"Virtual" Department Stores--Cash in on Real Opportunities

After Taipei's springtime information industry fair was cancelled as a result of SARS, for a while companies in that field were wringing their hands. But some firms had thought to themselves very early on: Why not have the computer fair online and on TV, so that consumers can check out and order the latest in mobile phones, computers, and other information products at any time, day or night?

And wouldn't you know it, not only computer hawkers, but Internet sellers of all kinds racked up some pretty impressive sales figures during the SARS scare.

"When SARS struck, brick-and-mortar stores immediately experienced a dramatic drop in visitors. A lot of firms had already considered the possibility of going into e-commerce, and the epidemic added impetus to that inclination," says Charlene Hung, the director of e-commerce business services at Yahoo Taiwan. Companies like B&Q and the information products retail chain 3C began to assign staff to aggressively develop this market. At the end of last year, only about 100 companies were using the Yahoo Internet platform for virtual stores, but this figure has since increased to 200.

Vincent Hsieh, the chief operations officer (COO) at PC Home Online, which crossed over into online marketing three years ago, says that SARS definitely boosted Internet sales of things like surgical masks, thermometers, disinfectant, and air purifiers. But he also suggests that the Internet succeeds mainly because of its special characteristics-speed and suitability for new and unusual products. Therefore he thinks that online selling is attractive enough in itself that it will not experience any sharp falloff now that the epidemic is over.

New technology, new look

The idea of virtual stores is by no means new to Taiwan. There have long been radio stations-especially those that have a clearly defined regional identity and announcers with that down-home accent-which, after broadcasting a few popular songs, start in on sales pitches in fluent, authentic Taiwanese. These shows are especially attractive to elderly listeners in rural areas. Obscuring the line between advertising and programming, they mainly sell traditional medicine and tonic foods. But they have been constantly embroiled in controversy because many people complain that the products they receive are far different from what they were led to believe by the programs, or even turn out to be quack remedies unapproved by the health authorities.

Home shopping TV channels briefly boomed in the early 1990s, when the market for cable television was liberalized in Taiwan. There were so many stations but so few programs that many system operators provided channels free of charge to companies to sell their products. But, as things turned out, the resulting programs ended up being targeted mainly at homemakers, using tacky sales pitches to push things like weight-loss schemes, beauty products, or "amazing" home appliances. What's more, they were crudely produced, and uneven quality led to many disputes. The marketing possibilities of televised shopping thus faded quickly.

As technology has advanced, virtual shopping has come back with a new and more professional look. Besides a new face for home shopping channels, the Internet is even more important in providing commercial opportunities in the field. Recently a number of large Internet companies-including Yahoo/Kimo, PC Home Online, Yam, and eBay-have all jumped into the market to get a share of Taiwan's Internet shopping pie.

Mr. Tang lights a fire

This June, an advertisement about a certain Mr. Tang who broke his wife's favorite vase and went searching for a new one online was quite a hit with television viewers. It also marked the beginning of an all-out war for leadership in Internet auction sites between Yahoo and eBay.

Generally speaking, the most common models for e-commerce are "business-to-consumer" (B2C) and "consumer-to-consumer" (C2C). For businesses, the Web is another channel by which they can come into contact with consumers. But it has been the C2C trading mechanism, rather than B2C, that has been the most dynamic in the development of Internet shopping. After all, everybody has some old objects they would like to clear out of the house, and it's also quite fun to sell something and have the pleasure of being the boss of your own virtual shop.

In 1995, the US company eBay created the first consumer-to-consumer virtual secondhand sales platform. In just six months it was successful enough to begin charging fees, and produced an 80% gross profit margin. This encouraged major Internet players like Amazon, Lycos, and Yahoo to follow suit. Last February, eBay acquired two auction sites in Taiwan-uBid and CoolBid (both formerly part of the NeoCom Technology Company)-thereby officially entering Taiwan's online auction market.

