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Asia Business Development – Asia Business Consulting » What’s New in E-commerce

SpirE-Journal 2011 Q1

What’s New in E-commerce

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What’s New in E-commerce

In the early stages of online shopping in the 1990s, online shoppers were primarily young men with a high level of income and a university education. Within a few years, all that changed drastically. 92% of UK female Internet users now buy products online, for instance. 

857 million internet users in Asia and the Pacific region

There are 2 billion users of the internet globally. The Asia-Pacific region has 857 million internet users. It is no surprise that e-commerce is a huge industry in the region. Even in trail-blazing Japan, where one might have thought that online sales would be a saturated, mature business, B2C sales grew by a robust 12.5% in 20083 – an extraordinary figure in the context of a struggling economy. In China, Taobao.com, the world’s largest online retailer, saw its number of users double to 370 million in 2010, signalling how comfortable Chinese consumers are becoming with e-commerce. Outside Asia, Russia and Brazil have thriving e-commerce markets as well. Russia has 59.7 million internet users and a penetration rate of 42.8%, as at June 20105. It B2C market is expected to reach between US$5.3 billion and US$6 billion in 2011. In Brazil, B2C sales grew 40% to R$6.7 billion in the first half of 2010. Though impressive, challenges remain. While Russian users contribute about $50 million worth of revenue, eBay is reviewing its Russia strategy. The unreliable Russia postal service means delivery can take from 10 days to 2 months. And because PayPal, the leader in online global payment, refunds money for goods that are not sent, these postal delays have eroded profitability. Even then, most vendors feel the attractions of Russia’s online market outweigh the risks.

Auction Sites and Peer-to-Peer Sales

China presents bright prospects. Chinese web sales are likely to continue to soar more than 35% a year on average over the next few years9. There are currently 142 million online shoppers and the contribution of online sales in total retail is expected to reach 7.2% by 2013 from the current 2%. The largest online retailer in China, Taobao.com, which offers both B2C and C2C models, recorded revenue surpassing 200 billion yuan (close to US$30 billion) in 2009. However it faces its own challenges, particularly in relation to C2C sales. Taobao recently announced an expenditure of 100 million Yuan to fight against counterfeit products. It is also seeking the cooperation of provincial commerce departments to prevent the sale of fake products in its online shops. Taobao.com’s move came after a shop owner registered on the website was found selling counterfeit versions of famous brands. Till 2009, over 2 million fake products were removed from the site and over 10,000 online stores selling fake products were shut down. Taobao.com runs a consumer protection scheme where compensation is paid to buyers who have been duped into buying fake product Korea’s largest retailers like Lotte shopping, Shinsegae Group and Hyundai departmental stores all operate online sales arms. These retailers use online auction and shopping mall sites such as Interpark and GMarket. EBay initially ran its website, Internet Auction Co., in South Korea. In 2009, EBay bought a controlling stake in GMarket and formed a combined entity. EBay offers several types of auction formats in Korea such as Auction style listing, Fixed price format and Fixed priced format with best offer. However, going forward, the threat of counterfeits will impose increasing compliance costs on auction and C2C sites, and the vendors who sell via these sites. This issue is especially salient in Asia, which manufactures a huge share of the world’s counterfeit products.

Mobile Commerce

Mobile commerce is emerging as a serious option for consumers to make payments for their purchases online. It originated from the concept of “virtual goods” like ringtones and applications, which gradually paved the way for the sale of physical products. Increasing demand for smart-phones and PDAs have created a new worldwide business frontier. Mobile online shopping will be responsible for $163 billion in sales globally, 12% of global e-commerce turnover by 2015. Consumers in Asian markets like China, India and South Korea display the greatest interest in mobile commerce. 69% of survey respondents in Asia indicated they prefer using mobile phones for most payment. In Japan, mobile is responsible for nearly 17% of all e-commerce sales. EBay claimed to generate close to $2 billion in global mobile sales in 201019. Mobile shopping is growing exponentially and eBay claims that its applications have achieved more than 30 million downloads worldwide till 2010. EBay launched mobile applications for the Android, BlackBerry and Windows Phone 7 operating systems in 2010. The popularity of smart phones in the market, through brands like iPhone and Blackberry, is well-known. The explosion of iPads and other tablets will contribute to Mobile commerce growth. As consumers embrace the habit of staying connected at all times, online retailers are now scrambling to offer the best, most attractive mobile sites possible. 

Social media – a new e-commerce frontier?

Facebook is the largest social network in the world, with more than 600 million users. To date, most companies have approached Facebook as a branding rather than an e-commerce opportunity. On social media sites like Facebook and LinkedIn, many companies offer direct communication with and promotions to followers of their fan page. The importance of social media can be seen from the US$1.28 billion spent by advertisers on Facebook in 2010. In 2011, this figure could reach US$1.76 billion. However there are few indicators of social media evolving to offer a direct path to buying. By its very nature, social media needs to position itself as a neutral, social platform rather than being a tool of vendors. 

Bloggers as Salespersons

As would be expected given the extremely low entry barriers, blog shops abound on the internet. Their unregulated and fragmented nature means quality and reputation varies tremendously. With companies creating their own online E-commerce sites, and with well-established, branded online retail sites like Taobao and Amazon, blog shops play an insignificant role in direct sales. However, blogs can play a role in a company’s online marketing efforts. The more a company is talked about online and the more sites link back to the company’s website, the better the Search Engine rank for a company’s site. Singapore’s Xiaxue is an example of a popular blogger, with an average of more than 30,000 hits per day and more than 32,000 people following her on Facebook. With more than 30,000 fans, her product reviews or endorsements could be important. But bloggers are usually limited to acting as a reviewer of a product or service they have actually used. Any attempt to promote a product or brand too directly may undermine their credibility. For corporations that prefer not to deal with individual bloggers, companies such as Nuffnang, Asia’s first blog advertising community, and Omy.sg can, serve as contact points to the online blogging community.

Group buying sites

China’s Taobao is promoting local businesses on its group buying websites. It promotes three deals a day to its users through a group-buying service on its website called “Ju Hua Suan,” or Group Bargain. The featured deals, offered by Taobao merchants, are tailored to each user’s demographic information. Within three hours, Taobao’s Mercedes–Benz group sold 205 Mercedes–Benz smart cars via a group purchase in September 2010. Groupon, an American site, was the trailblazer for the group buying concept. With a promise of discounts of up to 90% to members, it became an overnight sensation. Groupon claims to offer a win-win situation where consumers get steep discounts to try out a product or service and companies get the chance to impress and build repeat customers out of them. The best part is the deal does not go through unless a minimum number of members commit to it. The popularity of group buying can be seen in Thailand, where many similar sites have sprung up such like Ensogo, All Deals Asia and Sanook Coupon, all vying for a slice of the market. With Google and Facebook looking to enter the fray of group buying, through Google Offers and Facebook deals respectively, you can be sure that this is the latest star in the ever-changing E-commerce sky.

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