The launch of a new search engine for a booming online retail site run by Alibaba Group, the owner of Yahoo China, is just one more sign that Taobao.com is taking over roles formerly filled at the group by Yahoo.
Alibaba, which in 2005 traded a 40 percent stake in its group for $1 billion in cash and control of the Yahoo brand in China, also owns China's top e-commerce Web sites, including business-to-business platform Alibaba.com and Taobao, a retail and auction platform. Yahoo and industry analysts expected that handing to Alibaba control of Yahoo China would boost its growth, but instead the brand has struggled in a local search market dominated by rivals Baidu and Google.
Now Alibaba is in the process of restructuring Yahoo China to focus on entertainment features, a turnaround from efforts to make the portal a user-generated content base. Meanwhile the company has launched new efforts in online search and user-generated content for Taobao, which is booming as more Chinese get online and turn to the site to buy everything from toasters and jackets to laptops and mobile phones.
Taobao, often seen as China's version of eBay and Amazon.com combined, earlier this year launched a search engine for items being sold on the Web site. Alibaba has also recently transplanted an online classifieds platform from Yahoo China to Taobao and, at the same time that it has closed social networking and blog and picture-sharing sections of Yahoo China, it has created a social-networking site with Facebook-style applications inside Taobao.
Taobao's latest initiative is a dedicated retail Web site for consumer electronics, which could launch early next year and would be Taobao's first step into specialized product platforms, according to a source with knowledge of the situation.
The additions to Taobao come as its transaction volume balloons. Users spent the equivalent of US$11.8 billion on Taobao in the first half of the year, nearly double the figure from a year earlier.
As Taobao has grown, Yahoo China has slipped. From January to last month, Taobao grew from the 10th to the eighth most-visited Web site in China, while Yahoo China, also known as China Yahoo, fell from 17th to 19th place, according to CR-Nielsen, an Internet research company.
Yahoo China and Taobao are equally important to Alibaba, an Alibaba spokeswoman said when asked about the balance between the companies.
CR-Nielsen says Yahoo is still the sixth-most popular Web portal in China. But Yahoo accounted for just 0.3 percent of online searches conducted in China in the second quarter, compared to a combined 95.5 percent for Baidu and Google, according to iResearch, a Chinese Internet consultancy.
While Taobao does not charge listing or transaction fees, its huge traffic flow gives it strong revenue potential. The launch of a search engine puts Taobao in more direct competition with search companies like Baidu for advertising dollars from small and medium-size businesses, said Li Zhi, an analyst at local consultancy Analysys International.
"Taobao will definitely use this search engine as another marketing and promotion feature," said Li.
Credit Suisse projects that Taobao's share of China's paid search market will grow to 22 percent in 2012, while Baidu's share will drop to 36 percent from this year's 50 percent. Yahoo's share is forecast to sink from 3 percent to 1 percent.
Taobao's home page also has a search function, but its results page is more cluttered than that of the new search engine at search.taobao.com. Taobao chief financial officer Daniel Zhang declined to comment when asked if the search engine, currently billed as in beta, will be expanded to include results from the wider Internet later.
Yahoo China may have struggled in recent years partly because Alibaba has not developed it as a major search service, said Li.
"I think the mission for Yahoo was to provide better search technology and search service to Alibaba and Taobao," she said.