Yahoo is eBay's main rival in Taiwan. In early 2001 Yahoo merged with Kimo to become Taiwan's largest Internet portal, and then in September of that year launched an auction site. Business on the site began to take off in the fourth quarter of last year. The number of items for sale has risen from 740,000 to over two million (as of July, 2003). Last year total trade was valued at NT$2 billion; it hit NT$900 million in June of 2003 alone (which itself was a 12% jump over May) and could reach NT$10 billion for this year.

Yahoo's Charlene Hung plugs their site by saying that it offers extensive functions, making it quite popular among Net users. For example, it is possible to surf through full-page pictures, and interested parties can ask questions and receive immediate answers, so that sellers can respond in detail to the concerns of buyers. There's also an automatic bidding system; users can set a maximum bid, and the system will continue to increase his or her bid from the starting point to top other bidders up to the maximum level.

8 million and counting

Although part of the reason for the rising visibility of Internet auction sites is the TV advertising campaigns produced by the two main competitors in the field, the underlying factor in the rapid growth of Internet trading has been the increase in the number of Internet users in Taiwan.

This has been especially noteworthy since the former state-run telephone company became Chung Hwa Telecom and began operating as a private enterprise, driving competition in the broadband Internet access market. This market has become very competitive, with operators offering special deals and unlimited access, thereby greatly contributing to the increase in e-commerce activity. According to a survey by the Institute for Information Industry, the online population in Taiwan surpassed 8.5 million this year, including 2 million broadband users.

"Broadband is fast, which is really a big help to e-commerce," says Charlene Hung. But that is not the only reason for the growth of e-shopping. The economy is in a slump, and the Internet has drawn out sellers who want to start their own businesses and buyers looking for cheap deals. Internet selling, even (or perhaps especially) on a small scale, also satisfies the cultural inclination of Taiwanese to run their own business. And on top of this has been the public attention generated by eBay's arrival and the subsequent advertising war, which has been of benefit not only to eBay but also to Yahoo, because the auction market pie is much bigger as a result.

In contrast to the US and Europe, where the Internet auction market is already mature, Net users in Taiwan enjoy the advantage that the two main auction sites are free. In fact, eBay Taiwan is the only one of that company's 27 country sites that doesn't charge a fee (in most cases fees are charged to sellers). In fact, eBay even offers incentives such as NT$50 to the seller for every item sold, and prize drawings.

eBay was a relative latecomer to Taiwan. They discovered upon arrival that they were not as well known as they hoped, and that name recognition was concentrated among white-collar workers who had been online for many years. Therefore, eBay launched intensive TV advertising as well as various promotional activities in order to attract new members. To understand the needs of Taiwanese Net users, they have closely followed surfing habits, and have revamped their site six or seven times already, adding new functions specially designed for Taiwanese users (such as increased speed, Q&A, and "hot keywords").

Jeffrey Noles, managing director at eBay Taiwan, says that eBay is an internationalized platform, with the advantage of allowing users to access 27 affiliated websites worldwide to trade with 75 million users. The advertising campaign launched in June, featuring Mr. Tang and the broken vase, was aimed at communicating the fun you can have searching for particular objects online.

"Buying by auction is really exciting. After I bid, when I see others counterbid, I get this rush that I just have to beat them," says Noles, who is an avid hiker and sportsman. He recounts that he has successfully auctioned off a mountaineering backpack he used to use, a portable MP3 player, and a wrist watch that doubles as a heart monitor while one is working out.

There are already 170,000 items available on Taiwan eBay. Although this is far behind Yahoo, in the wake of the Mr. Tang ad campaign, the number of members has increased by a factor of 10 and the number of products has doubled.

