Search Engines and Sites Battle for Chinese Web Users
China's Alibaba Group Holding Ltd. plans to invest five billion yuan, or about $725 million, in its Taobao.com online shopping site over the next five years, the latest sign of an intensifying battle with Chinese Internet-search giant Baidu.com Inc.
Alibaba Group's investment more than doubles an earlier plan to spend two billion yuan on Taobao and is more than three times the 1.5 billion yuan Alibaba has invested in the site since it was established in 2003.
The move comes as Baidu is gearing up to challenge Taobao's status as China's No. 1 auction site by sales volume. Baidu last month started testing its consumer e-commerce platform, with 10,000 sellers drawn from across China. Baidu Youa, which translates as "Baidu Got It!," is expected to open before year end. The company declined to reveal how much it is spending.
Alibaba's decision was prompted by faster-than-expected growth for online shopping, not Baidu's move, Alibaba Chief Financial Officer Joseph Tsai said Wednesday.
Internet consulting firm iResearch projected that the total value of Chinese online consumer sales will increase to 126 billion yuan this year from 16 billion yuan in 2005. Taobao users bought and sold 43.3 billion yuan in goods on the site last year, Alibaba said. Transactions reached 41.3 billion yuan in the first half of this year. "We believe that online commerce will outgrow the Chinese economy," Mr. Tsai said.
About a third of China's 253 million Internet users have shopped online, research firm China IntelliConsulting Corp. reported last month, with three-quarters of online shoppers using Taobao at least once.
When Taobao came onto the scene in 2003, it undercut then-market leader eBay Inc. by not requiring sellers to pay fees for listing or selling. As eBay users switched to Taobao, the U.S. company was forced to drop its fees before dropping out of China altogether.
But competition is intensifying. EBay last year joined forces with TOM Online Inc., the mainland China Internet subsidiary of Hong Kong's TOM Group Ltd., to relaunch its auction site under the Eachnet brand. The site now has roughly an 8% market share of gross sales volume, according to iResearch. Tencent Holding Ltd.'s three-year-old Paipai.com has 9% -- a distant second to Taobao's 76% share.
"It will be hard for [Baidu] to get the market share from Taobao because users have very strong loyalty to Taobao," said Ning Liu, an analyst at technology-consulting firm BDA. "If Baidu's e-commerce platform cannot provide differentiated services it will be hard for it to take off." Mr. Liu said Baidu's main advantage is its search-engine presence, since many Internet users search Baidu for products they want to buy online. Baidu has 65.8% of the search market, according to China IntelliConsulting.
Alibaba's new investment will go toward technology upgrades, research and development, and marketing and promotion efforts on behalf of Taobao sellers, Mr. Tsai said. The company also plans to open Taobao's technology platform to third-party software providers for the site.
Funding will come from Alibaba Group's cash reserves, Mr. Tsai said. Last year's initial public offering of the group's business-to-business platform, Alibaba.com Ltd., in Hong Kong brought in $1.2 billion for the parent company.
