SHANGHAI (XFN-ASIA) - Meg Whitman, chief executive of US online auction firm eBay Inc, said a deal that will give Hong Kong-backed TOM Online Inc majority control of its eBay Eachnet Chinese auction site did not mean the company would fade from China.
'We do not anticipate fading from China, we are very committed to the China market and we think the China market is going to be a very big market for m-commerce (mobile commerce) as well as e-commerce,' Whitman told reporters at a Shanghai news conference.
Under a deal announced today, eBay will inject its wholly-owned Eachnet subsidiary and 40 mln usd into a new venture with TOM, tentatively named TOM Eachnet. It will be a 51-49 pct joint venture with the majority stake held by TOM.
Wang Lei Lei, TOM Online chief executive, will be the chief executive of the venture. As well as staff, TOM will provide the venture with an initial shareholder's loan of 20 mln usd.
Whitman said that the rebranding of the auction site and the abandoning of the eBay brand for the domestic auction service was based on market research that showed Chinese consumers have a stronger recognition of local brands.
The company will continue to keep its eBay.com.cn site active, but this would be only for international transactions and that domestic China auctions would be through the new joint venture.
Whitman said that eBay's strategy in China was best served through a joint venture, although the company would possibly consider another wholly-owned foreign investment at some point.
'We had a (wholly owned foreign investment) with the eBay Eachnet business and we could do that again over time, but for now our focus is on our joint venture with TOM,' she said.
Whitman said eBay expects China to be a very important part of its business in five to 10 years.
And while industry observers have opined that the deal with TOM indicates a partial retreat for eBay, Whitman said she didn't see it as a failure.
'Our evaluation of the China market and the strength of TOM Online convinced us that this was the way to go,' she said.
The deal had been long rumored, as eBay was losing ground to local rival Taobao.com, a unit of Hangzhou-based e-commerce company Alibaba.
According to a study this year by the China Internet Network Information Centre (CNNIC), a research group under the Ministry of Information Industry, Taobao.com surpassed eBay in all categories surveyed.
In the main Chinese cities of Beijing, Shanghai.and Guangzhou, Taobao holds a 67.3 pct market share, determined by the number of shoppers as well as frequency of transactions, compared with eBay's 29.1 pct, CNNIC said.
Yahoo Inc made a similar move last year when it injected its China operations and 1 bln usd into Alibaba. Yahoo took a 40 pct stake in Alibaba, but ceded operational control of Yahoo China to the Hangzhou-based company.
Alibaba's Taobao unit has provided stiff competition for eBay in the China market and, with free listings, has cut deeply into the market share and profitability of the eBay Eachnet unit.
According to consultancy iResearch, eBay's market share went from 79 pct in 2003 to 36 pct at the end of last year. Over the same period Taobao's share rose from 8 pct to 59 pct.
TOM Online's Wang would not say when he expected the new venture to be profitable, but indirectly criticized the business strategy of Taobao.
'Free lunches will not be served forever,' he said refering to the lack of listing fees. 'I have no intention of competing with someone who is more interested in market share rather than profit.'
Alibaba spokesman Porter Erisman said he was hoping that the new TOM-eBay venture world bring about an end to the 'intense three years' of competition between the two companies.
'The way we are looking at this is as an opportunity to put this era of competition behind us and to focus instead on areas of cooperation with eBay,' Erisman said.
'We have an English-language website Alibaba.com that is being used by eBay 'powersellers' in the US and Europe, but until now the competition in China has prevented cooperation outside of China, and there are a lot of natural synergies between our import-export website and eBay's international marketplaces, so what we want to do is move beyond the competition.'
Whitman would not comment on a rumor that eBay's PayPal unit would make a 105 mln usd investment into a new venture in which it will have a 33 pct stake, but she said that the company would consider an alliance with a local partner for PayPal should regulatory requirements make it necessary.
A merger of PayPal with a local institution, or some alternate arrangement, is seen as a strong possibility due to government reservations about the emergence of online banking systems that are beyond its regulatory remit. cm