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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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