Dangdang vs. 360buy: a battle for digital content

(Ecns.cn)--Cut-throat competition and a pricing war appear imminent for China's e-reading forefront now that Dangdang, a leading e-commerce company, has launched its own e-book platform and 360Buy, Dangdang's most direct rival, has announced that it is currently testing an e-book service that would launch later this year.

Dangdang has opened a section on its site, along with mobile apps for iPhone and Android, debuting with 50,000 titles, 90 percent of which are priced under 10 yuan. The company also said it will have an e-reader of its own—in the manner of the Amazon Kindle—which will launch in a few months' time, reported the China Daily.

Following the move, 360buy, reluctant to show any weakness, also said it would launch its own e-book store early this year with about 80,000 titles from 200 partner publishers to start with.

"Our customers are used to e-commerce, and many registered book buyers purchase books and videos at least twice a month," Shi Tao, formerly a VP at Amazon China before shifting to 360Buy, told the China Daily on January 9.

He added that now's the time to start the transition to e-books, as more people in China get into the swing of paying for digital content and an increasing number have smartphones on which to read e-books.

In the intense ongoing rivalry between the two firms, Dangdang and 360buy have been through a series of price battles in the book market, which resulted in a 73.4 million yuan loss for Dangdang during the third quarter of last year, and attracted more players to step into a market still in its infancy.

Entering the digital publication industry is an inevitable step, since the advantages of mobile availability, space saving, ease of translation and affordable prices are appealing to consumers, pointed out Jiang Zhang, a hedge fund analyst, on his blog.

"From 2009 to 2010, e-books formed the fastest growing segment among online digital publications, with revenue up 77 percent to 2.4 billion yuan, while the overall industry saw revenue growth of 32 percent during the same period," he said.

Yi Wenfei, manager of Dangdang's Digital Publishing Department, told the Southern Weekend that the company's e-book business will surpass its hard copies within five years.

However, Jiang Zhang denied such an optimistic outlook, noting that "in my view, the e-book and e-reader business models will not have a material impact on revenue growth for Dangdang in the upcoming year due to the product's early stage of development, intense competition, and rampant piracy in China."

With such a high-growth and lucrative market, Dangdang will face formidable competition in both the e-book and e-reader segments.

In addition to competing against 360buy, the company will also face many entrenched e-book providers, such as Shanda Bambook (SNDA), which, according to Technode.com, has been leading the area with its Bamboo e-reader and collection of online literature sites, which hold a combined 71.5 percent market share of China's online literature.

In terms of e-readers, Hanwang and SNDA account for 60 percent and 20 percent of the market share respectively, indicating a high barrier to entry, analyzed Jiang Zhang.

"Even though e-books cost 30 percent or less than hard copies (on average $1-$2 per copy), many consumers in China are reluctant to pay for downloads because they can easily obtain pirated copies on the Internet at no cost," he noted.

Sun Peilin, an analyst from Analysys International, a leading provider of information products, services and solutions in China's Internet market, added that besides pressure from its rivals, Dangdang will also be challenged by "internal fights" between its departments on digital publishing and hard copies.

Some digital versions of top-selling books are only slightly cheaper than the hard copies, which does little to help Dangdang gain a competitive edge. Worried that hard copies may suffer a sharp fall in sales due to the e-books, publishing houses are reluctant to authorize Dangdang to sell digital content online, reported the Southern Weekend.

Fan Guanghong, head of a branch of the Higher Education Press, said that they are worried about the encryption techniques used by Dangdang for online data.

To keep a foothold in a competitive market, Dangdang is currently still investing in logistics infrastructure and distribution in an effort to improve its core business of selling hard copies and general merchandise online.