March 28, 2013, 3:45 PM

GROWING PAINS

(Page 3 of 3)

That's just one of many peculiarities of China that Western retailers will have to understand if they are to be successful in what will soon be the world's largest e-commerce market.

don@verticalwebmedia.com

@dondavisIR

Alibaba: China's e-commerce goliath

While Amazon.com Inc. accounts for roughly 30% of U.S. online retail sales, Alibaba Group Holdings Ltd. commands about 80% of China's e-commerce market.

Jack Ma, a former English teacher, founded Alibaba with 17 associates in 1999, aiming to use the Internet to assist Chinese entrepreneurs. In 2003, they launched the online marketplace Taobao, which attracted millions of sellers by charging them no listing or commission fees. Today, Alibaba says 6.6 million merchants sell on Taobao and there are 500 million registered shoppers.

Aiming to attract bigger brands to a less bazaar-like site, Alibaba in 2008 launched Taobao Mall, later renamed Tmall, which today hosts 50,000 storefronts representing 70,000 brands. Unlike on Taobao, brands pay Tmall an annual fee of $5,000 to $10,000 and a commission of 1% to 5%.

Alibaba created several other web-related businesses. Among them is Alipay, a PayPal-like service that claims 800 million registered accounts and some $350 billion in 2012 transactions, including payments of utility bills and peer-to-peer transfers. Another is Alibaba.com, a web portal that some 29.4 million users, including many Western web retailers, use to source goods from 2.5 million suppliers, many of them Chinese factories.

Alibaba has had its missteps. In early 2011 the company disclosed that 100 of its employees had helped 2,300 Alibaba.com suppliers commit fraud. Alibaba fired the employees and by February 2011 had paid out nearly $2 million to defrauded buyers from its Fair Play Fund, created in December 2009 to compensate buyers in case of fraud. Also in 2011, the U.S. government added Alibaba to a list of "notorious markets" where pirated and counterfeit goods are freely sold. Alibaba, which says it took 63 million dodgy items off its marketplaces in 2011 and employs 200 people to prevent trademark violations, was removed from the list in December 2012.

Alibaba also made news last year when it raised $7.6 billion to buy back about half of the 40% interest in Alibaba held by Yahoo Inc., in a deal that valued Alibaba at roughly $40 billion. Alibaba is widely expected to go public in 2013 or 2014.

Meanwhile, Ma, now said to be worth $3.4 billion and China's 11th-richest billionaire according to Forbes magazine, announced in January plans to resign as CEO. "At 48 I am no longer young for the Internet business," Ma wrote in an e-mail to the company's 24,000 employees. He will remain as executive chairman.

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