The Rise of Mobile Commerce

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By: Beata Cichocka

Nov. 11, once a minor holiday celebrating single life, has morphed into China’s version of Black Friday and an unofficial shopping holiday. Since 2009, Alibaba has intensively marketed the day as an excuse to splurge, contributing in no small part to the massive growth of e-commerce in China.  This year, following weeks of glamorous galas, technology roll-outs, and media hype in preparation for the event, Alibaba once again smashed records on 11/11 with sales reaching US $17.8 billion in 24 hours.

Comprising the world’s second largest ‘e-tail’ market, Chinese e-commerce is an engine of growth for the economy, particularly in less-developed areas of the country. Research indicates e-commerce is not simply a replacement channel for transactions that would have otherwise taken place offline; instead it provides a distinct set of services and opportunities that complement brick-and-mortar retail. Due to the complexity of store construction in such a vast and diverse country, e-commerce platforms, such as Taobao and Tmall, are particularly effective in spurring incremental consumption in rural areas. The rise of e-commerce has also led to a boom for third-party services, which provide sellers on these platforms with personalized site design as well as agile support with delivery, logistics, and technical support.

Data shows just how quickly the industry is growing. In 2010, online shopping accounted for only 3 percent of total private consumption in China. This figure now stands at 15 percent. Alibaba now processes more sales than eBay and Amazon combined, and consumption is particularly robust among young people, where it is growing at 14 percent a year. Even better, there is room for improvement, provided internet access continues to expand across the country.  China’s internet penetration is still only at about 50 percent of the population, while e-shopper penetration is at 35 percent.

Smartphones are often the first access point for new online shoppers. M-commerce, with customers using their mobile devices to spend online, will play an important role in expanding access even further. Faster and more secure content delivery on wireless devices may cause m-commerce to surpass e-commerce in the near future; m-commerce already comprises nearly 50 percent of total e-commerce sales. Nearly 350 million shoppers already use Alipay, while the WeChat Wallet application now has over 800 million monthly active users. These platforms are well positioned to deliver growth to the industry.

Zhang Yong, Alibaba’s CEO, has indicated the company will strive to combine cloud computing and big-data technologies with the internet and the Internet of Things to spur the development of m-commerce. Mobile payment applications require extensive amounts of personal data to be transmitted between devices and company servers.

To ease security concerns over fraudulent transactions for sellers, as well as better track user data, many applications have developed a “credit rating” system to evaluate customers’ purchasing and spending patterns. This allows customers to voluntarily upload documents confirming their identity to gain various perks stemming from a better rating. Vast amounts of personal information, including details such as hukou registration, passport information, and career status, are now resting in the hands of these companies.

While online retailers may certainly benefit from these software and technological developments, m-commerce also poses certain new security challenges for businesses. In companies where employees use the same mobile device for work and personal life, protecting critical information could prove tricky. Employees may be unknowingly connecting the company server to unwanted data centers, which could lead to loss of critical data. Additionally, m-commerce applications are lucrative targets for cyber-attackers.

Despite these challenges, companies do not seem likely to shy away from the opportunity to reach more customers. The Nov. 11 shopping holiday may only come once a year, but the importance of electronic and mobile commerce seems likely to stay a year-round part of China’s consumer economy.