
As a college senior, Yang Fugang spent most of his days away from campus this year, managing an online store that sold cosmetics, shampoo and other goods he often bought from local factories.
Today, that store on Taobao.com — the fast-growing Chinese online shopping bazaar — has 14 employees, two warehouses and piles of cash.
“I never thought I could do this well,” said Mr. Yang, 23, who earned $75,000 last year. “I started out selling yoga mats and now I’m selling a lot of makeup and cosmetics. The profit margins are higher.”
Taobao fever has swept the school Mr. Yang attends, Yiwu Industrial and Commercial College, where administrators say that a quarter of the 8,800 students enrolled operate Taobao shops, often from dormitory rooms.
And across China, millions of other ordinary people — recent college graduates, shopkeepers and retirees — are also using Taobao to sell clothes, mobile phones, toys and just about anything else they can find at neighborhood stores and wholesale markets or even smuggle out of factories.
Analysts say this booming marketplace — reminiscent of the early days of eBay, when Americans started emptying their attics for online auctions — has turned Taobao into China’s newest Internet darling.
Though just six years old, Taobao — which means “to search for treasure” in Chinese — already has 120 million registered users and 300 million product listings, and generated nearly $15 billion in sales last year.
The company says that sales through its Web site are already larger than those of any Chinese retailer. And this year, analysts say, its online sales will double, surpassing the expected $19 billion in sales by Amazon.com.
“This is the next big segment for China’s Internet,” said Jason Brueschke, an Internet analyst at Citigroup. “It’s their Amazon and eBay combined.”
Like eBay, Taobao does not sell anything itself; it simply matches buyers and sellers. But Taobao has a firm foothold in China because many parts of the country still have poor transportation and some local governments favor their own government-owned outlets, making retailing inefficient. The global recession also has once-booming factories overflowing with goods the rest of the world does not seem to want.
The so-called Taobao addicts pick up the slack in a sluggish economy. “I can’t live without Taobao,” said Zhang Kangni, a graduate student in Shanghai. “First, it’s cheaper. I found a dress at a store in Shanghai. It’s a Hong Kong brand that sells for $175. I found it on Taobao for $33.”
But skeptics ask: Can Taobao actually earn money and emerge as a true Web powerhouse?
The company, which is not publicly traded, does not disclose any financial information, but Taobao listings are free and the company earns no income from online transactions. Almost all of Taobao’s revenue comes from advertising, which analysts say now covers about $200 million a year in operating costs.
The company has been criticized, however, for contributing to a flourishing trade in counterfeit goods. Taobao brushes aside such questions, saying it has a new program that is effectively cracking down on counterfeits.
Company executives also say that Taobao is poised to earn a huge profit but that their first priority is to create an online community. “Our vision for Taobao is to build a consumer’s paradise, where people can shop online and have fun,” Jonathan Lu, the Taobao president, said. “If you make the company better and better, profits will naturally follow.”
His confidence in Taobao’s future comes from the company’s lineage. It is a division of Alibaba Group, which was founded by Jack Ma, who during the past decade created an Internet conglomerate with strong financial backing from Yahoo, Goldman Sachs and Softbank Group, of Japan. Yahoo now owns about 40 percent of Alibaba.
Alibaba.com — the conglomerate’s flagship Web site — connects small businesses from around the world with Chinese exporters. Need 1,000 kilograms of lead nitrate? Click here. Taobao does something similar, for consumers who want to sell to other consumers.
When Taobao was founded in 2003, it looked as if it did not have a chance. EBay and its Chinese partner, EachNet, controlled 90 percent of the Chinese online shopping market. But Mr. Ma, a former English teacher, quickly undermined eBay’s fee-based service by offering free listings on Taobao, essentially giving free ads to anyone who wanted to sell. At the time, eBay executives ridiculed the strategy, saying, “Free is not a business model.”
But almost immediately, the site took off, and in 2006, eBay pulled out of China, citing dwindling market share and huge losses. Today, it is Taobao that commands 80 percent of the Chinese e-commerce market, according to iResearch.
“Frankly speaking, Taobao is dominant,” said Richard Ji, an Internet analyst based in Hong Kong at Morgan Stanley. “They’re like an online Wal-Mart.”
Taobao has thrived, analysts say, because people need little capital to start their own online stores. This year, Taobao says its site could create about half a million new jobs, mostly young people opening new stores.
Bao Yifen, a 23-year-old who recently graduated from college, opened her own Taobao shop selling clothing with a $5,000 investment in 2007. Today, it sells about $4,000 worth of clothing every month.
“Three times a week I go to the wholesale market,” Ms. Bao said. “It’s a huge market. About 70 to 80 percent of the stuff is factory leftovers. There are even some brands, but they just cut the labels off.”
Taobao also sells items smuggled into China from Hong Kong, Europe or the United States, evading high import duties and enabling sellers to profit from the huge price differences. An Apple MacBook Air that sells for $2,225 in Beijing, for instance, costs just $1,508 in Hong Kong, a difference of 33 percent.
Counterfeit goods are also ubiquitous on Taobao, even though the company claims to have removed two million product listings because of suspicions that they were fraudulent.
Nevertheless, many Taobao sellers openly acknowledge dealing in illegal goods. “I work in an O.E.M. factory that produces laptops and electronic devices for Sony,” said a seller who called himself Mr. Feng, referring to an original equipment manufacturer, which produces for global companies. “We have Sony’s core technology and exactly the same raw materials and components, so we set up our own store selling netbooks and laptops on Taobao.”
A Sony spokesman in China, Takashi Uehara, said the company had no comment but was looking into the matter.
Here in Yiwu, which claims to be the site of the world’s biggest wholesale market, Taobao has started to change the look of the university.
The school’s vice dean, Jia Shaohua, pointed out an area designated as a start-up city for students wanting to get rich. He indicated students taking orders from computers, packaging, sorting inventory and taking photos of the items for display online, then added, “Around the school now, there is a whole Taobao industrial chain.”
Every afternoon, even this summer, when the school should be relatively empty, one can hear the screeching sounds of tape being wrapped around boxes in a building that could pass for a U.P.S. shipping terminal. “The students don’t need a lot of money,” Mr. Jia said. “They just get orders and go find the items at local factories.”
One of them, Mr. Yang, has become a campus hero. He operates his own warehouses near the school, in the basements of a pair of residential buildings.
Standing in a crowded warehouse, near boxes of Neutrogena sunblock, hairpins, toothbrushes and a wide assortment of cosmetics, Mr. Yang said business could not be better.
“Soon, I’ll reach $150,000 a month in sales,” he said.