chinas ecommerce market

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  • 8/13/2019 Chinas Ecommerce Market

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    Chinas E -Commerce

    Opportunities & Constraints ina Booming Market

    Amy Cao, Deloitte Beijing

    June 2011

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    2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    OnlineShopping(C2C)

    OnlineShopping(B2C)

    SNS

    ProfessionalSNSMessage

    Boards

    Micro-blogging

    Blogging

    InstantMessa-

    ging

    Mobil

    Chat

    VideoSharing

    Wikis

    Q&A

    Deal-of-theday

    Chinese e-players offer full commercial / social solutions, mostly following their UScounterparties business model

    2

    http://blog.sina.com.cn/hunnewellhttp://upload.wikimedia.org/wikipedia/zh/5/54/Douban_logo.gifhttp://www.budeyan.com/wp-content/uploads/2010/07/qq-tencent-logo.jpg
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    2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    B2C and C2C models have seen substantial growth and potentials

    Bus iness-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

    Bus iness-to-custom er (B2C)

    Custom er-to-custo mer (C2C)

    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

    Small shopowners

    The real C2C model is very rare in China.

    C2C sellers are mostly entrepreneurial wholesalers, rather thanindividuals, 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

    3

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    2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    Chinas online shopping market (B2C&C2C) reached 72.5 bn USD in 2010 and isexpected to grow at a CAGR of 70% for the next five years

    0.0 0.1 0.5 1.9 3.57.4

    19.1

    38.8

    72.5

    0.0

    20.0

    40.0

    60.0

    80.0

    100.0

    120.0

    140.0

    1997 2003 2004 2005 2006 2007 2008 2009 2010 2015f

    Close to2004 US

    market value

    Period 2003-2006 2006-2010 2010-2015f

    CAGR 202% 106% 70%

    1213

    China Online Shopping Market (bn USD, 1997-2015f)

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

    Infancy

    Early Development

    Strong Growth

    2010 USmarket value

    4

    http://www.iresearch.com.cn/http://www.iresearch.com.cn/
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    2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    VC / PE investment: 2010 saw a boom

    Online ShoppingMarket 1997-2002 2003-2005 2006-2009 2010

    Number of Deals

    A small number ofsignifiant investment

    Majority of dealswere smaller than5mn USD

    13 84 (59 disclosed) 47 (30 disclosed)

    Disclosed TotalInvestment (mn USD) 65 455 540

    Average Investment(mn USD)

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

    5 189

    5

    http://www.zero2ipo.com.cn/http://www.chinaveture.com.cn/http://www.chinaveture.com.cn/http://www.zero2ipo.com.cn/
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    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 B2C Gift 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 B2C Footwear Sequoia Capital 17

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

    6

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    Time Target company Business sector PE/VC investor Investment value ($ mn)

    2010 360Buy B2C 3C Tiger Fund 75

    2010 Moonbasa B2C Apparel Tiger Fund, GSR ventures 802010 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 Letao B2C - Apparel Ceyuan 112010 Yuego B2C - Motherhood DT Capital Partners 102010 yesmynet B2C Food Mandra, DCM, Zero2ipo 102010 Manzuo B2C - Group buying KPCB 102010 Didatuan B2C - Group buying IDG 102010 Masa Maso B2C Apparel Sequoia 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 includedSource: ChinaVenture.com.cn, Zero2ipo database, Deloitte analysis

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

    7

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    8/152011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    More online shopping companies are expected to go public following Mexcolane andDang 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:Onlinetravel agency

    2003 Nasdaq 39 0.01 42 1.07

    Mecoxlane B2C: Apparel 2010 Nasdaq 157 0.06 63 0.08

    Dang DangB2C:

    books/comprehensive

    2010 NYSE 103 0.03 745 0.02

    To-be-IPOed

    Company Business

    Sector

    Proposed IPO

    TimeProposed 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

    8

    http://www.pedaily.cn/http://www.chinaveture.com.cn/http://www.chinaveture.com.cn/http://www.pedaily.cn/
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    9/152011 Deloitte Touche Tohmatsu Limited. All rights reserved.

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

    Year Established 1995 2003

    Enterprise Type Listed: Nasdaq Private

    Business Model C2C C2C(individual seller based B2C) /B2C

    2010 Revenue (mn USD) 9,510 770

    CAGR (2006-2010) 11.3% 115%

    Main Revenue Stream Service fee and sales commissionAdvertising (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

    Comment

    ebay is Holding company of Eachnet (since 2003),currently 3 rd largest C2C platform in China, with atotal transaction value of 1.4 bn USD in 2009,accounting for 4% of total C2C market

    Eachnet lost its market leadership to Taobao in2006 and has been losing market share since

    Taobao is the current C2C market leader, takingover 80% market share

    no service fee and no tax paid for the seller A supporting online payment system

    Launched Taobao mall as B2C platform

    vs.

