EBay partners with Tom in China shift
(Reuters)Updated: 2006-12-20 20:10
SAN FRANCISCO/SHANGHAI - EBay Inc. is folding its Chinese operations into a new venture controlled by a local partner as it switches strategies in a fast-growing market where it has struggled.
EBay said on Tuesday that Tom Online's Internet offerings and base of 75 million mobile phone users would position it for growth in a market where analysts say it has failed to gain traction against rival Yahoo Inc., which merged its China operations into local firm Alibaba.
"One thing we've learned operating here for three or four years is that actually we are going to be better served by tapping into a local partner who has local knowledge," eBay Chief Executive Meg Whitman told Reuters in an interview.
She dismissed speculation that eBay's PayPal online payment unit, which set up shop in China last year, would announce a joint venture with a Chinese electronic payment firm.
"We are very committed to PayPal here in China. It has been a very big success on the eBay marketplace, but also enabling cross-border trade. Our plan is to continue as is," she said.
Under the deal, eBay will invest $40 million and have a 49 percent stake in the venture, while Tom Online will invest $20 million and have 51 percent. The companies will split revenue and any profits according to their stakes.
Both sides may contribute equally to an additional $10 million investment in the venture if there is mutual agreement, eBay said in a statement.
TOUGH MARKET
Over the next few months the venture, headed by Tom Online Chief Executive Wang Lei Lei, will build an entirely new auction Web site that will be launched in 2007, Whitman said.
China is a fast-growing media market, with about $500 million in online ad spending and as much as $75 billion in e-commerce last year, according to various estimates. But it is also one of the toughest, due to its fragmentation and heavy government oversight.
China's largest e-commerce company, Alibaba.com, competes with eBay in China via its Taobao auction site, which forced eBay to cut prices last year.
In 2003, eBay dominated China's online auctions market with a 79 percent share. But Taobao was launched that year and eBay's share fell to 36 percent in 2005 compared with Taobao's 59 percent, according to research firm iResearch.
EBay's new tie-up in China "is a very good one", said Morgan Stanley analyst Jenny Wu. "It's good for eBay, because during the past two years at least it has been losing ground to Alibaba's Taobao, mainly because eBay lacks local expertise."
Tom Online, a subsidiary of Tom Group, offers content and services such as news headlines and instant messaging to Chinese mobile subscribers, who number more than 400 million.
Tom Online has an existing partnership with eBay to offer its Skype Internet telephone service in China. Whitman said she was "delighted" by the growth of Skype in the Chinese market.
COMMITTED TO CHINA
Analysts say eBay is reluctant to retreat from China as it did from Japan in 2002. EBay shut its nascent business there after failing to make headway against market leader Yahoo Japan Corp.
Whitman cited the size of China's potential market, an increasingly wealthy middle class, the spread of high-speed Internet connections and the coming roll-out of speedy new mobile phone networks.
"We're very committed to the China market. You have to remember we withdrew from Japan when eBay was a much smaller market," Whitman said. "Today we are a very big company with resources enough to continue investing in China."
"China is a small part of eBay's overall business, but we hope it won't be in five to 10 years."
A growing openness to online payment and e-learning among Chinese should support expansion, Tom Online's Wang told a news conference in Shanghai.
"We expect to see rapid growth in China's e-commerce market in the next two to three years," Wang said.
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