EBay to enlist a partner in China
If only EBay Inc. had listened to Chinese Internet users like Gong Yunzhe.
The 25-year-old Shanghai woman is one of 30 million Chinese who have bought goods online. She tried EBay but found it costly and hard to use. Worst of all, none of its online stores had phone numbers or e-mail addresses on them.
By contrast, Taobao, EBay’s rival in China, allowed Gong to chat instantly with sellers through messaging and voice mail.
“You can ask any question about the product, tell the seller when you want to get it and bargain to beat down the price,” she said. “This is the Chinese way of buying products, not waiting for e-mail from the seller you are unfamiliar with.”
The cultural gap is one big reason EBay’s chief executive, Meg Whitman, is shifting strategy in China. She announced today in Shanghai plans to shut down the company’s main website in China and join with a local partner, Tom Online Inc., a popular Internet portal and wireless operator based in Beijing.
It was a stark admission that the San Jose-based Internet auction firm was faltering here despite having spent hundreds of millions of dollars. It was less than two years ago that Whitman said: “We are on a tear to be the undisputed winner in China.”
EBay’s troubles in China underscore the difficulty of transplanting e-commerce business models across borders, especially in China, with its scrappy local competitors.
Taobao, operated by Alibaba.com and its celebrity boss, Jack Ma, has been quick to capitalize on EBay’s missteps. Taobao’s online auction market share in China stood at 67% early this year versus 29% for EBay, Chinese surveys show. It was the other way around three years ago.
Today’s announcement is tantamount to saying, “EBay will no more directly operate its business in China, and retreat from China’s market,” said Hong Bo, an Internet industry analyst in Beijing.
He said it wasn’t clear that teaming up with Tom Online would save EBay in China. Although word of the tie-up has boosted Tom Online’s stock price, Hong said, the company doesn’t have experience in e-commerce. EBay shares fell 29 cents to $32.13 on Tuesday.
Tom Online, a unit of Tom Group, which is owned by Hong Kong billionaire Li Ka-shing, would put in $20 million toward the venture and take a 51% stake in the new site, to be launched next year. EBay would contribute $40 million for a 49% interest.
Whitman said EBay wasn’t giving up on China.
“We’re still enthusiastic about China’s market,” she told reporters today at a news conference. “We don’t see it as a failure. We see it as an evolution of our strategy in China.”
EBay entered China in 2002 when it paid $30 million for one-third of Shanghai-based Eachnet.com. The following year it ponied up $150 million to take full control and began to integrate its online platform with Eachnet’s.
That same year Ma launched Taobao, undercutting EBay by offering its service to sellers free, something that EBay reluctantly matched two years later. Chinese consumers found Taobao’s simpler look more appealing and its online payment service easier to set up and use than EBay’s PayPal e-commerce system.
“It took me two whole days to search page after page on EBay about how to apply and register for PayPal,” said Yin Shaoming, 30, of Jiangsu province. “It wasn’t until the third day that I started to get some clues.”
Uploading products into stores wasn’t much easier. And EBay’s “e-store secretary,” Yin said, “didn’t provide any actual technical support for us to use this software.”
Like thousands in China, Yin’s wife, Dai Yian, runs a tiny business online. She buys clothes and materials from other sellers, then sells them on the Internet through her store on Taobao. Dai says her sales run about $1,300 to $2,500 a month. From that, she pockets about $450 in profit. She prefers Taobao’s rating system, in which symbols such as hearts, diamonds and crowns show buyers’ purchase history.
Dai says she isn’t likely to change to Tom-Eachnet, the likely name for the new venture, because her business is already set up on Taobao. EBay will have to overcome Taobao’s market size. Gong, the Shanghai consumer, recently shopped for a bottle of Kiehl’s facial toner. She found 84 listings on EBay and 2,548 on Taobao.
Still, the number of Internet users in China -- now at 123 million, second to the number of U.S. users -- is growing rapidly. And many of them have dreams of launching their own online business. EBay said China’s e-commerce market could rise to almost $6 billion next year. All of which means opportunities for EBay -- if it can smooth out financial and cultural kinks.
Many Chinese don’t like auctions or aren’t familiar with them, preferring instead priced products. Most sellers on Taobao operate stores that are in most ways traditional, except that they are online. Most important, buyers and sellers want easy ways to communicate.
Tao Shulin, a Shanghai trader of canvas bags online, said he would be willing to give the new EBay a try. He hopes it won’t nickel-and-dime him; he remembers the first two pictures that he uploaded were free, and after that it cost a penny each. “I cannot do that on EBay; otherwise I would go broke,” he said.
“EBay was too Westernized,” the 29-year-old said.
“We welcome customers to ask questions, because if they have to wait, they might change their minds. We can promote to them through [instant messaging],” Tao said. “But for EBay, usually it takes a whole day for us to reach each other. EBay didn’t allow you to put your phone number on the site. So it was like in ancient times when we had to rely on a horse to deliver our messages.”
Cao Jun of The Times’ Shanghai Bureau contributed to this report.
