While Amazon- or eBay-styled online retailers have boomed in China, a young entrepreneur has found a business opportunity in niche e-commerce by selling military-inspired casual wear and other related goods online. His success reflects the rise of specialty e-tailers in the world's most populous country.
Jiang Lei, 27-year-old CEO of Beijing Tiexue Technology, operator of China's largest military affairs e-community site Tiexue.net, saw entrepreneurial opportunities in the specialization trend of e-commerce.
"We offer highly specialized and vertical services. Compared with other mass e-tailers, this is our biggest advantage," said the young multimillionaire, who climbed onto Forbes China' s list of the "Top 30 Chinese Entrepreneurs Under 30" in March.
Jiang built a B2C (Business To Customer) e-commerce platform as part of his Tiexue e-community in 2007. By then, he already had one of China's most popular online communities for military novels and news of world military affairs, but still he had trouble finding a profitable business model.
Before getting into e-commerce, he tried to sell ads on his site. He also tried charging people to read online content, but both attempts failed. Later the entrepreneur shifted his focus to social e-commerce based on his popular e-community, which had an average of 30 million daily hits last year.
"We already have a large membership base in our e-community and the members are potentially interested in military-inspired casual wear, including jackets, shirts, pants and footwear," Jiang Lei said.
"If we manage to attract them to our online shop, then we' ll nail it," he said.
Last year, the company had sales of over 100 million yuan (about 15.9 million U.S. dollars) and Jiang said sales are still growing.
Jiang isn't the only one to develop e-commerce based on virtual communities. Nowadays in China, other virtual communities, such as those related to pets, cosmetics or automobiles, are also developing social e-commerce.
Jiang said every time he promotes a new product, he first introduces it in his e-community. Through viral marketing, people get to know the product even before it goes on sale.
However, specialty e-tailing through virtual communities faces challenges from mass e-tailers, which enjoy a competitive edge based on their scale and venture capital.
To combat the problem, Jiang said it's crucial to "go upstream," by developing close relationships with manufacturers. "Vertical e-tailers need to build strong cooperation with renowned brands in their spheres and help promote and improve the brands and provide value-added service," he said.
He also stressed the importance of a wide variety of items for sale online. He said, "In a supermarket, we are presented with a variety of goods, but within one specific category there might be only two or three selections. However, in an online specialty shop we offer hundreds of options."
Improved online payment systems have also advanced e-commerce in China. As early as 2004, Jiang had considered doing e-commerce. But because there was no efficient online payment system, he gave up.
"Back then, many customers had to go to the post office to remit payment, and it was troublesome. For the others who did pay online, they paid a 15-percent surcharge, as far as I remember," Jiang said.
In recent years, with the rise of third-party online payment platforms like Alipay, China has seen an e-commerce boom. The Internet economy in China accounted for 5.5 per cent of the country' s GDP in 2010, ranking third in the world after the U.K. and the Republic of Korea, said a report in March by the Boston Consulting Group, a global management consulting firm.
Forbes China's coverage has turned Jiang into a celebrity entrepreneur. He went to Tsinghua University, one of China's most prestigious universities, at the age of 16 and established the Tiexue e-community only a year later. Since his business was growing rapidly, he gave up his doctorate in Tsinghua University in 2006.
"For two years, I didn't tell my parents my decision. I moved out of school and lived in a nine-square-meter room with my colleague. Sometimes it got so humid that there was moss on the bed," he said.
In five years, Jiang Lei has grown from a nobody to the owner of a company of over 200 employees.
"The Internet has spawned a myriad of opportunities for young entrepreneurs. But to succeed, you need to think outside the box and work hard," Jiang said.