Responding to China’s rapidly evolving Internet landscape, Taobao, the country’s dominant online retailing platform, is reorganizing into three separate companies targeting distinct segments of the e-commerce market.

On June 16, Taobao will be split into Taobao Mall, a shopping website allowing major retailers and internationally known brands to sell directly to Chinese consumers; Taobao Marketplace, China’s leading website geared for smaller “consumer-to-consumer” transactions, online auctions and group shopping; and eTao, a specialized search engine launched by Taobao last year that allows consumers to scour the Internet at large for products and services.

The three companies, which will have their own management, will operate as wholly owned subsidiaries of Alibaba Group, Taobao’s parent company.

Company officials said the reorganization will better position Taobao to meet the increasingly demanding and diverse needs of consumers in China’s fast-growing online shopping market. “Over the past two years, search, social networking and e-commerce have witnessed disruptive changes ‚Ķ while countless new companies have popped up,” said Alibaba Group Chairman and CEO Jack Ma in an internal e-mail explaining the reorganization to Taobao employees. “We need to offer consumers more sophisticated and customized services.”

Because Taobao’s three existing shopping websites (Taobao.com, Taobao Mall and eTao) have different business models, splitting them into separate companies will allow managers to focus on their respective customer bases. “You can’t be all things to all people as one big Taobao.com website,” said an Alibaba official who asked not to be identified. “This will allow us to expand consumer traffic because we now have three entry points (for online shopping) instead of one entry point,” adding that the approach will enable the company to provide “a more nuanced and diversified shopping experience.”

The move is also expected to help the company remain agile and innovative as it expands. Since its launch by Alibaba Group in 2003 as a site where consumers and small businesses could trade with each other, Taobao has grown into China’s largest e-commerce company with an estimated 80% share of the country’s $71 billion (RMB460 billion) online retail market. In addition to shopping and product search websites, the company is involved in TV shopping programs, an e-shopping magazine, and warehousing and delivery services.

“Taobao’s business has become very complex,” said Alibaba Group Chief Financial Officer Joe Tsai. “By breaking it into smaller pieces, we can improve our operating efficiency and nimbleness.” The three new companies will continue to share back-office services such as technology, finance and human resources, he said.

The reorganization will also help Taobao respond to a growing array of smaller, more focused e-commerce challengers, Tsai said. In some cases flush with capital raised during recent initial public stock offerings, competitors such as bookseller Dangdang and consumer electronics site 360buy.com are jockeying to take a larger share of online consumer spending in China. At the same time, traditional retailers such as Gome, the country’s largest electronics chain, are investing heavily in e-commerce.

Taobao only has about 4,000 employees, Tsai noted, but “when you’re competing with companies with less than 1,000 people, 4,000 is a lot.”

Alibaba officials stressed that the group’s ownership structure is unchanged by the reorganization.Alibaba Group recently was embroiled in a dispute with its key overseas investors Yahoo! and Softbank when ownership of online payment subsidiary Alipay was transferred to a company majority owned by Ma. Alibaba said it had to convert Alipay into a domestically owned company to ensure it received a crucial operating license from China’s financial regulators. But Yahoo! stakeholders were outraged by the deal, fearing they had been stripped of a valuable asset without proper notice or compensation. Negotiations between Alibaba, Yahoo! and Softbank over compensation for Alipay are ongoing.

The Alibaba Group board, which includes representatives from Yahoo! and Softbank, is “fully behind the decision” to reorganize Taobao, Alibaba said in a statement.

Splitting Taobao into three separate companies will dash expectations in the global investment community for a blockbuster Taobao public stock offering—despite occasional warnings by Ma that no IPO was imminent. But the Alibaba chairman said in his e-mail to Taobao staff that now-private Alibaba Group could list instead. In addition to Taobao, Alibaba Group’s assets include the China Yahoo! Internet portal, a cloud computing services company and a majority stake in listed commercial trading website Alibaba.com. “We won’t rule out the possibility of taking Alibaba Group public in the future,” Ma wrote. Tsai declined to speculate on when an IPO might occur. “We’re not giving a timetable.”

It’s unlikely to be anytime soon. Alibaba companies will need time to adapt to Taobao’s new organizational structure. Alibaba.com is still settling down following the February resignations of its CEO and COO in relation to a surge in Internet scammers using the website to cheat overseas buyers.

Taobao CEO Jonathan Lu, who in February took on the additional job of running Alibaba.com, will as a result of the reorganization no longer be wearing two hats. Going forward Lu will “devote his full executive duties to serve as CEO of Alibaba.com,” the company said.

The three companies created out of Taobao will each be managed by a president, who will be responsible for operations, along with a non-executive chairman who will serve as an adviser. (The companies will not have individual, official boards of directors.)

Alibaba named Eddie Wu as president of eTao. He will report to newly appointed eTao Chairman Lucy Peng. Taobao Marketplace will be run by Leo Jiang who was named president while Lu will serve as chairman. Daniel Zhang will lead the Taobao Mall management team as president and report to Taobao Mall chairman Ming Zeng. The technology and public services platform shared by the three companies will be managed by Trudy Dai.

In his e-mail to Taobao staff, Ma wrote that “We have developed into a big company so rapidly in a short period a time, but competitive advantage is not about size. We must continually test new organizational structures in order to discover new approaches and models that fit the development of Internet businesses.That’s how we stay innovative and stay on the cutting edge.”

He added that “Change is painful and undergoing change is hardly ever a smooth process. However, we must change and we must change before change is imposed on us.”