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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

By Michael Kan, IDG News Service
January 12, 2011 05:20 AM ET

IDG News Service - China's largest online retailer 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.

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