China's Online Market Flourishes

The New York Times ran a piece on the Taobao and the online market in China...here are some excerpts:

YIWU, CHINA — As a college senior, Yang Fugang spent most of his days away from campus this year, managing an online store that sold cosmetics, shampoo and other goods he often bought from local factories.

Today, that store on Taobao.com — the fast-growing Chinese online shopping bazaar — has 14 employees, two warehouses and piles of cash.

“I never thought I could do this well,” said Mr. Yang, 23, who earned $75,000 last year. “I started out selling yoga mats and now I’m selling a lot of makeup and cosmetics. The profit margins are higher.”Taobao fever has swept the school Mr. Yang attends, Yiwu Industrial and Commercial College, where administrators say that a quarter of the 8,800 students enrolled operate Taobao shops, often from dormitory rooms.

When Taobao was founded in 2003, it appeared to have no chance. EBay and its Chinese partner, EachNet, controlled 90 percent of China’s online shopping. But Mr. Ma, a former English teacher, quickly undermined eBay’s fee-based service by offering free listings on Taobao, essentially giving away ads to anyone who wanted to sell.

At the time, eBay executives ridiculed the strategy, with many repeating that “free is not a business model.”

But almost immediately, the site took off, and in 2006, eBay pulled out of China, citing dwindling market share and large losses. Today, it is Taobao that commands 80 percent of China’s e-commerce market, according to iResearch.