Update: eBay to replace Chinese auction 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.