Alibaba, the Chinese e-commerce giant, released some numbers on e-commerce solutions market based on its own data from Taobao, Tmall and Alibaba B2B service, and the performance of the whole market. Alibaba concludes that the whole market in 2012 was 200 billion yuan ($32 billion) that supported 1.2 trillion yuan worth of B2C transactions and 8.4 trillion yuan worth of B2B transactions. The market on Taobao alone was 15.2 billion yuan, with an increase of 200%.
The number of solutions providers on Tmall and Taobao platforms increased from 600 one year ago to over 2800 in 2012. The tools offered increased from 1930 to 8000 year-on-year, according the data released.
Those services are divided into three categories in China, tech support, day-to-day operation, and logistics and inventory management. Operation service providers are mainly serving retailers while the other two also serve B2B businesses.
Operation service providers make revenues from a one-time fee plus commissions, 5% to 40% of total transactions. The tech support service takes the biggest share among the three, making revenues from selling CRM and interactive marketing software. The rising of B2C commerce, thanks to the establishment of Tmall and other B2C platforms, boosted sales of software as business sellers need to take care of much larger numbers of deals. Since e-commerce operation, logistics and inventory management are pretty much about labor, it is expected that there is big room for tech services.
Most e-commerce solution services didn’t do well until 2012. It is estimated existing services generally can make a 10% margin. It is reported that there are about forty to fifty services that each delivered transactions worth of over 100 million yuan in 2012, so each of them could make at least 10 million yuan in profit. Baozun, one of the biggest solutions providers, made a total of two billion yuan in transactions for its clients in 2012.
95% operation service providers have no more than ten clients, with transactions up to 300 million yuan in 2012 and most being profitable; those who have more than ten clients each and can generate transactions between 300 million to one billion yuan don’t have a easier life as controlling costs becomes hard, according to a Baozun executive.
The problems with existing solution services include, firstly, employee retention – brands who want to build an e-commerce division would hunt talent from them or big e-commerce platforms that need specialists; secondly, funding is lacking. Some received investments in 2010 or early 2011 when e-commerce was such a hot topic in China.
Alibaba Group itself invested in several solution servicess, including Baozun, ShopEx, and IRLZ. They, having Alibaba executives sitting on their boards, can get more customers or orders as Tmall would recommend them to newcoming retailers or work more closely with Alibaba’s platforms. But, at the same time, they’d lose some businesses as they are required not to work on Tencent’s e-commerce platform which is seen as a threatening competitor.