Baidu and Rakuten Launch Online Shopping Mall in China

In another push to secure a spot in China's e-commerce market, Chinese search engine giant Baidu has launched a new online shopping mall in the country with Japanese Internet company Rakuten.

Launched on Tuesday, the online shopping mall is called Lekutian and means "Happy Cool Day." Still in its beta version, the site will sell to everyday Chinese consumers as well as small and medium-size businesses.

"We have high expectations for this joint venture," said Shen Haoyu, Baidu senior vice president of operations at the China 2.0 conference hosted by Stanford University on Tuesday.

But the launch of the new shopping mall will compete in a Chinese market already dominated by e-commerce giant Alibaba Group. Taobao.com, which is part of Alibaba Group, is the country's largest online retailer with a 75 percent market share, according to Beijing research firm Analysys International.

Both Baidu and Alibaba work in different Internet businesses. But the companies share a core group of users: people who like to shop online. While Chinese users frequent Alibaba's sites to browse for products online, they will also use Baidu to conduct searches on products.

Baidu has already entered in China's e-commerce market before, by launching its own shopping website with Youa in 2008. However, the site only holds 0.11 percent of the online retail market, even as Baidu controls 70 percent of the search market.

Alibaba Group has also started to enter into Baidu's territory. Earlier this month, Alibaba's Taobao.com launched a beta version of a shopping search website called Etao that analysts say will compete with Baidu's search engine.

China's online shopping market is expected to reach US$61 billion at the end of this year, according to forecasts from consulting group iResearch. Next year it's expected to grow by 44 percent, then 34 percent the year after.

Baidu's current effort at e-commerce was announced back in January as part of a three-year deal to jointly develop the online shopping mall with Rakuten. The companies have invested $50 million to build the e-commerce site. Rakuten owns 51 percent of the venture, with Baidu owning the remainder.

The Lekutian platform may stand a better chance of succeeding in China, since Baidu will be able to draw on Rakuten's success in the e-commerce market in Japan, said Chen Shousong, an analyst with Analysys International.

Rakuten is one Japan's largest online retailers and has been moving to expand abroad. In July, the Japanese company acquired American e-commerce site Buy.com and French e-commerce site PriceMinister.

Lekutian will also operate on a "business to business to consumer" model, where businesses can not only sell to consumers on the site, but they can also source their products from suppliers. Alibaba Group has also taken the same approach to its e-commerce operations.

For e-commerce, the business to business to consumer model has yet to take off in China, Chen said. "Lekutian still has the potential in this market," he added. "Lekutian can compete, but it will still have a long road ahead."

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