Women make it happen

Looking back to the founding of eBay in the US in 1995, the purpose was to bring together people with similar interests, match up folks who had stuff they wanted to sell with those who wanted to buy it, and improve "product flow."

eBay was founded by Pierre Omidyar, a computer engineer. It all began when his then-fiancee (now his wife), a collector of Pez candy dispensers, mentioned to him how great it would be if she could improve her collection and also find like-minded people with whom to trade and exchange ideas online. Omidyar created an auction website, little expecting that it would shortly become the largest auction website on earth.

There is a long tradition of secondhand markets in the US and Europe, so most people find the idea of buying secondhand goods perfectly acceptable. This is why the largest number of products sold on eBay in the US are second-hand collectibles, like vinyl LPs, old guitars, antiques, and jewelry.

In Taiwan, on the other hand, while auction websites have proven to be as popular as elsewhere, there are local twists in the kinds of products favored. The biggest factor is that whereas men account for 53% of Taiwan's Web users, women (especially twenty- and thirty-somethings) are the driving force behind e-commerce.

You can see the critical role played by women by looking at the hierarchy of products for sale. At the Yahoo auction site for example, where there are currently more than two million items in 14 major categories, the category with the most items is "women's fashions and accessories" (about 520,000 items). This is well ahead of the second ranked category, books and magazines (about 200,000). Although there are fewer women online than men, they have achieved the astonishing record of-in the words of a Yahoo press release-"completing a deal for clothing every 30 seconds, for a handbag every minute, and for a pair of women's shoes every three minutes."

PC Home Online's Vincent Hsieh suggests several reasons why women's fashions and accessories are so popular. One is of course price: Only the wealthiest people can afford to regularly buy brand-new handbags in designer shops, but those less well-off can get them much cheaper online (especially if they are secondhand). Also important is the anonymity of online purchasing. On the one hand, many women don't like to be seen purchasing an item in a secondhand store. In addition, sales people in highbrow boutiques selling only new items can be dismissive of customers who look like they don't belong there, especially younger customers. Online, women can shop without worrying about getting a disdainful look if they find most items too expensive. The result is that online shopping breaks the monopoly of the highbrow shops and gives ordinary women greater access to the designer products that almost all women like.

Going beyond clothing, Taiwan's auction websites also sell lots of curios-things like stamps, writing implements, crystal, and small objets d'art. There are 97,000 such items at Yahoo's site.

eBay's Noles explains the popularity of such items by reminding us that in Asia most people have only limited living space, so it is not possible for them to collect things like furniture or large art works. But collecting is part of human nature, and small antiques and collectibles are just as interesting to many people. There is thus a large potential market for curios in the countries of East Asia, with their ancient cultures and histories. For example, last year an antique dealer from Hong Kong used Taiwan eBay to put a collection of coins from the 10th year of the Guangxu reign period of the Qing Dynasty up for sale; an overseas Chinese living in New York paid NT$1 million for the set.

Everything and anything

Things far more curious than curios can also be marketed online, of course. Recently the US eBay site helped a charitable organization put up items for auction, one of which was a lunch with the 72-year-old investment guru Warren Buffett. The bidding started at US$500, but by the time it ended had reached US$25,000. That might have your tongue hanging out, but eBay points out that the record for a sale of a "close contact of the third kind" with a famous person is actually much higher. For the privilege of meeting golfing legend Tiger Woods, someone paid US$420,000!

While the Internet auction business in Taiwan has yet to reach the stage of selling meetings with stars, it still definitely reflects the "anything goes" nature of the Net.

A lot of young people have been drawn toward Web trading since the Mr. Tang ad hit the airwaves, sometimes with comic results. Recently a parent unable to find his spare mobile phone was told by his junior-high-school-aged son: "Sorry Pop, but I already sold it over the Internet!"

So dazzling is the array of products online, in fact, that it can make ordinarily normal people do strange things. "A lot of people say they shop online for rational reasons, like the ease of surfing and comparing prices. But when I see all that stuff, what I most feel is an irrational impulse to consume!" says photographer Miss Wang, who got hooked as a result of her fondness for Swatch watches. Once she saw an older model online which carries a market price of NT$4000, and came away delighted when, after ferocious bidding, she got it for NT$1700. She has since discovered that the Internet has anything and everything, and now she even goes online herself to sell old clothing and household items (though unfortunately the amount she makes is still far less than the amount she spends!).

