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Rakuten, Japanese largest ecommerce company, admitted its defeat in the competition with Chinese local online retailer Taobao and 360Buy in China. It closed its B2C website Rakuten China, which was co-founded with Chinese search engine Baidu, on April 27.
“There are too many online retailers in China and everyone wants to be the winner. The competition is very furious,” Rakuten’s CEO Hiroshi Mikitani said.
According to Mikitani, Rakuten never ex- pected such furious competition when it got into the Chinese market two years ago. Now the status quo is completely divorced from the expectation as investors need to think about investment returns. “We chose to quit now for the good of our investors, our partner Baidu and ourselves.”
Baidu, which is one of the stakeholders of Rakuten China, said that closing Rakuten China was the decision made by the directorate of Rakuten. At present, Baidu is negotiating with Rakuten on the following dealing methods.
Unavailable Help from Traffic Volume
“General search and vertical search are two different concepts and the volume of traffic is not the same with the sales,” said an analyst pointing out the reason of Rakuten in China.“If the traffic volume of a search engine is the only thing to improve the sales, it is impossible for any online retailer to get profits in a short time without good promotion measures, marketoriented spread, client accumulation and external cooperation and operation.”
In October 2010, Japan-based Rakuten and Baidu launched their joint-venture online shopping mall Rakuten China. Each party contributed 50 million U.S. dollars. Baidu took 51% of the joint venture’s stake while the Japanese company took 49%.
The products sold by Rakuten China ranged from apparels, ornaments, furniture, household appliance, digital products, maternal and baby products, cosmetics, books, videos, jewelry, auto components and so on. Rakuten was responsible for running this website while Baidu’s main responsibility lies in its access and traffic volume.
During the initial period of promoting this platform, Rakuten China fully enjoys the convenience of working with Baidu. Baidu’s egistered users could log into Rakuten China with their Baidu accounts. In addition, Baidu also assisted Rakuten in bidding rank, ads alliance, ads presentation, web navigation and so on.
But much to Mikitani’s confusion, Rakuten China had never had good performance since it was launched.
According to the consulting company Yiguan International’s data, the total trade volume of B2C in China reached 240.07 billion yuan in 2011, up 130.8% year one year. Among all online retailers, Tmall under IT tycoon Jack Ma’s Alibaba accounted for 40% of the market. 360Buy’s market share was 14.7%. In comparison, Rakuten China only took less than 0.1% of the B2C market in China. Alexa’s data revealed that the Rakuten China saw its rank with traffic volume drop by nearly ten thousand positions in the first three months of 2012.
Tong Yang, marketing director of Auge Communications, said that operating B2C business is different from running search engines. Whether it is search engine service provider engaged in ecommerce, or ecommerce dealer starting the business of search engine, a new online service pattern is launched, which combines the“search” and the “shopping”. Baidu’s engagement in ecommerce is not the same thing with Alibaba’s involvement in search engine since general search and vertical search are two different things.
Another market viewpoint reveals that the last straw for Rakuten’s survival in China is the withdrawal of Baidu. The Japanese executives held too much authority and extended the management chain too long, leading to the limited prospect of Rakuten’s localization in China. From the beginning of last year, the two companies had a worsening relation. Rakuten began to run Rakuten China alone and the new version of the website no longer mark its connection with Baidu. Its title also changed from “Baidu Rakuten” to “Rakuten Mall”. And Baifubao, the payment tool launched by Baidu, was removed from the list of usable payment methods.
A retailer who once stationed in Rakuten said that recently it was hard to gain the support of traffic volume from Rakuten. That almost signified the end of Rakuten’s chance to develop in China.
Rakuten’s spokesman said that though the website had been closed, the joint venture it found with Baidu still existed and the shareholding structure would remain unchanged.
Incomplete Localization
Gong Wenxiang, a senior expert in ecommerce, held a negative opinion on Rakuten’s development in China. Usually foreign online retailers would encounter setbacks in China. Rakuten failed to make good use of its cooperation with Baidu.
“On one hand, they do not know about China’s ecommerce market, as well as the users’ habits and the variation with regions. For example, netizens in Hubei are different from netizens in Beijing. In addition, there are millions of online dealers in China and each has their own features. Small dealers, wholesalers and brand dealers have different kinds of demands, which are beyond the understanding of Japanese. In this light Rakuten cannot satisfy consumers and users, which is the base for an online retailer’s success.”
But Mikitani believes that Rakuten’s stagnant business is not attributed to incomplete localization but to the furious competition.
“The website began to work in October 2010. From then on the business pattern was gradually optimized. We bring the experiences of Japanese ecommerce dealers and try our best to go through the localization,” Mikitani said to the public. In his opinion, Rakuten China’s webpage structure, payment method and service are localized or at least partially localized.
However, a user of Rakuten China thinks that Rakuten’s localization is not enough. “The UI interface of Rakuten falls short of the habit of Chinese. For example, there are quite a few appealing points in the front page. The pictures used in the interface are so small that they could not reveal the details of products. In addition, the search function does not work well since cradles are shown even though the keyword is the pillow for the pregnant.”
“They do not show too much enthusiasm so they can neither excite the old clients nor attract new ones. Most of the online stores are dull and boring without any appeals. The EEC specialists, which were previously used to recruit more dealers, even showed their admiration for Taobao in front of dealers, revealing the disappointment of Rakuten China,” said a dealer who claimed having devoted his full energy to developing his store in Rakuten. According to him, Rakuten has no special agents to help the dealers, who cannot find troubleshooters when problems come to them. Even though Rakuten China shares a similar business pattern with Taobao, it has no online customer service platform like Taobao.
Despite the failure and defects, Rakuten said that closing the website did not mean to completely withdraw from the Chinese market. “We do not mean to give up this market. Rakuten still has two travel agencies and a development company in China, which are enjoying good conditions in China. We are likely to enter the ecommerce field in another method but right now we have no detailed schedule and plan,” Mikitani said.