained development of the Internet in China.
By shielding the Internet search engines, Taobao hopes to keep illegal sellers from cheating online shoppers via search ranking.

Baidu announced its expansion into the C2C sector in October 2007. Since March 2008, the company has been engaged in large scale marketing campaigns around the country in a bid to attract sellers to settle down in its C2C platform.

Following the heels of C2C portal Taobao.com and social networking websites Xiaonei.com and Hainei.com, Zhongsou.com, a leading individual portal service provider, blocked off the Internet search service of Baidu.com on September 12, the biggest Chinese Internet search service provider.

Yahoo seen unlikely to sell Alibaba stake after Yang

TAIPEI (Reuters) - Yahoo is unlikely to pull out of its $1 billion-plus China investment in Alibaba Group, even after the pending departure of CEO and strong China supporter Jerry Yang, analysts said on Tuesday.

Yahoo announced on Monday that Yang -- who drew investor wrath for rebuffing a takeover bid from Microsoft earlier this year -- would step down as chief executive as soon as a replacement is found.

"No matter who becomes the new CEO of Yahoo, I don't think they would want to sell their investment in China," said Elinor Leung, an analyst at CLSA. "They're having a tough time in the U.S., and China is the growth potential for them."

Other analysts expressed similar views, even as Alibaba has posted a spotty record since Yahoo paid $1 billion and injected other assets into the firm in 2005 for a 40 percent stake.

Yang, a native Taiwanese who co-founded Yahoo, was a strong supporter of the Alibaba deal, traveling frequently to China and making numerous appearances with Alibaba chief Jack Ma.

Alibaba put its profitable business-to-business marketplace website, Alibaba.com Ltd, into a separate company which it listed about a year ago in an IPO that raised $1.5 billion.

Since then, however, the listed company's share price has tumbled 65 percent.

In addition, its online consumer auction and e-payments services, while popular, are both believed to be losing money.

Alibaba.com still has a market capitalization of about $3.4 billion, meaning Yahoo's 40 percent stake in the listed company would be worth $1.4 billion alone.

"China remains a fairly large market and it would be quite unlikely that they would want to pull out of there," said another analyst, who could not be quoted by name due to company policy.

"Alibaba is doing fairly all right and, from a development point of view, there should be no or very little impact on Alibaba's future moves."

BOCI International analyst Xi Weidong said Alibaba would lose a special bond with Yang's departure, but the next CEO would not necessarily want to sell Yahoo's stake in the company.

"The personnel change will, to some extent, affect Yahoo's stake holdings in Alibaba," he said.

"On the other hand, business value is crucial in decision making for the management. Facing a global economic slowdown, the demand for online transactions is growing in China, which will add to Alibaba's value."

Alibaba.com Announces Q3 Results and Share Repurchase Program

Alibaba.com Limited (HKSE: 1688), a B2B e-commerce company, today posted financial results for the quarter ended September 30, 2008. The company also announced a share repurchase program of up to HK$2 billion (approximately US$258 million) through the end of 2009.

Alibaba Third Quarter 2008 Highlights:

• Delivered revenue and profit growth with total revenue of RMB780.2 million, an increase of 37% year-on-year; EPS (diluted) of 6.96 Hong Kong cents, up 57% year-on-year; and net income of RMB308.6 million, an increase of 49% year-on-year.
  
• Added 3.1 million registered users, 393,142 storefronts and 30,345 paying members during the quarter.
  
• Increased penetration of domestic online trade continued to drive revenue from its China marketplace, which grew 79% year-on-year and contributed 38% of total revenue in the third quarter, compared to 29% a year ago.

Alibaba.com had 398,351 paying members as of September 30, 2008, representing a 46% increase from the third quarter of 2007 and an 8% increase from the second quarter of 2008.
As a result of the higher number of paying members, Alibaba.com reported total revenue of RMB780.2 million in the third quarter of 2008, up 37% from the same period of 2007 and 6% from the second quarter of 2008.

Alibaba (HKG:1688) Japan unit to start operations in Jan – Xinhua

China's leading e-commerce company Alibaba (HKG:1688) will launch operations at its Japan unit in January, the official Xinhua news agency reported, citing sources.

According to the report, the unit will use Alibaba's customer resources and online-payment system to facilitate trade between Japan and China small and medium-sized enterprises.

Alibaba.com has a joint venture with Japan Internet firm Softbank Corp to operate the Alibaba Japanese-language website.

Softbank will contribute 20 mln usd to the venture and own 65 pct stake compared, compared with Alibaba.com's 35 pct.

