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Chinas E-Commerce

Opportunities & Constraints in


a Booming Market
Amy Cao, Deloitte Beijing
June 2011

Chinese e-players offer full commercial / social solutions, mostly following their US
counterparties business model
Online
Shopping(B2C)

Online
Shopping(C2C)

Microblogging

Deal-of-the
day

Blogging

Mobil
Chat

Instant

Wikis

Messaging

SNS

Video
Sharing

Professional

Q&A
Message

SNS

Boards

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

B2C and C2C models have seen substantial growth and potentials
Business-to-business (B2B)

Emerged in late 1990s


Become the major platform of exporter and connection between
manufacturers and wholesalers
Transaction value reached around USD45 billion in 2010
Alibaba accounted for 65% of market share

Business-to-customer (B2C)

Customer-to-customer (C2C)

The real C2C model is very rare in China.


C2C sellers are mostly entrepreneurial wholesalers, rather than
individuals, but enjoy the tax free benefits
Transaction value reach USD 63.5 billion in 2010
Taobao has 90% market share
Large shops in C2C platform gained PE investments and started to
create their own platform to reduce dependence on Taobao

Small shop
owners

Emerged in early 2000


Rapid growth: 175% in 2009 and 150% in 2010
Transaction value reach around USD9 billion in 2010
3C, apparel, and tourism sectors received most of the PE/VC investment

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

Chinas online shopping market (B2C&C2C) reached 72.5 bn USD in 2010 and is
expected to grow at a CAGR of 70% for the next five years
China Online Shopping Market (bn USD, 1997-2015f)
2010 US
market value

140.0
120.0

Period

2003-2006

2006-2010

2010-2015f

CAGR

202%

106%

70%
Close to
2004 US
market value

Strong Growth

100.0

1213

Early Development

80.0

72.5

Infancy

60.0

38.8

40.0
19.1

20.0
0.0

0.0

0.1

0.5

1997

2003

2004

1.9

3.5

2005

2006

7.4
2007

2008

2009

2010

2015f

Source: www.iresearch.com.cn, Access Asia, National Bureau of Statistics (NBS)


4

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

VC / PE investment: 2010 saw a boom

Online Shopping
Market

1997-2002

2003-2005

2006-2009

2010

13

84 (59 disclosed)

47 (30 disclosed)

65

455

540

18

Number of Deals

Disclosed Total
Investment (mn USD)

A small number of
signifiant investment
Majority of deals
were smaller than
5mn USD

Average Investment
(mn USD)

Source: www.zero2ipo.com.cn, www.chinaveture.com.cn, toocle.com

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

VC /PE investment over 10mn USD 2009 slowed down due to financial crisis
Time

Target company

Business sector

PE/VC investor

Investment value ($ mn)

2000

Ctrip

B2C - Tourism

Soft Bank, Carlyle, IDGVC

12

2003

eLong

B2C - Tourism

Tiger, Blue Ridge

12

2004

DangDang

B2C - Book

Tiger

10

2006

DangDang

B2C - Book

DCM, Walden Int.

30

2006

SousouKe

C2C

D&H Capital, Asian Groove

17

2007

Redbaby

B2C - Motherhood

KPCB

25

2007

360Buy

B2C 3C

Capital Today

10

2008

IntoHotel*

B2C - Tourism

KPCB, Zero2ipo

30

2008

Udooo

B2CGift

Legend , SIG

25

2008

Liba

B2C -Comprehensive

Investor AB, Walden

15

2008

ByeCity

B2C - Tourism

JAFCO, Investor AB

10

2008

Vancl

B2C Apparel

Qiming, IDG, Legend

10

2008

9diamond

B2C - Luxury

KPCB, Rapaport, Qiming,


Zero2ipo

10

2009

360Buy

B2C 3C

Capital Today

21

2009

Okbuy

B2CFootwear

Sequoia Capital

17

Source: ChinaVenture database, Zero2ipo.com.cn, Deloitte analysis

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

VC / PE investment over 10mn USD in 2010 and 2011 sector spread, large deal
emerge
Time

Target company

Business sector

PE/VC investor

Investment value ($ mn)