Make it cheap

From the "rational actor" point of view, the main attraction of online shopping is the lower cost. Virtual selling can offer lower prices but remain profitable because it does not require intermediate wholesalers and retailers, but can directly link consumers with suppliers.

Vincent Hsieh of PC Home Online, which focuses on "business-to-consumer" sales, points out that brick-and-mortar sellers need storage space, shelves, forklifts, parking lots, and so on, so costs are high. Virtual stores not only can dispense with the physical plant, but can get products to the attention of consumers faster-as soon as a new product comes out it can go online.

Hsieh says that since cyberspace is limitless, you can use as many images and as much text as you need to introduce your product. For example, nanocosmetics dealers can explain what "nano" means in this context, how these products physically penetrate the skin, and how they work therapeutically. Such detailed explanations can boost the value and attractiveness of a product.

Another example is PC Home Online's digital camera page, where you can surf past virtually any and all related products. The site itself heavily promotes the most competitive products, and it now accounts for about one in every ten digital cameras sold in Taiwan.

Credibility is the best guarantee

Yet, however fast and convenient Web trading can be, it is liable to the same sorts of problems that have hampered hawking on radio programs. Two problems most vex users: One is never receiving delivery of what one has already ordered and paid for. The second is credit card security.

In a case of the first type, in May, a number of university women brought a complaint to the prosecutor's office about a possible scam online-they had paid for name-brand cosmetics selling at half price, and had already sent in their cash, but had yet to receive any goods.

In response to these concerns, last year Yahoo came out with a system to verify people's identities and their correct email addresses and mobile phone contact numbers. It has also come up with a mutual evaluation system for buyers and sellers in order to build mutual trust. A seller gets one point for each successfully delivered sale; several sellers have already been honored with membership in the "Thousand Sale Club."

Yahoo also came out with a credit card verification system in July. New members who want to engage in an online trade must first pass a credit card verification process. When the credit information of a user is verified, the system will immediately display a picture of a credit card next to the individual account number.

eBay Taiwan has a "fraud protection program" in place. If a user does not receive his or her product after paying, he or she can file an appeal. After an investigative team verifies the complaint, the individual can receive compensation of up to NT$7000. But there are conditions-the individual must file in the period from 30 to 60 days after the conclusion of the auction, and the amount paid must be in excess of NT$875.

PC Home's Hsieh says that when users fill in their credit card number on an order form, the number is sent over a secure connection, so it is very safe. Given a choice between online credit card use, transferring funds electronically from their bank accounts, or paying at cooperating convenience stores, 75% of PC Home Online's users prefer the first option. A large number of people who do online trading believe that the risks associated with credit card use are so small that it beats the inconvenience of alternative forms of payment.

Hitting the turnaround

According to the Institute for Information Industry, Taiwan's e-commerce market has doubled since 1998, with total value for 2003 expected to reach NT$200 billion (about US$6 billion), which suggests that consumers feel increasing confidence in online shopping. Last year, one out of every five people who went online bought something over the Internet.

Three years ago, a lot of dot.com companies vaporized when the e-commerce bubble burst. But having survived the shakeout, companies like Amazon, Yahoo, and eBay are now thriving, and are showing considerable ambition to cultivate the online market in Taiwan. E-commerce was once the focus of excessive expectations, but with the bursting of that bubble the irrationality of the past is just that-a thing of the past. What's left are those services that genuinely meet consumers' needs. It is of course impossible to judge whether online trading will rewrite shopping history in Taiwan, but we can say with confidence that online trading is this time setting down firmer roots by more accurately reflecting how "real" society functions as a whole.