Alibaba.com Service To Include Japanese "Export-To-China"

Business-to-business e-commerce company Alibaba.com Ltd (1688.HK) subsidiary Alibaba.com Japan plans to begin offering its "Export-to-China" Chinese-language online storefront service to Japanese enterprises on January 12, 2009, reports Sina. Alibaba.com and Softbank are trying to build a new system to allow financial and legal transactions to be made online, said Softbank president Masayoshi Son at a joint press conference with Alibaba chief executive Jack Ma.

Alibaba.com began offering international companies a free six-month trial of Export-to-China valued at $699 in August, but Alibaba.com Japan was not included in the service. Alibaba already brings together some 50,000 suppliers in China with wholesale buyers in Japan, reports the AFP. Alibaba.com Japan was established as a joint venture between Alibaba and Softbank in May.

Softbank, Alibaba announce new B2B service

TOKYO (AFP) — Japanese Internet giant Softbank and Chinese e-commerce firm Alibaba said Tuesday they would launch a business-to-business service to link Japanese firms with potential customers in China.

Alibaba chief executive Jack Ma said at a joint press conference with Softbank president Masayoshi Son that China, which now serves as a global production hub, promised to be a huge consumer market in a decade.

"This is a really important strategic movement," he said.

Alibaba already brings together some 50,000 suppliers in China with wholesale buyers in Japan. The new service is aimed at providing Japanese goods to Chinese wholesalers.

"I think the potential is big," Ma said.

The service will initially ask its customers to use existing financial and legal transaction systems when importing goods and to file the necessary documents with authorities, Son said.

"We are trying to build a new system so that financial and legal transactions can be made online," Son said.
Ma said he also wished to create a system in the near future to allow Chinese consumers to purchase Japanese goods through a new e-commerce scheme.

New Oriental To Accept Online Payment Through 99Bill

Private education company New Oriental (NYSE: EDU) has signed an agreement with Shanghai-based online payment service provider 99Bill to offer online payment for all New Oriental courses, reports Cnetnews. 99Bill had recorded 28 million registered users and 180,000 business partners by September 30, said the report.

Alibaba's online payment tool AliPay signed a contract to provide online payment services for New Oriental in early 2007.

Interview with COO of Taobao, Zhang Yong

Taobao.com, a subsidiary of online global trade giant Alibaba Group, is China's largest consumer-to-consumer e-commerce company. Since its launch in 2003, it has captured close to 80 percent of China's online-shopping market share, in part because it doesn't charge transaction fees and also through such innovations as AliPay, an escrow system that enables online payments in the absence of high credit card penetration among Chinese consumers. For the first half of 2008, the company recorded a trade volume of RMB 41 billion -- almost the total volume for all of 2007. What are the key challenges to managing such a high-growth business in a rapidly developing market? And what potential obstacles lie ahead? China Knowledge@Wharton spoke with Zhang Yong, COO of Taobao.com, about these and other issues at the company's headquarters in Hangzhou.

Q: Mr. Zhang, could you brief us on the e-commerce market in China and Taobao's position?

Zhang Yong: Taobao is by far the biggest e-commerce platform in China. We position ourselves as an online retail platform. We are not sellers or buyers; instead, we provide an open platform to all users, offering them opportunities to do business online. Taobao, started in 2003, is a full subsidiary of Alibaba Group. After five years of development, our trading volume had reached RMB 43.3 billion ($5.6 billion) in 2007. For the first half of this year, the number is RMB 41 billion, which is close to the annual volume last year. Basically, if you look at the growth rate over the last several years, it almost doubled every year: RMB 8 billion for 2005, RMB 18 billion for 2006, RMB 43 billion for 2007, and it is expected to exceed RMB 100 billion ($16 billion) this year.

Q: What are the key operational challenges for a company that is growing so quickly?

Zhang Yong: The e-commerce market has been growing rapidly in China in recent years. Taobao has taken this opportunity to grow its business and to build up its platform. Actually, the online population in China is huge; however, the penetration rate, which refers to the number of online shoppers divided by all the Internet users, is only 26 percent in China, versus 80 percent in the U.S.

Nowadays in China, many people can't live without a computer and the Internet; they will often read news online, communicate with colleagues or friends using Instant Message tools, or write blogs, but there is still a significant portion who have never tried online shopping. This is the biggest challenge we have been facing in the past and now. We are trying, through different approaches, to get these people to try once, twice, to buy goods online.

We are very confident and find with interest that, based on the past five years' experience, as long as someone has tried online shopping more than five times, he will be able to enjoy the online shopping process and he will visit Taobao regularly from that time onward.

Q: Do you find the financial crisis has impacted the pace of online shopping growth?

