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1 GLOBAL E-COMMERCE UPDATE 9 • 2014

FROM THE DESK OF DEBORAH WEINSWIG U.S. E-COMMERCE UPDATE Growth divergence between e-commerce and physical store sales Hello Everyone, intensified in July It has been an exciting month for e-commerce and E-commerce growth accelerated for the fourth consecutive month innovation, as Alibaba went on tour to pitch the sale of in July to 15.6% YoY, up from 13.0% YoY growth in June. At the its shares to potential investors eyeing the e-commerce same time, growth of total retail sales slowed four months in a row market in China and beyond. The much-anticipated IPO to reach 0.3% YoY in July, according to the latest Monthly Retail could potentially raise $24.3 billion or more, and is on Trade and Food Services report of September 12 by the U.S. track to become the world’s largest IPO. The company’s Census Bureau. As total retail sales have already included revenue last filing released September 5 valued Alibaba at $155 from e-commerce, the figure suggests that the growth of physical billion, just below .com, Inc.’s $160 billion store sales might be in the negative. market capitalization. Since then, high demand has Exhibit 1: Monthly total retail sales and e-commerce sales – U.S. inspired the company to raise the range for its IPO price to $66-$68, which would value it around $165 billion and make it the third largest company listed in the U.S., after and Facebook. Alibaba’s founder and Executive Chairman Jack Ma voiced his intent to expand aggressively in the U.S. and European markets after its NYSE listing. A couple of other key events were also on our radar this reporting period, including Baidu’s release of “Baidu Eye” (its version of Google Glass) and smart chopsticks, as well as the newly established omni- channel joint venture between , Baidu and China’s biggest property developer, . Source: The Custora E-Commerce Pulse, U.S. Census Bureau These developments are indicators of Chinese tech E-commerce sales grew 13.5% YoY in August, following strong companies emerging as a force to be reckoned with, in YoY growth throughout 2014 terms of R&D capability, business model innovation, While the year-on-year growth of both revenue and the number of and execution prowess. This is the result of an overall orders derived from e-commerce have grown steadily over the last focus on investment in infrastructure and human 12 months, the growth of the average order value has remained resources in the Chinese tech industry, the sheer size negative due to competitive pricing with no definitive signs of improvement. and potential of this market, as well as the quality of the Exhibit 2: Monthly e-commerce sales – U.S. current workforce and what we believe is a very strong new graduate pipeline. In the U.S., Apple’s latest product and payment innovations – the iPhone 6, the iWatch and Apple Pay – have kick-started a new round of disruptions in the intersection of mobile payment, wearables and m- commerce. In this month’s feature we will be discussing China’s Internet giant Tencent, which operates the country’s largest and gaming platforms. Warmly, Deborah Source: The Custora E-Commerce Pulse, U.S. Census Bureau ! DEBORAH WEINSWIG! Executive Director-Head, Global Retail Research and Intelligence! Fung Business Intelligence Centre! [email protected] 646.839.7017! 1! CHINA E-COMMERCE UPDATE -omres sae o oa eal sls rs o 1.% in 11.9% to rose sales retail anAugust, increase of1.5 percentage point from July. total of share E-commerce’s one than more of point perpercentage month pace the at growing still share E-commerce the reflecting months, three to weakened Chinese economic outlook in the period. two past the in decelerating been has sales e-commerce and sales retail total both of Growth of strong YoY growth throughout 2014 trend a continuing YoY 54.9% August, in grew sales E-commerce only continue to boostm-commerce. will Pay Apple with payment digital and screen) We larger smartphones. through its (with 6 iPhone the like services and increasingly products that anticipate performed be will and sales m-commerce slowing of bulk the expect is we commerce-friendly, growth sales e- more functionality their tablet and bigger getting are smartphones As same. the largely remained tablets from made orders of share the period, same the During 79.4%. to 83.1% from dropped orders smartphones e-commerce from made desktop while August, in 10.0% to May orders in 7.5% from jumped e-commerce of share The threepast months the in mobile-based become increasingly have U.S. the in Sales omre odr sae b aktn hne, wt the with channel, marketing marketing. affiliate and by traffic direct unmediated of exception share order commerce e- with trend stable a witnessed have we months, 12 past the In marketing affiliate by driven increasingly is traffic E-commerce

