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

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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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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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http://www.iresearch.com.cn/http://www.iresearch.com.cn/


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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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http://www.zero2ipo.com.cn/http://www.chinaveture.com.cn/http://www.chinaveture.com.cn/http://www.zero2ipo.com.cn/


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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

8
http://www.pedaily.cn/http://www.chinaveture.com.cn/http://www.chinaveture.com.cn/http://www.pedaily.cn/



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/



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



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/



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

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