Zhang Yong: The current financial crisis has not much impacted Taobao overall, and in some senses, it may even have a positive impact on our business. Why is that? You know that the downturn in the world economy will have a big impact on China's export companies, because those export businesses which used to do well are now forced to turn their models the other way around. So nowadays, the phrase "driving domestic demand" is very hot. But how do you drive domestic demand?

The answer may lie here. We have a huge bulk of domestic consumers. Now is the moment that those manufacturers are forced to explore ways to reach more domestic consumers. For example, originally your [company's] toys were for export to the U.S. market, but now the export orders are declining, and you therefore have to think of other ways to survive. What are the other ways? We are providing a shortcut to domestic consumers. Taobao is by far the biggest retail channel in China and we are the biggest consumer market in China.

The above discussion is for sellers. For buyers, it's more interesting. Just as American consumers are now more prudent in their spending, Chinese people are usually more price-sensitive. Compared with off-line retail channels, Taobao has a big advantage on price. It's usual that you will find a 10 percent to 12 percent price difference on our platform. So, with the same amount of money, you can buy more on Taobao. Therefore, the more price-sensitive the consumers are, the bigger the advantage Taobao will have.

Q: What are the primary hurdles to encouraging consumers to become regular online shoppers?

Zhang Yong: The biggest hurdle is that they are not familiar with the online purchasing process. They will have concerns about payment safety issues and product quality. As in any place in the world, if you buy online, you can't see your counterpart, and you can't touch the goods; but then you also have to pay online, so you will have some concerns about the reliability of online payment. Furthermore, you might also have some concerns about delivery, the logistics service. Will the goods be delivered to you on time, undamaged and with good service? If you buy something in a store, you won't have those questions.
The logic behind the strategy

Q: How do you tackle these challenges?

Zhang Yong: Over the past five years, Taobao has not only set up a marketplace, but has also established a whole set of market trading rules and processes, including critical systems like a complicated credit rating system for both buyers and sellers. The logic is this: Since you don't see the counter parties online, people who make their living on e-commerce or frequent online buyers can rely on a credit rating system much more than off-line traders.

Our credit system is open to everybody, so everyone can see your track record. All people are making their purchasing decisions based on your credit rating and your track record. If you did not do well in the past, you will have trouble getting deals done in the future.

This rating system is particularly important for online shop owners. If your store has a lot of bad feedback or poor ratings, you won't have a business in future. And we think this system is also helpful to educate Chinese people as a whole to be reliable and build up trust among them.

Meanwhile, in order to address the issue of quality concerns, we have been trying for the past several years to promote an initiative called our "Customer Protection Program." Every shop that joins this program will have to pay a deposit for us to compensate buyers if any of them claim a loss. For example, for a shop who joins this program, we will place a notice on his store saying, "[If a] product [is] false, refund [will be] tripled," so visitors will be more willing to buy stuff in those shops. These initiatives are all associated with economic benefits.

The other critical system is our online payment system. Just as eBay has Paypal, we have a unique payment solution named "AliPay," something like an escrow account which perfectly eliminates buyers' concerns about e-commerce. Imagine you are a buyer: After you make your purchasing decision, your money will be transferred to your AliPay account, and the seller will then deliver the goods to you. Only after you have received the goods and are happy about the quality, and only after you have agreed to confirm the payment online, the money will then be transferred from your AliPay account to the seller's account.

Nowadays, many small e-commerce companies have directly adopted our AliPay system and pay a commission to us for every transaction done. Some big e-commerce companies will build up their own payment systems, with a same model and design. So far, we still have to use an escrow service in stead of direct credit card payments, which is a big difference from what eBay is doing in the U.S.
Targeting a diverse market

Q: Who are your target customers?

Zhang Yong: Our customers are a broad spectrum. Every day, there are more than one million people buying goods on Taobao. For different sexes, there are different categories. In general, the breakdown is almost equal, with slightly more women than men. For example, in cosmetics, women are the dominant buyers, but for outdoor equipment or electronic products, men are the majority buyers.

Age wise, the 18-30 age group is by far the largest, but we have found the edge is expanding. Middle school students are now buying online, as well as middle-aged men. From a geographic perspective, for the last several years, the transactions were always focused on the eastern regions of the country. However, this is changing now. With the development of the second- and third-tier cities inside China and the popularization of broadband, more and more people from those places are joining us.

Q: It looks like your business model involves expanding your customer base continuously. Does that mean that you will also have to keep growing your operational team and capacity to match the former? Otherwise, you may not be able to deal with such a growth?

Zhang Yong: That is a good question. There is a difference between online shopping and off-line shopping. What we are going to build up is a scalable and sustainable model. Scalable means that you don't have to multiply your investments in headcount or resources when the transaction volume or user base multiplies continuously. Certainly, there are somethings that need to be increased linearly -- e.g., your servers, your rented bandwidth -- but if you are talking about direct cost, staff cost, this doesn't need to be added linearly.

