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JCPenney's Ron Johnson: 'Customers Don't Get Our Pricing Strategy'Quite frankly, I'm surprised by the Wall Street Journal title: EBay Steps Back From Asia, Will Shutter China Site, or by the New York Times title: EBay Is Expected to Close Its Auction Site in China. I guess I've been expecting exactly such a deal so I don't see it as a retreat from the Chinese market, but as a change in strategy. And when a strategy isn't working, as was the case for eBay Eachnet in China, a change is welcome.
According to sources, no job cuts are planned, furthering the idea that this move is a strategic shift aimed at strengthening operations in China, not an exit strategy. This isn't another Japan where eBay bowed out to Yahoo! Japan.
True, eBay will close its primary Chinese site and pay about $40 million for a 49% stake in a new venture with Tom Online, a Beijing-based Internet company, ceding control of its China operations. Tom Online will then operate the site and maintain a 51% stake in the new site. But investors have to consider that eBay wasn't doing well in China, a market touted by Meg Whitman, eBay's CEO, as a major part of eBay's future.PayPal, eBay's online payment unit, will also announce a deal to form a joint venture with a locally based electronic payment specialist. PayPal will pay $105 million for a 33% stake in the venture with UMPay.
Not only is it difficult culturally for U.S. companies to operate in China, but in the case of eBay, its Chinese rivals, Alibaba's Taobao and Tencent, have been offering the same services for free. While Tom Online local management team should help, eBay still faces the fee problem. So I don't see the problem in China as fixed just yet. Keep in mind also that despite the local ownership, both Yahoo! China and CETV have been struggling.
The importance of China could not be overstated, especially if companies want to keep the growth rate investors have become accustomed to. China had 123 million Internet users at the end of June, second only to the U.S. So while I approve of this strategy shift and happy eBay didn't exit China altogether, it remains to be seen how the eBay-Tom site competes against free services while maintaining profitability.
- Prudential Equity Group analyst Mark J. Rowen said this was good news mixed with bad. While eBay could reduce operating losses in China, it would also effectively admit defeat.
- Stifel Nicolaus analyst Scott W. Devitt wasn't surprised and said that "Cutting losses and taking a minority stake in a locally owned business is a decent alternative for EBay."
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Reader Comments (Page 1 of 1)
12-19-2006 @ 3:41PM
Randy Smythe said...
I think it is a move that had to be made. Time will tell how smart it was. Maintaining a presence in China is much better than pulling out completely. I’m sure they didn’t want to spend another $100 million in 2007 to continue to prop up Eachnet. One thing about eBay; if they see a problem they make changes to correct it. I wonder how long it will take for them to correct their Skype mistake.
12-19-2006 @ 3:51PM
Helen said...
Agree with randy about skype. Looking a bit like a white elephant:
http://www.pheebay.com/forums/viewtopic.php?t=452
Of all the major internet players I think Yahoo! have found the best way forward in China (take a stake and let the Chinese run it) and I suspect eBay are now following a similar path.
12-19-2006 @ 8:05PM
VC said...
Melly, you left out the bit where Tom.com only paid $20 million for their 51% stake.
Footing 2/3rds of the cost and giving up controlling reigns of a company sounds like desperate measures.
12-19-2006 @ 8:19PM
Rob Lacy said...
EBAY : STAY out of China . They will clean your clock ...there is no money to be made in china people are broke , working for walmart in china
12-23-2006 @ 5:22PM
Helen said...
I fear a similar mistake is going to be made in India too.