Jacob Cooke: What Alibaba has done is take that a step further and acted as the mediator between the transactions. Owner Jack Ma is one of the richest and most trusted people in the country, just the way Steve Jobs or Bill Gates are perceived in the West. What he’s done is add a level of guarantee. To be in the Tmall platform, for example, you have to accept the fact that anybody can return any product within seven days with no questions asked or in thirty days if there is a product defect. Consumers in China had no real worries about losing their credit card information or getting ripped off. They know it’s very safe.
There’s not a culture of return in retail here. Pretty much, once something is bought from a store, it’s not going back. That means that it’s even safer for people to buy online. People can buy clothing items and try them. If they don’t like them, they can send them back. If the product is defective, they have up to 30 days to return it.
What we’re doing is take that to a higher level. We’ve added a lifetime warranty for one of our clients for some DRAM products and a five-year warranty for SSD. That’s the kind of thing that consumers are looking for and that’s why you’re seeing incredible growth numbers on what’s already a 12-figure industry.
Sramana Mitra: What is the scope of the e-commerce transactions outside of these major platforms like Alibaba and Tmall? Is there also a fragmented, individual site kind of e-commerce industry that exists in the US?
Jacob Cooke: Here’s the latest statistics that I have. I’ve heard recently that Tmall and Taobao account for roughly 70% of all transactions conducted online. They have another competitor that does really well in the space. They’re called Jing Dong or JD.com. They do 18% of the overall transactions. Then there’re some other specialty stores as well.
Yihaodian, which is partly owned by Walmart, is trying to work on consumables. Between those big three – Yihaodian, JD.com, and Tmall – they’re got probably about 83%. There’s a little bit of fragmentation after that but as you can see, it’s really dominated by the big players.
Sramana Mitra: Alibaba almost has a monopoly and little bits in other large companies. Then there’s a slight amount of small company presence. It’s very different from the US landscape, which has easily over half a million stores.
Jacob Cooke: You’re right. We’re often helping clients make that decision between standalone e-commerce systems or going to Tmall. When we do this analysis, it very rarely pays to do standalone websites. The branding and marketing money that you need to spend is much higher on a standalone e-commerce site. Not only do you have to bring awareness to your store as opposed to taking advantage of the traffic that’s already available, you also have to convince consumers that you’re trustworthy, your products are real, and that you’re going to honor your guarantee. That can get up into millions of dollars.
Some brands are very picky about how their brands are being presented. They don’t want to be on a portal. They understand that it’s going to take longer, but they think the effects of the brand presentation over the long run are what they’re looking for.