Q: In the U.S., some big retailers are now going online, like Wal-Mart. How is the situation in China?

Zhang Yong: Every retailer in China thinks that online trading is the future and they are all willing to do some experiments. But so far, no one is really doing it. At the most, some are creating Web sites, and that's all.

Tootoo's former COO joins Baidu

The former chief operating officer of Tootoo.com joins Baidu.com, China's largest search engine operator. Hu Xinran, former COO of Ninetowns Internet Technology Group's (Nasdaq: NINE) international trade B2B vertical search engine, Tootoo.com, recently joined Baidu.

Rumor: Baidu to Launch B2B Platform

An industry source recently revealed that Baidu (Nasdaq: BIDU) has secretly kicked off a B2B project and is currently in talks with several third-party certification companies regarding the development of a unified B2B trust certification system.

Alibaba.com Announces Major Initiatives for Buyers and Suppliers

Alibaba.com (HK:1688: news, chart, profile) , the world's leading business-to-business e-commerce company, today announced two major initiatives to bring more benefits to buyers and suppliers in its global import/export marketplace ( http://www.alibaba.com ).

The new initiatives include the Quality Supplier Program, which will deliver an improved sourcing experience to international buyers through enhanced quality and reliability of suppliers in the Alibaba.com marketplace; and the Gold Supplier Starter Pack, a new entry-level product that will extend Alibaba.com's premium storefront service to a broader group of export suppliers in core customer markets in mainland China, as well as new markets such as Hong Kong and Taiwan.

"While the global financial crisis will bring challenges to the real economy, we view the current environment as the perfect opportunity to demonstrate our commitment to quality and accessible service for our buyer and supplier community," said David Wei, chief executive officer of Alibaba.com. "All of the initiatives we announced today are aimed at expanding our market leadership and accelerating user growth and customer acquisition. Our Quality Supplier Program will allow buyers to trade with greater confidence while the Gold Supplier Starter Pack will appeal to a wide range of potential new customers."

Quality Supplier Program

When suppliers apply for a paid membership service on Alibaba.com, they must pass an authentication and verification process conducted by an independent third-party agency. Alibaba.com will team up with VeriSign as an additional authentication and verification partner. VeriSign, the trusted provider of Internet infrastructure services for the networked world, will provide authentication and verification services to verify the identity of suppliers displayed on the Alibaba.com web site. The presence of a VeriSign seal on the supplier's listings will indicate to Alibaba.com site visitors that this information has been verified by VeriSign.

Alibaba.com is also enforcing stricter policies towards the protection of intellectual property and ensuring a safer online trading environment by banning members that have a history of violating the rules and policies of its marketplace. For example, Alibaba.com's current policy is to respond expeditiously to written requests by intellectual property owners to take down items that the owners believe have infringed their rights. Under the Quality Supplier Program, Alibaba.com has established clear internal standards and procedures for de-listing products and terminating the accounts of non- complying members based on substantiated complaints.

New Entry-Level Product: Gold Supplier Starter Pack

Alibaba.com's new entry-level product -- the Gold Supplier Starter Pack -- is designed for exporters that plan to shift their business online to achieve efficiencies in the current economic environment. The product, priced at RMB19,800 (US$2,900)(1) per year, offers basic storefront display and unlimited product listings. Companies must obtain third-party authentication and verification under the Quality Supplier Program before they can purchase the Gold Supplier Starter Pack.

Alibaba.com's existing Gold Supplier membership, which remains priced at RMB50,000 (US$7,300)(1), will be upgraded to incorporate value-added services such as additional Virtual Showrooms(TM) that will enable suppliers to substantially increase the visibility of their key products. In addition, the improved service offering will include corporate email accounts, a virtual factory tour as well as storefront management tools such as Traffic AnalyzerTM and Buyer GPSTM to help suppliers maximize the effectiveness of their online marketing programs.

Commenting on the potential for entry-level customers to upgrade to higher price points, Wei said: "With a range of value-added services, customers of our entry-level product can realize further benefits by purchasing additional services such as Virtual Showroom(TM) and priority ranking based on keywords as they expand their presence on the Internet."

According to Alexa.com, an industry authority which tracks web traffic globally, Alibaba.com is the most-visited web site in two business categories: "International Business and Trade" and "E-commerce". Despite the current economic challenges, the number of buyer inquiries sent to suppliers on Alibaba.com has been consistently increasing compared to prior periods, as more small businesses turn to cost-effective online channels to do business.