Exhibit 3:Orders share device by (%oftotal) –U.S. Source: E-Commerce TheCustora Pulse GLOBAL

E-COMMERCE

the final purchase decision. facilitating in than rather awareness, brand of promotion the in more lies media social of power the that suggests months. This 12 past the in 2% below remained has media social to credited orders of share the hype, the despite that noting worth also is It 14.6%. to 6.8% from rose – efforts affiliate’smarketing own the by brought customer or of visitor each for type affiliates more or a – marketing affiliate one rewards business a which in marketing performance-based via traffic e-commerce of share the period, same the In 2014. August in 18.4% to 2013 September in 28.7% from drastically fell type-in URL direct to According

Exhibit 5:Monthlyretail e-commerce and sales–China Exhibit 4:Orders share channel(%oftotal) by –U.S. Source: National Bureau of Statistics, China. Custora Source: E-Commerce TheCustora Pulse UPDATE h hr f ecmec rfc via traffic e-commerce of share the ,

2! 9 • 2014 thirds of e-commerce traffic flow in August and led other e-commerce players in China by a large margin, their dominance has dominance their margin, large a by been significantly weakened in the past 12months asother competitors upped their games. China in players e-commerce other led and August in flow traffic e-commerce of thirds from only not challenge to vulnerable is off. paying time, same the At that suggest could This row, a in month third the For JD.com’s Ranking 10 9 8 7 6 5 4 3 2 1

traffic flow surpassed traffic surpassed flow

E-commerce sites

JD.com’s GLOBAL Vip.com

JD.com Tmall.com’s heavy investment in logistics to offer a better “last mile” experience to the customer may be may customer the to experience mile” “last better a offer to logistics in investment heavy Jumei.com Tencent Yixun.com China andKong Hong the largest electrical appliance retailers in Mainland Electricalby GOME Appliances Holding Limited, one of Gome.com.cn maternity and kidsproducts cosmetics, digital, home appliances, clothing books, and offerings extend now to include household merchandise, Dangdang.com Walmart Yihaodian largest retailers in China by Suning.com and electronics that isownedby Amazon.cn online shoppingexperience forcustomers Vip.com offers asales flash model that provides a unique the Tmall.com online retailers in China bytransaction volume headquartered in . It isone ofthe largest B2C JD.com was at the top of the traffic flow ranking released by by released ranking flow traffic the of top the at was Suning replaced replaced Alibaba Amazon.cn or

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for month in thethird consecutive August Appliance Company Limited, one ofthe isan online grocery (B2C)ownedby business isthe B2Conline retail platform operated by isan online cosmetics retailer Jingdong (or51buy.com) isthe e-commerce arm of isan e-commerce platform mostly forbooks Group isthe B2Ce-commerce platform operated Amazon.com’s E-COMMERCE isthe B2Ce-commerce platform operated started asan online bookstore. Itsproduct but also also but

Mall isan e-commerce company

Description

local subsidiary subsidiary local Suning.com

Amazon.com

. While While .

Amazon.cn

JD.com

UPDATE

as number three, but its current ranking current its but three, number as

and and

Huihui Tmall.com Share offlows Shopping Assistant in in August. Shopping Assistant 33.4% 32.3% 0.9% 1.1% 1.7% 2.1% 3.7% 4.9% 4.9% 5.0% together made up two up made together

No Change No No Change No Change No Change No Change No Ranking Ranking Change – 1 – 1 +1 +1 +1

