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Sherman So

For a person who is known as Caishen, or God of Money, Taobao general manager Toto Sun is rather relaxed in his attitude towards making money.

'Frankly, I don't care,' Mr Sun said when he was asked how he intended Taobao, the largest online auction company in China, to make money.

The platform has been free since its inception in May 2003.

The opportunity to generate cash should be there. Transaction value in China's online auction market grew more than three times last year to 13.92 billion yuan from 2004, according to  market researcher Analysys. In the first quarter of this year, the amount reached 5.39 billion yuan as 24.52 million items changed hands.

Yet only eBay, which with Taobao and Paipai account for 99 per cent of the market, charges its users, albeit at a low rate.

'We can charge users whenever we want. We are not in a rush,' said Jack Ma, founder and chief executive of Alibaba, which owns Taobao. Even so, Mr Ma this month said Taobao could start making money in two years and contribute 30 per cent of Alibaba's revenue  between 2010 and 2012.

Alibaba, which generates 70 per cent to 80 per cent of its money from linking business-related buyers and sellers online, said it had turnover of more than US$100 million last year and forecast more than US$200 million of turnover this year.

Alibaba  spent 450 million yuan  setting up Taobao two years ago.

Any attempt to charge for its services will cost Taobao substantial market share, said Charles Shen, a former head of strategic planning of eBay China.

'Early this year, Taobao tried to charge users,' Mr Shen said. 'If a seller was willing to pay a fee, his or her goods appeared on the top when buyers searched for similar items. Previously, the item to show first depended  on relevance and time.

'It backfired. Users were not happy about the new arrangement. Irrelevant items appeared on the top of a search simply because  sellers had paid the fee. People also took that as a signal that Taobao was going to charge.'

Taobao later dropped the fees.

The company  dethroned eBay as the most  visited auction site in China  in  2004 and soon surpassed it in terms of transaction volume. By the third quarter of last year, it accounted for 57 per cent of the country's online auction trading volume, compared with eBay's 34 per cent, according to Analysys.

Mr Sun said 50 million yuan of goods are traded on Taobao every day. He forecast annual trading volume would reach  as much as 20 billion yuan this year.

The upsurge in popularity has not sent Taobao's rivals packing.

EBay, which cut  its fees in May last year,  braked its declining market share to hold 28 per cent in the first quarter of this year while Taobao's was unchanged at 57 per cent, according to Analysys.

Both firms are facing a threat from  Paipai, an online site launched in September last year by Tencent, the provider of the most popular instant messaging service in China. Paipai grabbed 14 per cent of the market by the first quarter this year.

The near-instant popularity came due to  the QQ instant messaging service which is logged into by more than half of China's internet population every day, Mr Shen said.

Last year, Taobao surveyed its users on whether they are willing to  be charged 'a listing fee, which we would charge only if the seller could successfully sell the item', said Porter Erisman, vice-president of international marketing and business development at Alibaba.

But  more than 60 per cent of the respondents rejected the suggestion  and the firm scrapped the plan.

Even so, many mainland internet users pay for online services, with five billion yuan spent last year on online games, according to Analysys.

Tencent made 899 million yuan in the first half of this year by selling avatars or icons that represent an identity online, virtual pets and other virtual items.

'Most large sellers  don't mind the  fee,' Mr Shen said. 'It is only a tiny amount. Most of them have shops on both eBay and Taobao.'

Paipai's popularity  helps boost Tencent's other services and may curb any moves by larger rivals to introduce or raise fees in the near future.

'We are not in a rush to profit from Paipai because even if it is not making money directly, it increases traffic and user stickiness which will benefit our other QQ services,' a Tencent executive said.

Meanwhile, Mr Sun plans to expand Taobao by tapping the business-to-consumer market, offering services similar to Amazon in the United States or Dangdang, the mainland's largest online retailer.

Further ahead, the overseas market also offers a way around the no-fee gridlock on the auction site.

'We have started a sector specifically for products sold from Hong Kong. We plan to start one for Taiwan.  Europe and America could be the next,' Mr Sun said.



Taobao looks beyond fees for growth