2010
2010

360Buy
Moonbasa

B2C 3C
B2C Apparel

Tiger Fund
Tiger Fund, GSR ventures

75
80

2010

Lashou

B2C - Group buying

Tenaya Venture

50

2010

VANCL

B2C - Apparel

Tiger Fund

49

2010

Lightinthebox

B2C Outbound

Ceyuan, Trust Bridge Partners

35

2010

Mbaobao

B2C Accessory

Legend Capital, DCM

30

2010

Vipshop

B2C - Luxury

Sequoia Capital, DCM

20

2010

Redbaby

B2C - Motherhood

Northern light,

20

2010

Okbuy

B2C Apparel

Sequoia Capital, Intel, DFJ

17

2010

Ayatuan

B2C - Group buying

Individual Investor

17

2010
2010
2010
2010
2010
2010

Letao
Yuego
yesmynet
Manzuo
Didatuan
Masa Maso

B2C - Apparel
B2C - Motherhood
B2C Food
B2C - Group buying
B2C - Group buying
B2C Apparel

Ceyuan
DT Capital Partners
Mandra, DCM, Zero2ipo
KPCB
IDG
Sequoia

11
10
10
10
10
10

2011

360Buy

B2C 3C

DST, Tigar

500

2011

Lashou

B2C Group buying

Milestone Capital, Reinet Fund,


GSR Ventures

110

2011

OkBuy

B2C Apparel

Not disclosed

60

2011

Zbird

B2C - Luxury

Ceyuan, FountainVest Partners

50

2011

Letao

B2C Apparel

Not disclosed

31

2011

Xiu

B2C - Comprehensive

KPCB

20

Note: All disclosed deals above USD 10 million are included


Source: ChinaVenture.com.cn, Zero2ipo database, Deloitte analysis

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

More online shopping companies are expected to go public following Mexcolane and
Dang Dang in the next a couple of years
IPO
Company

Business Sector

Time Listing

IPO multiples

EPS when listed

Current P/E

Current EPS

Ctrip

B2C/B2B:Online
travel agency

2003 Nasdaq

39

0.01

42

1.07

Mecoxlane

B2C: Apparel

2010 Nasdaq

157

0.06

63

0.08

103

0.03

745

0.02

B2C:
Dang Dang books/comprehensiv 2010
e

NYSE

To-be-IPOed
Company

Business
Sector

Proposed IPO
Time

Proposed listing

Estimated Market Value


(mn USD)

Business Sector

360buy

B2C

2012-2013

HK or Nasdaq

10,000

3C/comprehensive

Vancl

B2C

2012-2013

Nasdaq

5,000

Clothing

Source: www.pedaily.cn, www.chinaveture.com.cn, finance.yahoo.com, multiple media

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

Established 8 years later, Taobao now has a comparable transaction value as ebay does
today. Registered user accounts for 1/4 of China population
vs.
Year Established

1995

2003

Enterprise Type

Listed: Nasdaq

Private

Business Model

C2C

C2C(individual seller based B2C) /B2C

9,510

770

11.3%

115%

Main Revenue Stream

Service fee and sales commission

Advertising (product ranking, stand-alone ads, etc.);


value-added service fee

No. of Registered users


(2010 Global)

94.5 million

370 million

Total Transaction Value


(2010, bn USD)

62

61

2010 Revenue (mn USD)


CAGR (2006-2010)

Comment

ebay is Holding company of Eachnet (since 2003),


Taobao is the current C2C market leader, taking
currently 3rd largest C2C platform in China, with a
over 80% market share
total transaction value of 1.4 bn USD in 2009,
no service fee and no tax paid for the seller
accounting for 4% of total C2C market
A supporting online payment system
Eachnet lost its market leadership to Taobao in
Launched Taobao mall as B2C platform
2006 and has been losing market share since

Source: company websites, www.zero.ipo.com.cn, Deloitte Analysis


9

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

Fueled by several rounds of PE investment, Ctrip has shaped Chinas online tourism
booking market and gained 50% share
vs.
Year Established
Enterprise Type
Business Model
Focus Sector
2010 Revenue (mn USD)

1996
Listed: Nasdaq
B2C
Tourism

1999
Listed: Nasdaq
B2C, B2B
Tourism

3450

444

11%

44%

Main Revenue Stream

Commission

Commission

Market Cap (mn USD)

6,770

6,420

50+ million

50+ million

65.6

6.0

Expedia holds 56% of eLongs share


eLong is 2nd largest online trabel booking agency
in China, with 79 mn USD revenue in 2010,
accounting for 8% of total market share
eLong has been losing its market share over the
past five years

Market leader in online travel booking, with 49%


market share
Ctrip is expanding its business to more tour
operation focused, recently acquired several local
travel agencies

CAGR (2006-2010)

Number of Members,
2010 Global
Total Transaction Value
(bn USD)

Comment

Source: company websites, iReseach, www.zero.ipo.com.cn, Deloitte Analysis

10

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

Struggling in the low margin book selling sector for 10 years, Dangdang managed to go
public in 2010 and substaintially expanded the product offering
vs.
Year Established
Enterprise Type
Business Model
Focus Sector
2010 Revenue (mn USD)
CAGR (2006-2010)
Main Revenue Stream
Number of Registered
users (2010 Global)
Total Transaction Value
(mn USD)

