International Herald Tribune
12-20-2006
Keith Bradsher and Howard French contributed reporting.* Acknowledging that the online auction market in China is enticingly fast-growing but difficult to crack, eBay will shut its main Web site in China and enter into a joint venture with a Chinese company instead, according to a person briefed on the companies' plans.EBay will take a 49 percent stake in the venture, he said late Monday, and Tom Online, a Beijing-based Internet company that is controlled by the Hong Kong billionaire Li Ka-shing, will take the majority share. Tom Online also will administer the venture, which has yet to be named.The plans call for eBay to put $40 million into the venture and Tom Online to contribute $20 million. Meg Whitman, the eBay chief executive, is to make the announcement Wednesday at eBay's office in Shanghai.EBay, which has already spent hundreds of millions of dollars trying to establish its presence in China, declined to comment.Analysts said the move would not surprise them. ''It's an admission that they failed in China, on their own at least,'' said Tim Boyd, an analyst with Caris & Co., who has a ''buy'' rating on eBay shares, ''but I think that's something the market already knew.''Ina Steiner, editor of AuctionBytes.com, an online newsletter, said that ''a bailout in China would be a huge concession by eBay.'' She noted that last year, Whitman said China was eBay's biggest long-term opportunity in local markets. ''The company sold analysts on China as a way to counter slowing growth rates in its more mature markets like the U.S. and Germany,'' Steiner said.But China has not been easy territory for eBay. The company established itself there as early as 2002, when it pulled out of Japan in a concession to Yahoo's sizable lead there and bought a one-third stake in Eachnet.com, China's principal online auction site.The next year, eBay acquired the rest of Eachnet, bringing the total price to $180 million. In 2005, eBay spent an additional $100 million on marketing in China.Whitman predicted in 2002 that within four years, e-commerce revenue from all sources in China would grow nearly twelvefold to more than $16 billion.Whitman's projections were on the mark, Boyd said, ''but the problem has not been the growth in e-commerce in China. The problem has been that eBay is losing market share.''EBay has been trailing Taobao, the consumer auction arm of Alibaba.com, China's largest e-commerce company. The research firm Analysis International said that in 2005, Taobao's share of the Chinese online auction market was 57.7 percent, compared with 31.5 percent for eBay Eachnet.EBay's move is similar to a partnership Yahoo struck last year with Alibaba. With its own Chinese operations failing to gain traction, Yahoo paid $1 billion to hand over operations to Alibaba in exchange for a 40 percent stake in the company.Both deals represent new thinking among Internet companies, that what works in other countries does not necessarily work in China, where strong local managers are needed.In September, Martin Wu, the chief executive of eBay Eachnet, resigned after just a year in the position, and since then rumors have swirled that the company would leave the market entirely.Steiner said eBay had failed to understand the Chinese marketplace and culture. For example, she said, in contrast to Taobao, eBay Eachnet provided no phone support and discouraged buyer-seller contact that could lead to haggling.Also, she said, eBay failed to react quickly enough when Taobao entered the market with no user fees. In January, eBay Eachnet stopped charging transaction fees.Besides its loss of market share, she said, eBay in China ''continues to face regulatory and other challenges.'' She said a partnership with Tom Online would be ''an effort to salvage its Chinese investment.''EBay has played down its troubles in China. As recently as October, in a conference call with analysts and the media, Whitman sought to dispel speculation that the company might reverse course in the country.''We believe we are actually maintaining share in what is becoming an increasingly competitive market,'' she said then. ''We are committed to China for the long term.''But in recent days, Chinese bloggers and news sites have published an e-mail message from someone describing himself as a disgruntled Eachnet employee. ''I have suffered through the incompetence of eBay leaders for many years,'' he wrote. ''EBay has screwed up our company and in China.''The message continued, ''EBay failed in China because it relies on one leader who did not understand the market at all: Meg Whitman. Meg Whitman is eBay Mao Zedong.''EBay's stock has been climbing back after hitting a 52-week low of $22.83 in August. The shares closed Monday at $32.42, down 1.5 percent.Tom Online, with 75 million subscribers, allows users access to television, music stations and online stores through its popular Web portal and over wireless networks. In September 2005, it formed a joint venture with eBay in China to distribute the popular Internet telephone service Skype, which eBay owns.Overall, Boyd said he was encouraged by the news of eBay's new alliance. ''Now they're partnering with a strong Chinese presence on the Internet,'' he said, referring to Tom Online. ''In hindsight, I think they'd say this is the way we should have gone about it at the beginning.''The person briefed on the plan said that eBay was considering partnerships and other options for its electronic payments site, PayPal China, but that no decision had been reached. Although eBay's current site will be shut, he said, a separate site will be maintained to give Chinese users access to international auctions. And eBay's Kijiji China, a Chinese classified advertising site similar to Craigslist in the United States, will continue operations unchanged.
2006 Copyright International Herald Tribune. http://www.iht.com
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