3! 9 • 2014 to $24.3 billion. Since that filing, filing, that Since billion. $24.3 to jump the could raised amount the underwriters, for aside set Including shares extra billion. $21.1 solid, and are billion $19.2 estimates between raise these could If share. per that $66-$68 of revealed range 5 September released Alibaba filing, last company’s The 100 sharing roadshow U.S. multi-city two-week investor presentations. a off kicked 8 September On current on based year last from exchangeRMB rates. increase 46% a billion, $2.54 of Alibaba’s more year, last billion ofand than those eBay $248 totaled sites online its online on Transactions for market. e-commerce destination growing fastest popular world’s the most China, the in shopping is It world. the in largest Alibaba WHAT IS ALIBABA? resorts. and hotels will its They plan to invest 5billion as well they as malls, said shopping 107 Wanda’s in companies services e-commerce three provide to selling offline The and online integrate venture. joint commerce companies Internet and Group, Wanda developer, property biggest China’s 29, August On floor early deal’s trading. the manage to agent” “stabilization as serve will Sachs Goldman that reported was it Separately, IPO. company’s the Alibaba below just billion, The will IPO be ontheSeptember NYSE 19. $155 at Alibaba values Amazon.com Inc.’s $160billion market capitalization. filing same The before the final IPO. and price is China’s biggest online commerce company, and one of the of one and company, commerce online biggest China’s is has appointed Barclays as the designated market-maker for market-maker designated the as Barclays appointed has is planning to sell 320.1 million shares with an expected an with shares million 320.1 sell to planning is second quarter ending June 30 was highlighted by revenue by highlighted was 30 June ending quarter second INDUSTRY UPDATE ubr o hrs ofrd t h akt cud change could market the to offered shares of number at New YorkNew City’sat Waldorf-Astoria Hotel, Alibaba

Amazon.com Baidu yuan GLOBAL n and ($814million). Alibaba combined. combined. Tencent has indicated that both the both that indicated has Executive Director-Head, GlobalRetailResearchandIntelligence !

neld a nw e- new a unveiled E-COMMERCE

[email protected] Fung Business IntelligenceCentre ! Alibaba DEBORAH WEINSWIG ! 646.839.7017!

! mzn satd tlig u t e mzn Sosrd Links Sponsored Amazon new its up talking started Amazon interest in buying, an expressed reportedly had Google that network gaming streaming live- a Twitch, of acquisition its announced Amazon 25, August On initiative, solution Apple Pay. payment newest Apple’s of part integral an are and capabilities, payment mobile have items three All model. inch 4- the previous the than bigger respectively,significantly inches watch, 5.5 and smart long-rumored a and — iWatch Plus 6 iPhone the and 6 iPhone the — iPhones new two revealed Apple 9, September On September 2,which sold40,000phones in 4seconds. and to according minutes seven or – hour one under 5,000 Xiaomi for twoon table a book can United you platform this Using Hotels. Hyatt , and Airlines, including apps, mobile with companies Beijing, partner Shanghai, of mid-August, In cities first-tier China’s Guangzhou, and Shenzhen. beyond foray mark launches The China. in Chengdu and Hangzhou in late In August, each day and a weekly menu change, for$12per meal. Monica, Santa the offersselection that new menu a fixe prix a with area, trial California in customers to 2:30pm and 11:30am between Uber Federal the avoid Aviation to Administration’s strict restrictions U.S. ondrones. Australia Queensland, in place took aid, first to bar chocolate a from ranging items of consisting deliveries, The 28. August on announced of Google month, flights this test drones 30 by than deliveries more out carried safely lab, research range long- company’s technology the X, Google at engineers of team A Amazon’s 250million active users. reach to marketers for easier it make would platform The universe. Amazon on the outside found sold be currently would also Google They webpages. Amazon’s by those replace would platform new year, this later launch a anticipating is and partners potential with platform Xiaomi has begun testing testing begun has Street Wall The Redmi . The faces of the iPhone 6 and iPhone 6 Plus are 4.7 inches 4.7 are Plus 6 iPhone and 6 iPhone the of faces The . had its first flash sale in Indonesia on September 4, selling 4, September on Indonesia in sale flash first its had

OpenTable . This would seem slow compared to the India sale on sale India the to compared slow seem would This .