    Source: company websites, www.zero.ipo.com.cn , Deloitte Analysis9

    http://www.zero.ipo.com.cn/http://www.zero.ipo.com.cn/
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    10/152011 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

    Year Established 1996 1999Enterprise Type Listed: Nasdaq Listed: NasdaqBusiness Model B2C B2C, B2BFocus Sector Tourism Tourism2010 Revenue (mn USD) 3450 444

    CAGR (2006-2010) 11% 44%Main Revenue Stream Commission Commission

    Market Cap (mn USD) 6,770 6,420

    Number of Members,2010 Global

    50+ million 50+ million

    Total Transaction Value(bn USD)

    65.6 6.0

    Comment

    Expedia holds 56% of eLongs share eLong is 2 nd 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 thepast five years

    Market leader in online travel booking, with 49%market share

    Ctrip is expanding its business to more touroperation focused, recently acquired several localtravel agencies

    vs.

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

    10

    http://www.zero.ipo.com.cn/http://www.zero.ipo.com.cn/
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    11/152011 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

    Year Established 1994 2000Enterprise Type Listed: Nasdaq Listed: NYSEBusiness Model B2C, C2C B2CFocus Sector Book/comprehensive Book/comprehensive2010 Revenue (mn USD) 36,930 346

    CAGR (2006-2010) 34% 64%

    Main Revenue Stream Online sales, service fee, sales commission online sale of books and other products

    Number of Registeredusers (2010 Global)

    100+ million 40 million

    Total Transaction Value(mn USD) 33,251 342

    Comment

    Amazon.cn, formerly joyo.com, is the 2 nd largest B2C company in China, with over $3200revenue in 2009, accounting for 9.4% marketshare

    Amazon.cn is the 2nd largest online book seller inChina. It has diversified its product portfolio frommainly books to 20+ categories

    It offers free delivery in China

    3rd largest B2C company in China, accountingfor 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

    vs.

    Source: company websites, www.zero.ipo.com.cn , Deloitte Analysis11

    http://www.zero.ipo.com.cn/http://www.zero.ipo.com.cn/
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    12/152011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    Group buying is an emerging hot sector with over thousand websites and received over500 million dollars since 2010. Industry consolidation is expected

    Year Established 2008 2009Enterprise Type Private PrivateBusiness Model B2C B2CFocus Sector Group buying Group buying2010 Revenue (mn USD) 460 150

    CAGR (2009-2010) 2000+% 6000+%

    Main Revenue Stream sales commission and advertising sales commission and advertising

    Number of Registeredusers, (2010 Global) 50 million 3 million

    Total Transaction Volume(bn USD)

    2 0.15

    Comment

    Groupon just entered China market and looking for partnership/acquisition opportunities

    Lashou currently ranked 2 nd 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), informationportals (e.g. ganji.com) and communication portal (e.g. qq.com) all launched their group buyingplatform

    Currently there are over 2000 group buying platforms established all over China. Experts expected only4 to 5 will survive in five years

    vs.

    Source: iResearch, company websites, www.zero.ipo.com.cn , b2b.toocle.com , techweb.com.cn, Deloitte Analysis12

    http://www.zero.ipo.com.cn/http://b2b.toocle.com/http://b2b.toocle.com/http://www.zero.ipo.com.cn/
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    13/152011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    As Chinas micro blogging, Weibo developed dramatically and became the hottestemerging 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

    Year Established 2006 2009

    Registered user 195 million 140 million

    Obtaining first 50million users

    In 3 years In 1 year

    Visit proportionin total internet

    visits0.40% in UK, 0.18% in US 0.63% in China

    Active user38 million accounts with

    16 or more followers100 million accounts withover 20 or more followers

    A comparison with Twitter Weibo may have a more significant influence to the publicthan many of the traditional media, i.e. newspaper

    Top account in Weibohas followers of over 8million

    Chinas No1 newspaperissued 3.5 millioneveryday and only 19newspaper hascirculation over 1 million

    Weibo has become the most important informationsources for internet users; an emergency may spread tomillions of user in very short time A recent example: a well known and well respected

    PE fund founder post his decision of elopement inWeibo. The post was forwarded by 5000 times in onehour and 2.4 million comments in 10 days

    13

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    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 forfollowing 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

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    2011 Deloitte Touche Tohmatsu Limited. All rights reserved.

    About Deloitte Touche Tohmatsu

    Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms/members, each of which is a legally separate and independent entity. Deloitte is thebrand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management and taxservices to selected clients. These firms are members of Deloitte Touche Tohmatsu, a Swiss Verein (DTT Verein ). Each member firm/member provides services in a particular geographic areaand is subject to the laws and professional regulations of the particular country or countries in which it operates. DTT Verein helps coordinate the activities of the member firms but does not itselfprovide services to clients. DTT Verein and the member firms/members are separate and distinct legal entities, which cannot obligate the other entities. DTT Verein and each DTT Verein memberfirm/member are only liable for their own acts or omissions, and not those of each other. Each DTT Verein member firm/member is structured differently in accordance with national laws,regulations, customary practice, and other factors, and may secure the provision of professional services in their territories through subsidiaries, affiliates and/or other entities.

    2011 Deloitte & Touche Corporate Finance Limited. All rights reserved.