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On December 19, 2006, eBay EachNet, eBay's1 subsidiary in China announced a Joint Venture (JV) with TOM Online Inc (TOM Online), a Chinese online portal and wireless internet company, for exploring opportunities for growth of e-commerce and m-commerce in the rapidly growing Chinese market. eBay would hold 49 percent stake in the JV while TOM Online would hold the remaining 51 percent. eBay also said that the new auction website developed by the JV partners would be launched in 2007 and that it would replace eBay's website in China.
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Commenting on the JV, Meg Whitman, President and CEO, eBay Inc said, "eBay has helped pioneer e-commerce in China, and by combining our expertise with that of a strong local partner like TOM Online, we are even better positioned to participate in this growing market.
This agreement is a sign of our continued commitment to delivering the best online buying and selling experiences in China."2
Wang Lei Lei, CEO of TOM Online said, "eBay is one of the world's most recognized e-commerce brands and TOM Online has a proven track record of delivering outstanding services to Chinese consumers."
He added, "The new online marketplace to be built by the joint venture will provide an enhanced user experience, tailored for the China market, and will capitalize on our companies' strengths in the emerging m-commerce sector."3
Under this partnership, eBay was expected to invest US$ 40 million while TOM Online would contribute US$ 20 million. Further, if mutually agreed upon, the companies could further invest an additional US$ 10 million each.4
Analysts cited this as a change in eBay's strategy in the Chinese market as its Chinese venture had failed to fully materialize. eBay entered China when it purchased a 33 percent stake in EachNet, a leading Chinese online auction company, in March 2002 for US$ 30 million.
Later in June 2003, eBay announced that it was purchasing the remaining stake in EachNet for US$ 150 million.
However, even though EachNet was the leading player in the Chinese online auction market, it lost market share to Taobao, an online auction site launched in 2003 by Alibaba.com, a Chinese e-commerce company.
One of the reasons cited by analysts for eBay's failure in China was that it failed to understand the local market. Taobao's auction site was perceived as more in sync with the Chinese consumers buying behavior.
It had a layout that was similar to a Chinese department store with separate sections for women's and men's departments. Moreover, eBay charged its users for transactions through its Chinese website whereas Taobao offered this service for free.
The rise in Taobao's popularity significantly impacted eBay's market share. According to iResearch, a market research firm, eBay's market share went from 79 percent in 2003 to 36 percent in 2005, while Taobao's share rose from 8 percent in 2003 to 59 percent in 2005.5
In December 2005, eBay changed its strategy and began to offer free listing services to its users. However, Taobao continued to grow in popularity and garnered a 67 percent share in the e-commerce market when compared to eBay's market share of 29 percent as of October 2006.6
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1] eBay Inc. is the world's largest online auction company that has around 200 million online auction users. The company had revenues of US$ 4.5 billion for 2005 with a net income of US$ 1.08 billion. In addition to providing online auction markets, eBay also has an online payment service called PayPal and a communications business under Skype, which offers voice-over-Internet protocol (VoIP) services.
2] "eBay, TOM Online Reveal Joint Venture Agreement in China," www.tradingmarkets.com, December 19, 2006.
3] "eBay Inc. and TOM Online Announce Joint Venture Agreement to Enable Next Phase of E-Commerce Growth in China," www.finanzen.net, December 20, 2006.
4] "eBay and TOM Online Form JV in China - Stocks to Watch," www.tradingmarkets.com, December 20, 2006.
5] "eBay CEO Whitman Says Company 'Not Fading' From China - Update," www.money.cnn.com, December 20, 2006.
6] "eBay Losing to Yahoo! and Local Competitors in Asian Online Auctions," www. internet.seekingalpha.com, October 12, 2006.
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