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EBay Fails In China

By: David Utter

The online marketplace proved unable to overcome fierce competition in China, where rival Taobao has held on to its role as China's leading auction site while eBay will have to settle for a minority stake in Tom Online.

eBay Fails In ChinaFourteen months after Taobao executive Jack Ma announced his site would be free for buyers and sellers for three years, eBay (EBAY) will withdraw its website in China in favor of a partnership with services provider Tom Online.

EBay had scoffed at news that Taobao would offer its online marketplace services at no charge for three years. "'Free' is not a business model. It speaks volumes about the strength of eBay's business in China that Taobao today announced that it is unable to charge for its products for the next three years," the company commented in October 2005.

That stance has reportedly been proven wrong. A Bloomberg story on eBay's shift cited a source close to the situation, who stated eBay and Tom Online would form a partnership with eBay taking 49 percent ownership.

The majority holder, powerful Chinese billionaire Li Ka-shing, has built his fortune with Tom by selling various Internet services to the rapidly rising Internet-using class of citizens in the country. That number, 123 million and growing, has been an irresistible temptation to US companies like Yahoo, Microsoft, and Google, all of which have made controversial concessions to Beijing's censors in exchange for permission to operate on the mainland.

For eBay, the formal announcement of its shift in China will represent another failure in Asia. The report noted how eBay has closed previous operations in Japan and Taiwan in favor of other opportunities.

The China kerfuffle has happened despite eBay gaining in market share against Taobao, with 40 percent of the market against Taobao's 44 percent. Perhaps the prospect of two more years of sacrificing part of its revenue to try and keep up with Taobao was enough of a losing proposition for eBay to choose an exit strategy.


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