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The Honolulu Advertiser
Posted on: Sunday, December 24, 2006

EBay falters in China, turns to local partner

By Don Lee
Los Angeles Times

SHANGHAI, China — If only eBay Inc. had listened to Chinese Web users such as Gong Yunzhe.

The 25-year-old Shanghai woman is one of 30 million Chinese who have bought goods online. She tried eBay, but it was costly and hard to use. Worst of all, none of its on-site 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 voicemail.

"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 was one big reason why eBay's chief executive, Meg Whitman, is shifting strategy in China. She announced Wednesday in Shanghai plans to shut down the company's main Web site 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, Calif.-based Internet auction company was faltering here despite having spent hundreds of millions of dollars. Less than two years ago, 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 where you have 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 percent early this year versus 29 percent for eBay.

Wednesday'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, a well-known independent information technology analyst in Beijing.

He said it wasn't clear that teaming up with Tom Online would save eBay in China.

Tom Online, a unit of the Tom Group owned by Hong Kong billionaire Li Ka-shing, would put in $20 million toward the venture and take a 51 percent stake in the new site to be launched next year. EBay would pony up $40 million for a 49 percent interest.

Whitman said eBay wasn't giving up on China. "This agreement is a sign of our continued commitment to delivering the best online buying and selling experiences in China," she said in a statement.

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 eBay's online platform with Eachnet's.

That same year Ma launched Taobao, undercutting eBay by offering its service to sellers for free, something that eBay reluctantly matched two years later. Chinese consumers found Taobao's simpler look on the Web more appealing and its online payment service was 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," he said, "didn't provide any actual technical support for us to use this software."

The number of Chinese Internet users — already at 123 million and the second largest after the U.S. — 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 ahead for eBay — if it can smooth out financial and cultural kinks.