Update: eBay to replace Chinese auction site

Company inks joint venture with Tom Online, which will run the site

EBay Inc. confirmed Wednesday that it will replace its China auction site with a new joint-venture site run by partner Tom Online Inc. in 2007.

The announcement comes after months of speculation that eBay was preparing to vacate the Chinese market after losing the market lead and significant share to rival Alibaba.com Corp.’s Taobao auction site.

Beijing-based Tom Online will operate "Tom Yi Qu," which combines the Tom name with the Chinese name for eBay's current site. Tom Online will hold a 51 percent stake in the new venture. EBay will inject EachNet, its China subsidiary, into the venture and hold the remaining 49 percent stake.

EBay will also contribute US$40 million to the joint venture, and Tom $20 million, the two companies said in a statement. According to the terms of the deal, the two companies may also invest a further combined $10 million.

The deal will close in January, said eBay Chief Executive Officer Meg Whitman at a webcast press conference in Shanghai. "The deal is very balanced, although the financial contributions are different," she said of the levels of capital and resources given to the joint venture.

Tom Online CEO Wang Lei Lei will lead the new venture. EBay EachNet CEO Jeff Liao will assist in the transition and continue to oversee EBay's non-EachNet operations in China, such as promoting use of eBay's main site to Chinese users as a way of reaching global customers, the company said.

"EBay Eachnet has a young, dynamic, and the most experienced e-commerce team in China," said Wang, who hopes that the deal will allow Tom Online to "use the EachNet brand to attract major buyers and sellers."

Whitman declined to admit defeat. "We are very enthusiastic about the china market. We are very proud of the work we have done in pioneering e-commerce in China. We decided it was important to partner with a local partner to take our efforts to the next level," she said.

The joint venture is not the two companies' first cooperation. Tom Online launched the TOM-Skype service in China in 2004. EBay bought Skype Ltd. last year for $2.6 billion. Tom Online owns 51 percent of Skype China, Ltd. with eBay owning the remaining shares. "We will also make use of Skype to enlarge our business through this platform," Wang said, but did not specify how Tom Online intends to do so.

EBay also launched a joint venture in Taiwan this year with PC Home Online Inc. PC Home is a Taiwan subsidiary of Hong Kong-based Tom Group Ltd., Tom Online's parent company.

Rumors have been circulating for months that eBay was preparing to exit the China market, but were readily denied by the company. EBay first invested $30 million [m] in Shanghai-based auction site Eachnet in 2002 for a one-third stake, then bought the company outright in 2003 for $150 million [m]. Eachnet was founded in the late 1990s by local entrepreneur Shao Yibo.

The two companies did not give a specific start date for the new venture's Web site. EBay's China site was still operating normally as of time of writing.

Whitman declined to comment on rumors that eBay had found a local partner for its PayPal online payment subsidiary, which launched in China in 2005. "We are very committed to PayPal here in China. It has been a very big success both on the eBay platform and elsewhere, and our plan is to continue as is," she said. PayPal has a non-exclusive agreement with Tom Online. Neither Wang nor Whitman made any reference to a change of strategy for PayPal in China or regarding the joint venture.

Whitman said that eBay would continue to operate its Kijiji International Ltd. online classified ad services independently in China . The service launched last year in 50 countries including China. She declined to speculate on her expectations for its performance, beyond saying she would see how it was doing in China one year from now.

"EBay's move to hand over its business to a team and a company that is fully focused on China is long overdue. It is proof that for foreign companies to compete in China's online industries," said David Wolf, CEO of Wolf Group Asia Ltd., a Beijing-based technology consultancy. "China cannot just be an 'important' market - it must be your core market. China was never 'core' for eBay, despite rhetoric to the contrary."

Alibaba.com Corp.'s Taobao site leads the consumer auction market, with the company claiming 30 million [m] registered users and just under 70 percent market share. EBay had criticized Taobao's decision not to charge users transaction fees for three years beginning in 2005, but followed suit by dropping its own fees in January this year.

"For the last three years there has been intense competition between eBay and Taobao, and that has prevented our companies form cooperating. We have a very clear method for working together with eBay," said Porter Erisman, Alibaba.com's vice president for international marketing and business development, without elaborating on that method. "This should open us up for potential cooperation, where we have these obvious synergies but haven't taken advantage of them. We congratulate them, we've been expecting this for a while, and it's on to the next new phase."

The departure from stand-alone operations in China is eBay's third retreat from a major Asian market. In June, the company turned over its Taiwan operations to PC Home, and laying off most of its 40 employees. It had entered that market through acquisition of a locally-based online auction company in 2002. PC Home is also Skype's former partner in Taiwan.

EBay shuttered its Japan operations in 2002 after failing to gain traction or take market share from Yahoo Japan Corp.'s auction site. It operates neither a stand-alone nor JV site there, where Yahoo continues to dominate.

Whitman said of Japan, "it is a very interesting market long-term, but not someplace we probably want to invest right now."

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