1S phones. As expected, all the phones sold out in out sold phones the all expected, As phones. 1S Uber Uber for $970million. UPDATE opened its premium premium its opened opened its software platform to almost a dozen a almost to platform software its opened while reserving a car to the restaurant. UberFRESH reported on August 25. Ads from the from Ads 25. August on reported , a service that provides lunch provides that service a , UberBlack Lazada tier for business business for tier Uber’s Indonesia

first first 4! 9 • 2014 GLOBAL E-COMMERCE UPDATE 9 • 2014

Augmented Reality Apple filed two new patent applications on September 4 that boost the iPhone’s navigation abilities with Augmented Reality features. In August, McDonald’s Corp posted a job opening for a product The patent describes a way that the iPhone could use its camera in director of loyalty as part of its global digital team, a move that sheds combination with on-device software to generate virtual maps of the light on the fast-food giant’s rumored plans to launch a loyalty user’s surroundings, which are overlaid on a real feed, and which can program and mobile e-commerce service. According to the job do things like provide a look inside surrounding buildings. listing, the brand plans to evolve the customer experience by developing and executing digital initiatives across every facet of its In August, -based beauty e-commerce site Luxola lifted the interactions with customers, including a multi-channel loyalty reward veil over its new app, LX Studio. This nifty application allows users program. to virtually try out beauty products from different brands before they decide what makeup to buy.

TECHNOLOGY UPDATE

Wearables On September 3 Sony announced that the Smartwatch 3 would be running Google’s new platform specifically for wearables.

Smartwatch 3 comes with a 1.2GHz quad-core processor, a 1.6-inch screen and Sony’s now trademark IP68 waterproofing. Other key features include 4GB of storage, 512MB of memory NFC support, GPS and a 420mAh battery. Smart clothing such as Ralph Lauren’s shirt for athletes features Location-based services fabric embedded with sensors and circuitry. Engineers from the Hong Estimote has launched its new Estimote Stickers, iterations on their Kong Polytechnic University are working on similar designs, testing original Beacon gadgets, which give apps hyper local awareness. the fabric’s durability and ability to withstand something as extreme Stickers continues that mission, paring down the size of the beacon as bullets. hardware to an impossibly thin 3mm, with a smaller, more easily hidden footprint and battery life up to a year. Each carries an adhesive backing, just like the first-generation devices, and includes accelerometer and temperature sensors in addition to Bluetooth

radios.

REGULATORY UPDATE

India banned foreign direct investment in B2C e-commerce On August 22, India’s Commerce Minister Nirmala Sitharaman was reported as saying that foreign direct investment (FDI) is not allowed In September Baidu unveiled the Baidu Eye, its answer to Google in B2C e-commerce companies, according to The Economic Times. Glass. Unlike Mountain View’s creation, it doesn’t actually come Currently, 100% FDI is permitted for operating a B2B e-commerce with a display but instead wraps behind the user’s head. It recognizes business in India. voice and gesture commands, and responds by manipulating a connected smartphone in the absence of a display. In August California Governor Jerry Brown signed Bill SB 962 into law, making “kill switches" mandatory on all new smartphones. During the same event Baidu also debuted its new smart chopsticks, Starting next summer, all phones sold in the state must have a built-in which can be used not only to eat, but also to detect the quality of oil feature that enables the owner to remotely render the device used in your food –its light indicator glows red if it's unsafe for inoperable to strangers or thieves, and it must be activated by default. consumption, and glows blue if it's safe. The product has a special The idea is to discourage smartphone theft, a problem plaguing law appeal to the Chinese consumer, as food safety is a major concern in enforcement across the country. However, if some states adopt this China. Baidu has not yet announced any price or release date for law, but others don’t, maintaining compliance whenever devices either device, but has promised that the chopsticks will also be able cross state lines could be a nightmare of complication and a bigger to detect PH levels and for the fitness conscious, calories in food. expense for tech companies and carriers. ! DEBORAH WEINSWIG! Executive Director-Head, Global Retail Research and Intelligence! Fung Business Intelligence Centre! [email protected] 15! 646.839.7017! FEATURE: May 2005 Aug 2013 Aug 2003 Nov 2003 Aug 2000 Aug 1998 Nov Mar 2014 Mar 2014 Mar 2010 Mar 2006 Mar 2011 Dec 2011 Apr 2014 Apr Feb 2014 Sep 2013 Feb 1999 Feb 2011 Jun 2014 Jun 2004 Jun 2001 Jun Jan 2013 Jan 2011 Year Jul 2006