Comment

1994
Listed: Nasdaq
B2C, C2C
Book/comprehensive
36,930

2000
Listed: NYSE
B2C
Book/comprehensive
346

34%

64%

Online sales, service fee, sales commission

online sale of books and other products

100+ million

40 million

33,251

342

2nd
Amazon.cn, formerly joyo.com, is the
largest B2C company in China, with over $3200
revenue in 2009, accounting for 9.4% market
share
Amazon.cn is the 2nd largest online book seller in
China. It has diversified its product portfolio from
mainly books to 20+ categories
It offers free delivery in China

3rd largest B2C company in China, accounting


for 8.5% market share in 2009
Market leader in online book sale sector
Dang Dang still focuses on book sector while
expanding its product categories
Dang Dang offers best price guarantee for its
books and free delivery services

Source: company websites, www.zero.ipo.com.cn, Deloitte Analysis


11

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

Group buying is an emerging hot sector with over thousand websites and received over
500 million dollars since 2010. Industry consolidation is expected
vs.
Year Established
Enterprise Type
Business Model
Focus Sector
2010 Revenue (mn USD)
CAGR (2009-2010)

Main Revenue Stream


Number of Registered
users, (2010 Global)
Total Transaction Volume
(bn USD)

Comment

2008
Private
B2C
Group buying
460

2009
Private
B2C
Group buying
150

2000+%

6000+%

sales commission and advertising

sales commission and advertising

50 million

3 million

0.15

Groupon just entered China market and looking for partnership/acquisition opportunities
Lashou currently ranked 2nd in group buying market in terms of number of user covered, after
ju.taobao.com, the group buying platform developed by Taobao
Leading online shopping companies (e.g. 360buy.com), social networks (e.g. renren.com), information
portals (e.g. ganji.com) and communication portal (e.g. qq.com) all launched their group buying
platform
Currently there are over 2000 group buying platforms established all over China. Experts expected only
4 to 5 will survive in five years

Source: iResearch, company websites, www.zero.ipo.com.cn, b2b.toocle.com, techweb.com.cn, Deloitte Analysis


12

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

As Chinas micro blogging, Weibo developed dramatically and became the hottest
emerging media covering 140 million users
Sina Weibo
Registered members reached 140 million; daily posts exceed 25 million
Average time spend / day, user is over 1 hour
Conquer 87% market shares by spending time per member and 57% market share by
number of active user
Weibo may have a more significant influence to the public
than many of the traditional media, i.e. newspaper

A comparison with Twitter

Year Established

2006

2009

Registered user

195 million

140 million

Obtaining first 50
million users

In 3 years

In 1 year

Visit proportion
in total internet 0.40% in UK, 0.18% in US
visits
Active user

38 million accounts with


16 or more followers

Top account in Weibo


has followers of over 8
million

Chinas No1 newspaper


issued 3.5 million
everyday and only 19
newspaper has
circulation over 1 million

0.63% in China

Weibo has become the most important information


sources for internet users; an emergency may spread to
millions of user in very short time
A recent example: a well known and well respected
PE fund founder post his decision of elopement in
Weibo. The post was forwarded by 5000 times in one
hour and 2.4 million comments in 10 days

100 million accounts with


over 20 or more followers

13

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

Bottlenecks Less reliable third party logistics services and underdeveloped credit and
payment system remain the biggest issues
Low Ratio of Online Payment
Awareness of online payment is still low. Many of customers still prefer cash payment upon receiving products for
following reasons
The credit system in China is still at early development stage. Online payment safety is a significant concern among
e-shoppers
Currently online payment platform are not user friendly and often requires installations of specific software under
specific systems or websites
China has just set up its Third-Party Payment Association and issued licenses to 20+ online payment companies
Unreliable Third-party logistics support
Most of couriers companies not able to cover lower tier cities / counties
Missing the delivery deadline or damaging products are quite common
Short of hands in holiday seasons, especially Chinese New Year, resulting in delay on delivery
Many of the significant players have invested heavily to build their own logistics system
Lack of trust on products and services
Many product descriptions online are different from real products, or reported fake products
Most consumers are only comfortable to purchase low-value products online, e.g. books, clothes, etc.
After sales servcies is usually poor, with a very difficult return / refund terms
Information Security
Over 20% of Chinese Internet users reported having experiences of being cheated by fraudulent websites
Over 40% of Chinese internet users reported having had personal information stolen or manipulated.

14

2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

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