Company bets on vertical portals for profit

E-commerce portal China Dangdang Inc signed an agreement with online shoe mall letao.com Wednesday, a move aimed to establish an open platform like Tmall and increase profits.

Under the agreement, which comes days after Dangdang reached a deal with home appliances chain Gome, Letao would bring all its brands to Dangdang's platform as early as late this month.

Establishing the open platform is Dangdang's focus in 2012, and the retailer plans to increase cooperation with vertical business-to-consumer websites specializing in electronic products, clothes, food and wine, as these websites have better procurement knowledge and established supply chains, said Dangdang's publicity director Guo He.

While the cooperation is beneficial to Dangdang and its partners, it will not help the retailer gain much market share in the B2C space in the short term, analysts said.

Dangdang has an advantage in selling books, but its rivals including 360buy.com and Suning have entered the market to squeeze its profits, so Dangdang needs to expand its product portfolio, Li Chengdong, an analyst at paidai.com, a Beijing-based e-commerce industry portal, told the Global Times yesterday.

"However, an expansion of the product categories would involve large capital and big risks, and Dangdang is not experienced in selling other products, therefore it needs to introduce third parties," Li said.

The cooperation will bring income to Dangdang from its partners in the form of fees amounting to a certain proportion of their sales through the platform, Li noted.

The New York-listed company recorded a net loss of 229 million yuan ($36.3 million) in 2011, after a net profit of $30.8 million in 2010.

Tmall also announced to bring in 38 vertical B2C websites last September.

Vertical B2C websites can attract more visitors and save on marketing and operational costs by cooperating with platforms such as Tmall and Dangdang, Li noted.

However, the difficulties of the open platform model lie in coordination between various parties and guarantee of consumer services, Chen Shousong, a researcher at Internet research company Analysys International, told the Global Times yesterday.

"And different from Tmall which doesn't sell goods itself, the goods Dangdang sells may overlap with those sold by the vertical B2C websites."

Moreover, Dangdang's move will have little impact on 360buy and Tmall, and would not change the market situation, Chen noted.

Tmall led the B2C sector in the fourth quarter of 2011 with a market share of 39.9 percent, followed by 360buy with 14.7 percent. Dangdang with its 1.6 percent share was ranked fifth, far behind the top two, according to data from Analysys International.