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PRESENTED BY:

HARSIMRAT KAUR

POOJA NEWATIA

SONAM CHANDAK

EBAYS PROBLEMS IN CHINA

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INTRODUCTION

y 1995- Founded by Pierre Omidyar, a software

programmer at SanFrancisco, California, USA

y Sept1995- Omidyar launched anonline auction

sitecalled auctionweb (www.ebay.com)

y Feb 1996- introduced a feedbackforum

y 1996- added anotherfeatureto site, anonline

bulletin board

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y 1996-JeffSkoll was appointed as presidentof

ebay.

y 1996- Skoll apponited Griffith as the1st

customer supportrepresentative.

y Mid1997- Ebay received1mn pagehits perweekwith15000 listings on a day making it

oneofthe most visited sites onthe internet.

y Sept1997- Auctionweb changed its nametoebay Inc.

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y Benchmark Capital, a US based venturecapital firm

invested US$ 5mn inebay with 22% stakey Benchmarkdelegatedthis responsibility to David

Beirne alongwith Robert Kagle

y Feb 1998- MegWhitman, an MBA from Harvard,joinedebay as President and CEO

y Sept 24,1998,Whitman initiated IPO by offering

4.025mn shares to public at US$ 18 per share

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y Stockclosed at US$ 47

y AcquiredButterfield & Butterfield, an auctioneer

famous forfine arts & collectibles

y Co. also acquired Kruse International,oneofthe

worlds largest brick and mortarcompanies inthecollectibles cars auction business

y Ebay launched53regional sites toencouragetrade in

items thatweretoo bulky & expensiveto ship

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y April 1999-Whitman signed a US$ 75mndeal

to strengthenebays relationship with AmericaOnline (AOL)

y Ebay entered into alliancewith Mail Boxes

yJune1999- websitewentdownfor 22 hours

Files gotcorrupted

Decidedtoforego listingrevenues around US$4.6mn

ApologizedforoutrageChinesecustomer preferred Ali Pay (Taobaos

payment system) over Paypal

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y Ebay stockcrashed by US$ 47to US$ 135,reducing

its marketcapitalization by US$ 5.7 bn

y Early 2000- announced its entry toB2Btrading

y March 2000- formed partnership withAutoTrader.com to sell usedcarthrough a common

websitewww.ebay-autotrader.com

y Entered into marketing alliancewithVisa topromoteVisa as the preferred paymentoptionon

ebay

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y May 2000- waive all processingfees forVisa

transactionsy Expanded into Japanthroughebay Japan & launched

its Canadian & Austrian sites

y 2001- strengthened its presence in Europethroughthe purchaseofFrench internet auctionfrom iBazar

y Finalized a deal to provide its e-commerce

capabilities to Microsoftdevelopers & to addB

2B

auctions to its consumeroperations

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y Jan 2001- launchedebay premier,thefine art &otherhigh-end

merchandise auction sitewww.ebaypremier.comy Disappointedwith Premiers performance & partneredwith

Sotheby, an international auctionhouse,replacingebaypremier

y

Ebay soldB

utterfields & alsoclosed Japaneseoperationsy 2002- ebay entered China by acquiring a EachNet.com, a

leading auction site in China,toform ebay EachNet

y 2003- started losing its sharefrom local sites likeTaobao.com

andglobal rivals like yahooy Introduced its auction site in Hongkong whichofferedonline

trading.The sitewas freeofcharge

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y Jan 2004- acquiredBaazee.com for US$ 50mn in India

y Nov 2004- launched its sites in Philippinesy June 2005-bought shopping.com for US$ 620mn incash

y Dec 2006- ebay EachNet entered into a joint venturewith

TOM Onlinetoform TOM ebay tocompete inthe intensely

competitivee-commerce market

y Sept 2007- worlds largestonline auctioncompany with

233mnusers & revenues ofUS$ 4249.8mn

y2008- Baidu, leading searchengine in Chinese languagestartede-commerce

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E-Commerce Market in China

y China was the 2nd largest internet market after US

y Numberofinternetusers reached162mn by endof

July 2007

y On an average, internetuser inchina spent17.9

hours perweek,comparedto11.4 hours perweek

in US

y

Internetusers comprisedonly 10.5 % ofcountryspopulation sotherewas a huge potential forfuture

growth

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y Market scalefore-commerce in China grewfrom

RMB120bn in 2001to RMB680bn in 2005

y C2C marketwas smaller incomparisonwith

overall e-commerce market but ithadkept pace

withtheoverall e-commerce market.y TransactionVolume in C2C markethas increased

from 0.4 RMB bn in 2001to13.1 bn in 2005

yBaidu announced its plantoenter Chinesee-commerce market by 2008

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PROBLEMS IN CHINESE E-COMMERCE

MARKET

y Influenced by governmentregulations, logistics andpayment systems

y Enforcedregulations relatedto Internet access,contentregulation,encryption anddomainname

y Government regulations:

y Domainregulations requirede-commercecompaniestoregistertheirdomainnamewith China InternetNetwork Information System(CNNIC)

y Encryptions requires approval from NationalCommissionon Encryption CodeRegulation(NCECR)

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y Regulations relatedto security involvedcensoringthecontent & preventingdisseminationofsensitiveinformationrelatedto Chineseeconomy

y Payment Systems were another problem

y Consumerraiseddoubts overthequality ofpurchasedproducts and after sales services

y Inefficient logistics system was considered anotherconstraint indevelopmentofe-commerce

y This was duetoUnderdevelopedtransportation systems

InadequateuseoftechnologyInconsistentdistribution systems

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y Accordingto State Economic Trade Commission,therewere9 problems plaguingthedevelopmentofe-commerce inChina

