JD Relaunches Paipai, Eyes Taobao

Paipai relaunches with eye on Taobao

Nearly 2 months after its listing in New York, e-commerce giant JD.com (Nasdaq: JD) is trying to keep up its positive momentum with announcement of a relaunch for Paipai.com, the C2C service it acquired as part of its Tencent (HKEx: 700) tie-up earlier this year. While the announcement contains a bit of detail about JD’s plans, it makes no mention of the main target of this new campaign, which is Alibaba’s industry-dominating Taobao service. That said, I’m hopeful we could see Paiapi shake up the stagnant C2C space, much the way that Alibaba did nearly a decade ago when Taobao challenged and eventually defeated then-leader eBay (Nasdaq: EBAY).

I’ll return to the history lesson shortly, but first let’s look at JD’s latest announcement of its formal relaunch for Paipai, which was set up by Tencent (HKEx: 700) in 2006 but never became a major player in the C2C space where consumers sell products to each other. JD says it hopes to leverage its e-commerce expertise to breathe new life into Paipai, which it acquired earlier this year as part of a broader equity tie-up with Tencent. (company announcement)

One big advantage JD will bring is its logistics network, which will help Paipai’s sellers deliver their goods more quickly, even on the same day in some cases. JD will also use its expertise to improve algorithms on Paipai’s search engine — an important move since such engines are the main way for buyers and sellers to connect on C2C services that are typically crowded with thousands and even millions of small buyers.

JD can also use its marketing savvy to help promote Paipai more strongly, bringing awareness of the brand to both buyers and sellers. Lastly, Paipai is also almost certain to find a prominent place on Tencent’s wildly popular WeChat mobile messaging service, which is already rolling out a new channel for JD’s core B2C e-commerce services.

For all its successes, Tencent really was never very strong in any of the areas where JD excels. Its Soso search engine never did very well despite huge investment by the company, and Paipai and Tencent’s Yixun B2C e-commerce service also never got very far. Tencent also never had to develop a logistics network, since nearly of its products were virtual ones like games and virtual accessories for users of its popular social networking platforms.

In an interesting hint of things to come, JD says the new Paipai will help sellers to significantly lower their marketing costs. It doesn’t provide any specifics, but I suspect JD may significantly lower or even eliminate many of the fees that such sellers now pay to encourage them to try the service. Chinese Internet historians will recall that Alibaba used a similar tactic with Taobao when it challenged eBay around a decade ago, offering all of Taobao’s basic services for free.

EBay’s then-chairman Meg Whitman responded by famously saying that “Free is not a business model.” Of course we all know who got the last laugh in that instance. EBay is currently a so-so Internet company with a market value of $65 billion struggling to grow beyond its core C2C services. Alibaba, meanwhile, is worth more than twice that amount as it prepares for a blockbuster listing that could be the biggest technology IPO of all time.

As for whether Paipai can pose a serious challenge to Taobao, of course we’ll have to wait and see how consumers react and how Alibaba responds to the challenge. But I’m quite confident we’ll see some fireworks in this building battle, and wouldn’t be surprised to see Paipai take up to a quarter of the market over the next 2 years.

Bottom line: JD.com is likely to offer many services for free and add other major improvements as part of a Paipai relaunch, posing a serious challenge to Alibaba’s Taobao.

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