China e-commerce site Taobao sees users double in 2010

The popularity of Taobao will likely spread to other e-commerce sites operating in China

China's largest online retailer Taobao.com saw explosive growth in 2010, with the number of users increasing to more than 370 million, up from 176 million in the previous year.

The numbers further cement Taobao's dominance in China's online retail market as other companies, both domestic and foreign, attempt to grab a share. But they also highlight how Chinese consumers are growing more comfortable with buying online, a trend that will only benefit other emerging e-commerce companies operating in the country.

Taobao, which is part of Chinese e-commerce giant Alibaba Group, sells everything from cellphones and kitchenware to airplane tickets and insurance. Launched in 2003, the site allows users to buy from the sellers' pages and auction items.

The Chinese company credits part of the user growth to its investment in consumer protection measures. Taobao established a 100 million yuan (US$15.1 million) fund to payback users in the event of a transaction dispute with any of the online merchants.

"Taobao's big push and resource investment in consumer protection has served to help Chinese netizens who previously were hesitant about online shopping to try it out," said company spokeswoman Justine Chao.

Providing that sense of security with paying online has been a major obstacle facing e-commerce sites in China, said Mark Natkin, the managing director of Beijing-based Marbridge Consulting. But Taobao managed to overcome that challenge and "laid the groundwork" by developing an escrow service.

Since then the company has seen its popularity soar as word-of-mouth from Taobao users has helped promote the site, Natkin said. Now the appeal of e-commerce in China has turned from "gradual growth to explosive growth," he added.

"The level of comfort of using an e-commerce platform has jumped substantially. People are telling us about their mothers now using Taobao," he said. "People who maybe in the past would not have been a regular Internet user are becoming e-commerce users."

Last fall, Taobao also launched a 200 million yuan (US$30.2 million) ad campaign that the company says also boosted user numbers. The ad campaign was designed to increase the visibility of Taobao Mall, a business-to-consumer platform, allowing major brands to sell to Chinese consumers via the site. Some of these include IT vendors like Nokia and Dell and clothing companies such as Uniqlo and Adidas.

Taobao controls 75 percent of the country's online retail market, according to Beijing-based research firm Analysys International. The surge in users, however, far exceeded Analysys's initial estimates, which stood at 251 million registered users for Taobao in the third quarter of 2010.

Taobao's ad campaign was a big driver to the company's increase in users for 2010, said Chen Shousong, an analyst with Analysys. Any future user growth will come at a slower pace, as China's Internet users number just over 400 million, he said. More consumers are also expected to begin using rival e-commerce sites specializing in the business-to-consumer market, Chen added.

In November Gap launched its own online store in China. Wal-Mart is also testing a beta version of an online store for its Sam's Club members in Shenzhen, China. The U.S. retailer has also invested in 360buy.com, a Chinese online electronics sellers.

But even with the competition, Taobao has successfully positioned itself as China's leader in online retail, said Chen. "We are optimistic about the site's growth because Taobao has a strong brand and now it has 370 million users," he said.

Taobao has also become a trusted name in China, said Yang Na, a 25-year-old user of the site living in Beijing. The site's escrow service is one reason why she feels comfortable using the site, she said. "It makes my heart feel secure when I make my payments," Yang added.

The graduate student said she began using Taobao in 2007. Since then, she has bought clothes, shoes and books on the site, all with little trouble. "Everything is cheaper and everything is done conveniently on Taobao. They can just send it do my door, I don't have to go outside," she said.

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