The launch of Taobao.com's business-to-consumer website, Taobao Mall, has its customer-to-customer vendors worried about the possibility of reduced sales margins and concerns over competition. [Photo / China Daily]
BEIJING - Chinese e-commerce giant Alibaba Group's recent move to invite wholesalers to open stores on its online shopping site Taobao.com has triggered alarm among individual Taobao sellers.Industry experts warn that in the future, individual vendors may turn to Alibaba's competitors, such as Tencent and Baidu, for further growth instead of relying solely on Taobao.
According to an advertisement on Alibaba.com, TrustPass members, who are verified business vendors on Alibaba.com, will be invited to open stores in "Wuming Liangpin", a new channel on Taobao due to come online as early as Jan 6.
The move is seen as another of Alibaba's attempts to lean towards the business-to-customer (B2C) model, in which businesses sell products directly to consumers, rather than customer-to-customer (C2C), according to analysts.
In November, the group launched a new domain for Taobao Mall, its B2C brand, separating it from its C2C website, Taobao.com, to give Taobao Mall more visibility. Vendors in Taobao Mall are brand name companies, such as adidas AG and L'Oreal Group.
"We launched 'Wuming Liangpin' to help business-to-business (B2B) sellers develop their retail business and foster their own brands," Alibaba said on its website, adding that 10 to 12 percent of its TrustPass members also have their own stores on Taobao, which means some wish to conduct B2C business, in addition to B2B.
Some individual sellers on Taobao, however, don't welcome the move.
"I'm afraid that Taobao will focus more on paying members in Taobao Mall and 'Wuming Liangpin'," said Chen Yueqiu, a clothing vendor on Taobao.com. "After all, the more you pay, the more additional services you are going to get."
Chen added that as a vendor, she had already paid more than 1,000 yuan ($151) to boost sales, including putting down a deposit for consumer protection services and a store decoration fee.
"'Wuming Liangpin', which is aimed at connecting Alibaba.com sellers with consumers, will affect the business of Taobao's C2C sellers and tighten their margins," said Chen Shousong, an analyst with domestic research company Analysys International.
"But it's a long-term trend. Its influence is unlikely to be felt in the short term," he said.
On Taobao's own forum, many individual vendors said that business will become more difficult with the launch of "Wuming Liangpin".
"I've heard many sellers say that they may consider opening stores in other online shopping platform," said Xiao Nan, a Taobao vendor based in Qingdao, Shandong province.
"As more shopping sites launch their own open platform, some of Taobao's vendors may not merely rely on this single platform," said Chen from Analysys International. He added that most individual sellers are dependent on Taobao.
However, Tao Ran, senior director of public relations at Alibaba Group, said the new channel will have little impact on the current business of Taobao vendors. "We are fair for all players, whether in search listings or traffic direction," he said. "Additionally, 'Wuming Liangpin' will only mean more players in the marketplace to make it more vigorous."
Analysts said that a C2C model doesn't offer as much potential revenue as B2C, as the latter, which includes corporate vendors, will generate commissions based on the largest volume of sales.
Companies that enter "Wuming Liangpin" have to pay certain fees, including an annual membership fee of 2,980 yuan, a sales commission ranging between 2 and 5 percent for most types of products, and a 1,000 yuan deposit for consumer protection services.
Alibaba didn't disclose Taobao's finances, but it said earlier that the site had broken even in 2008. The company plans to invite 2,500 TrustPass members, out of a total of more than 600,000 in China as of September, to open stores on the new platform.
China's online retail market is expected to reach 519 billion yuan in 2010, of which, B2C will take up 20 percent and C2C will account for the remainder. As more companies set foot in online sales, the B2C portion is estimated to rise to 25.3 percent in 2011 and to almost half in 2013, according to Analysys International.
E-commerce players, therefore, have been stepping up efforts to cash in on the growing B2C market, which has resulted in fiercer competition and occasional disputes between companies.
E-commerce China Dangdang Inc, which went public on the New York Stock Exchange earlier this month, was involved in a price war with competitor 360buy.com. Richard Liu, chairman of 360buy.com, said shortly after Dangdang's listing that the website would offer books priced 20 percent lower than competitors. Fighting back, Dangdang later offered certain books at 40 percent off.
Amazon.com Inc's Chinese branch, Amazon.cn, also joined the fray by offering a 20 percent discount on books. The price war then evolved into covering other products besides books, but once the General Administration of Press and Publications intervened, the price war started to quiet down.
Analysts said that price wars will still be common in 2011, but as the market develops, service and product differentiation will play an increasingly important role in competition.
Taobao Mall is the biggest player in the B2C market, with a 33.5 percent share in the third quarter of 2010, followed by 360buy.com at 14.1 percent, and Dangdang.com with 3.7 percent, according to Analysys International.