Ebay Takes New Direction In China
Ebay has plans to close its site in China and partner with Tom Online Inc. an Internet company based in Beijing. Ebay will have a 49 percent stake in the new venture while Tom Online will have a 51 percent share in the deal. The unnamed site is scheduled to open sometime in 2007.
Ebay will invest $40 million in the joint venture while Tom will invest $20 million.
Currently there are no plans to cut any jobs in China. The latest move is designed to strengthen Ebay’s position in the region. Ebay has been struggling to compete with Taobao, the consumer auction branch of Alibaba.com, which is the largest e-commerce company in China.
In 2005 Analyst International said that Taobao held 57 percent of the online auction market in China while Ebay held 31 percent of the market. Ebay’s strategy mirrors what Yahoo did last year when they made a deal with Alibaba. They paid $1 billion to Alibaba for a 40 percent share in the company after they had trouble becoming established in the Chinese market.
Ebay has made some miscalculations in the China market. According to Ina Steiner, the editor of AuctionBytes.com. She told the New York Times that Ebay failed to understand the culture and market place in China. They did not offer phone support and did not encourage buyer-seller contact unlike their chief competitor Taobao. They were also slow to react when it came to dropping user fees. Taobao entered the market with no transaction fees.
Ebay’s new strategy in China probably is a wise move. China has the second largest Internet market in the world after the United States.