Sougou InputSougou andbrowser. Invested and formed strategic cooperation witha Sogou, subsidiary ofSohu.com, Inc. and the ownerand developer search ofSogou engine, Launched game centers on Mobile and QQ Weixin & WeChat registered useraccounts exceeded 300million Launched e-commerce open platform buy.qq.com Launched video portal v.qq.com Invested in Riot Games in the United States Launched mobile social communication service – Weixin (the international versionas isknown WeChat) peak IM simultaneousQQ online useraccounts exceeded 100million QQ.com became the most popular webportal in China by page viewsand united visitors Launched C2Cplatform paipai.com and online payment platform Tenpay Launched multi-media social networking service Listed onthe main Stock boardKong Exchange ofHong Launched webportal –www.QQ.com Entered online games market Launched Internet value-added services Launched mobile & telecommunication value-added services Launched service –QQ Tencent founded was Strategic partnership with 58.com, China’s Craigslist peak IM simultaneousQQ online useraccounts exceeded 200million Strategic partnership with Games, CJ a Korean game developer Strategic partnership with Strategic partnership with Dianping, which operates a popular -like website in China o mrhnie ecmec-retd online e-commerce-oriented) merchandise platforms, to opposed (as service-oriented of ecosystem an Through Strategy Note: 2014figures, Q2 MAU:monthly active user Social media – and Gaming –accounted for56%of MAU) million (829 QQ WeChat – messenger Instant Core strength information, communication, of entertainment and e-commerce areas the in needs Internet largest the users’ Internet Chinese meets that China in community created have platforms “one-stop Internet a services. with lifestyle online users for service shop” providing of Internet goal strategic the popular under advertising online and services telecom and mobile most Internet, value-added provides China’s It ecosystems. of one 1998, November in Founded GLOBAL / Weixin

Tencent JD.com

Qzone (438million MAU) , one ofthe largest B2Conline retailers in China bytransaction volume controls a large volume of Internet of volume large a controls (645.1million MAU) E-COMMERCE Weixin Tencent

Tencent’s Tencent’s has grown into grown has revenue Major Events leading

expansion, with notable success in emerging markets emerging in success notable with expansion, Tencent the experience in the field ofservice e-commerce. in win to out potential the has it e-commerce, merchandise While China. Tencent in companies Internet successful most with Together 15, September on Alibaba session trading the Tencent of end the at billion) ($150 trillion $1.16 HK of cap market a At isitWhy relevant? create value. to them utilizes and information, user and flow traffic 10.14% Ma HoldingsLimitedMIH –33.66% shareholdersSubstantial such asIndia and Russia. Huateng UPDATE is listed) and one of the largest in the world. the in largest the of one and listed) is has also been aggressive in its international its in aggressive been also has is China’s largest Internet company (before company Internet largest China’s is a e n ac o for match no be may one n himn o of chairman and founder , omni Alibaba canl fot bidn n its on building front -channel

and and

Baidu Alibaba , they represent the represent they , n trs of terms in Tencent 5! – 6! 9 • 2014 community, and promote its value-added paid services . Tencent offers various free services to attract generate newusers, interaction within the The ecosystem Business Model Business (56% of Q2 2014revenue)(56% ofQ2 Online Games 2014revenue)(24% ofQ2 Social Networks • 2014revenue)(80% ofQ2 Value-added services

Fee-based revenue

GLOBAL Performance display Brand display • 2014revenue)(10% ofQ2 Advertising

Traffic-based revenue E-COMMERCE UPDATE Agent Principal • • • 2014revenue)(7% ofQ2 E-commerce

Traffic-based revenue Fee / commission merchandiseGross volume 7! 9 • 2014 Key Financial &Operational Metrics GLOBAL Executive Director-Head, GlobalRetailResearchandIntelligence !

E-COMMERCE [email protected] Fung Business IntelligenceCentre ! DEBORAH WEINSWIG ! 646.839.7017! !

UPDATE 8! 9 • 2014