Network Safety

Internet Infrastructureconstruction

Social

B

usiness credit problemE-commercerelated laws andregulations

Standardized problem

Network payment

Acceptancedegreeofenterprises one-commerceNetwork marketcapacity

Lackofmanagementtalents

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E-BAY IN CHINAy Enteredchina by acquiring33% stake in EachNet with initial

investmentofUS$ 30 mn in 2002

y Acquiredremaining stakefor US$ 150 mn

y In 2003 its market sharewas nearly 80% and spentheavily on

promoting itselfinchina.y Started losing market share since launchofTaobao in 2003

y In 2004 Eachnets market sharefell form 90% to53 % and

Taobaos market share increasedfrom 9% to 41%

y Invested additional US$ 100 mn inchina in 2005y In 2005ebays sharewas 29.1% as comparedtotaobaos

67.3%

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FAILURE

y Taobao was aheadofebay on various counts

No.ofpages per view,whichwas 7.4 forebay and

10.7forTaobao

Taobaos listings generatedgross merchandise

volumeofUS$120mncomparedtoebays GMV of

US$ 90mn

y ebay failedto make an impact in Japan

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SUCCESS

Ebay alsohad some success in China:

y Skype, internet phone business, aquired in 2005

had morecustomers in China than in US

y Madeefforts touseescrow servicewherepayments would behelduntil buyers were

satisfied

Though itwas generating sales ofUS$ 30-50mn,company was postingoperating loss ofUS$20-

40mn

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EBAYS CHINA TROUBLES

y Various factors behind ebays problem in China

Itdidnt provide a phonenumberthatcustomers couldcall in

caseofany queries whereas Taobao has an instant messenger

serviceEbay EachNet sitewas nottailoredtothe Chineseconsumer

whereas taobaos layoutwas similarto a Chinesedepartmental

storewith separate sections forwomen & men

Ebay charge its userfortransactions through its Chinesewebsitewhereas Taobao offeredthis forfree

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Taobao allowed its customers to interactwithotherusersbefore buying a product. Howeverebay keptusers contact

information as a secrettill buyerhadwonthe bid

Ebays EachNet alsofaced problems with its payment system,

Paypal. Chinesecustomer preferred Ali Pay (Taobaospayment system) over Paypal

Ebays problems werecompoundedwhenTaobao launched

B2C in May 2006

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Taoba

ostarted

offer

ing

product

s & ser

vice

sof

major

companies like Apple Computers, Motorola Inc., Nike

International Inc.

Further Alibaba announced its plans to make a strategic

investment inkoubei.com, Chinas classified listing andcommunity website

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JOINT VENTURE WITH TOM ONLINE

Sensingtheneedfor local support,ebay entered into JV

withTOM Online in Dec 2006

TOM Onlinewas a leadingwireless internetcompany that

provided value added multimedia products & services Ittoo aimedtodiversify its revenue stream as around90% of

its earnings werefrom wireless value added services

ebay hold a 49% stake in JV whileTOM 51%

2nd majortie-up with a local company after EachNetsacquisition in 2003

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STRATEGIC SHIFT

POSITIVE ASPECTS

y Decisioncouldhelp inreducing its operating losses

y Analysts viewed it as a strategic shift aimed at strengthening its

position in Chinese market

y TOM Onlinehad a significant presence in m-commercewhichcould proveuseful in a country wherethere are 4

mobile phoneusers forevery computeruser. Payment

through mobile phones insteadofcreditcards was promising

pilot programs

y Ebay leveragedonexcellentconnections ofKa-shing to

navigate political & regulatory hurdles in China better

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NEGATIVE ASPECTS

y Industry watchers pointedoutthatunlike yahoowhichhad

paid a hefty amountofmoney toget a stake in Alibaba,ebay

was putting money for a minority stake in a JV with a company

was yetto make its presencefelt in a significantway inthe

Chineseonlinetrading market.

y Lineofbusiness was notcompatible sothey wouldneedtime

to learntoworkwitheachother

y

This JV was also indicativeofpressurethatthe Chinesegovernmentregulations putonforeigncompanies toform JV

withdomesticcompanies.

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AFTERMATHy

Thenewentity startedoperatingwithname Tom Yi Quin 2007

y Inordertowinthetrust, JV used anescrow service andensuredthatthe peopleholding auctions werereliable

y

It also placed somerestrictions ontheno.ofluxurygoods that a usercould sell onthe site

y Whitman said JV is doingwell butfigures suggestedotherwise

y

Inthe1st

6 months, MP fell from 16% to7.2%y Erosion in market sharecould be a falloutofthe

upheaval oftransferringebays Chinese auction servicestonewcompany

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OUTLOOK

y Accordingtogovernmentfigures,no.ofinternetusers

hadreached 210mn in 2007

y Tremendous scopeforfuturegrowth as penetration level

were lowwithonly 16% ofpopulationusingthe internety Ebay faced more immediatethreatfrom Taobao as 80%

ofpeople preferred it.

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HOW TO OVERCOME?

y Accordingto a survey by China Market ResearchGroup,Trust andexcellentcustomer service arethemajorfactors that Chinesecustomers lookfor beforebuying a product

y Ebay should leverage its understandingofChineseconsumers andchart its own path intheonlineauctions market

y

They should bringtogetherebays global knowledgeofe-commercewith TOMs local knowledgeoftheChinese

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THANK YOU