“We have proved successful in 27 countries and will follow the same set of rules here in China, our 28th market.” That’s what eBay President Meg Whitman proclaimed three years ago. Unfortunately, things did not work out the way she had expected. Ebay’s venture into its 28th market ended in failure.
Rumors have been going around since early this year that SINA, TOM Online and Tencent, three leading internet companies in China, are all stepping up plans to acquire eBay Eachnet, also eBay China.
Rumor of TOM’s acquisition of eBay China surfaced again around October after eBay Eachnet CEO Martin Wu Shixiong resigned.
The final result might not be known until later in December, but according to one source, eBay and TOM Online had started negotiations on acquisition as early as a year and a half ago - a fact eBay’s Shanghai office claimed it was unaware of.
“The shareholders on both sides are nudging eBay and TOM Online towards a merger,” noted an insider. If everything goes well, the acquisition will be announced soon, he continued. As sources suspected, the two companies might start a joint venture, with TOM Online taking charge of its business operation.
This situation is reminiscent of how Yahoo China was sold to Alibaba, China’s leading e-commerce company. By transferring their local operation to some local business and sharing the benefits in terms of stock equity and brand, eBay might be able to retreat from the Chinese market holding its head high.
Their stakes in the joint venture and requirements for profits still remain unknown up to this point, But, according to sources, a new e-commerce platform might be set up for the joint venture, instead of continuing to use eBay’s platform.
Given the twists and turns in the negotiations, the result might be anything but predictable. Rumors continued to surface that Tencent might jump in and take eBay Eachnet. But regardless of whoever might end up with eBay’s local operations, it’s no secret that eBay has been searching for buyers for a long time. Like Yahoo, the global e-commerce giant finally threw in the towel in the Chinese market.
Ebay President and CEO Meg Whitman bought one third of China’s local auction site Eachnet’s stake with US$30 million in March, 2002, and took over the rest for US$150 million the following year, as it started expansion into China. But what happened next was much more different than she had ever expected. EBay was almost driven into a corner over the next three years by Taobao, a leading personal e-commerce website founded by Zhejiang businessman Ma Yun. According to a survey of consumer-to consumer (C2C) online shopping in China by China Internet Network Information Center (CNNIC), eBay Eachnet’s shares in the Beijing, Shanghai and Guangzhou markets are only 29.1% compared to Taobao’s 76.3%, despite eBay’s huge investment of more than US$280 million into its Chinese operation. EBay has been paying much higher costs to develop registered users, including the huge numbers of silent users.
As an e-commerce newcomer, Taobao has nothing to lose as it encroaches on eBay. No matter how strong eBay claimed its emphasis on the Chinese market was, the fact is that after all this time and effort in the Chinese market, not only did eBay not make money here, but it’s Chinese venture even dragged down eBay’s stock price. EBay announced on June 5, 2006 that it was leaving the Taiwan market and transferring its operation there to its joint venture with PChome Online, a Taiwan-based e-commerce operator. Ironically, it was after it was driven out of the Japanese market by the emerging Yahoo Shopping that eBay stepped into the Taiwan market four years ago.
The repeated failure of eBay in the Asian market has much to do with its poor efforts in localization - operating and competing in the local context. Its withdrawal from the Taiwan market adds some credibility to it teaming up with TOM Online to set up a joint venture. As for TOM, compared with four years ago, it is now better conditioned both in users and e-payment facilities to enter the e-commerce field. But its lack of actual experience in e-commerce might turn out to be a big problem once it takes charge of the joint venture’s operation, let alone the intensifying competition from Ma Yun’s Taobao.
“No single successful internet company thrives on simply copying the business model of their foreign counterparts,” said former Taobao general manager Sun Tongyu after examining the eBay model. “Only by tailoring the model to the local context can it work well. I don’t see that there is any chance of profitability if we simply copy the eBay model here in China. It has to be adapted to the local conditions.” Ebay’s failure in China might serve as a strong reminder that national boundaries also exist in the world of the Internet.
Without tailoring their operations to the local context, global Internet giants will continue to have a hard time pulling themselves through in the Asian market. The question now is: will a company like Amazon learn from the mistakes of Yahoo and eBay?
