EBay Failed In China

 In 2004, eBay had just entered China and was planning to dominate the China market. Alibaba was a local Chinese company that helped small- and medium-sized enterprises conducting business online. Most people in the West had barely heard about it.

 

When eBay entered the China market, Yun Ma, founder and CEO of Alibaba, was alarmed that “someday, eBay would come in our direction.” He knew too well that there was no clear distinction between small businesses and individual consumers in China.

In early time of Taobao, it launched a defensive strategy to competing consumer to consumer acution site, not to make money, but to fend off eBay from taking away Taobao customers. The website Taobao - meaning "digging for treasure" was formally launced to the market and set the free of charge policy for individuals buying and selling virtually any consumer goods.

 
                                                              (A typical front page of Taobao)

EBay, on the other hand, began its most aggressive campaigns to dominate the market . Soon after Taobao was launched, eBay signed exclusive advertising rights with major portals Sina, Sohu, and Netease with the intention of blocking advertisements from Taobao. In addition, eBay injected another $100 million to build its China operation, now renamed “eBay EachNet,” and was spreading its ads on buses, subway platforms, and everywhere else. The just want an quick and deadly strategy to take out all major market competitors and fastly dominate all China C2C market

Taobao set cleverly strateg to fight back.  They deeply understand the Chinese market and culture at that moment. During that time, internet popularity in China still at a low lever, although the growth rate was reached double digital in previous years, most of Chineses were more willing to accept the traditional media as the platform of market promotion, such as News Paper and TV Taobao secured advertisements for Taobao on major TV channels. In 2004, one could easily feel the heat of fierce competition between eBay EachNet and Taobao. Since its name means “digging for treasure” in Chinese, it attracted a lot of attention by a smart play on words. While most people in the West had never heard of Taobao, its name was heard loud and strong in China.

Actually, a lot of market expert put the big question market with Taobao's future.  Unlike eBay EachNet, which charged its sellers for listing and transaction fees, Taobao was free to use. Neither Ma nor any members from the management team gave a definite timeline as to how long this “free period” was going to last. “Free is not a business model,” the doubters said. Some thought Taobao's CEO Yun Ma was crazy and nicknamed him “Crazy Ma.” But the market change fast proved the Crazy Ma's expectation.

According to a Morgan Stanley report, Taobao was more customer focused and user friendly than eBay EachNet. With most users not sophisticated about auctions, the majority of Taobao’s listings were for sales. Only 10 percent of its listings were for auctions, while eBay EachNet had about 40 percent of its listings for auctions. Taobao had also better terms for its customers: it offered longer listing periods (fourteen days) and let customers extend for one more period automatically. EBay EachNet did not have this flexibility.

Taobao’s listings appeared to be more customer-centric while eBay EachNet’s listings more product-centric. For example, Taobao’s listings were organized into several categories, such as “Men,” “Women,” and so on, while eBay EachNet stuck to its global platform, grouping users into “Buyers” and “Sellers.”  

(A typical page of Taobao, just like an Asian grocery shop, crowd and plent of products are put on the shelf. Taobao's visitor may easily to catch the any kinds of product category)

 (eBay frontpage as a Coles and Woolwooth, clean and well organise by various function area. But some times, you may unable to quick locate the necessary products)

It was clearly that Taobao had an upper hand against its global counterpart because it really understood Chinese customers. As a result, Taobao had higher customer satisfaction than eBay EachNet. According to iResearch, a Beijing-based research firm, the user satisfaction level was 77 percent for Taobao versus 62 percent for eBay EachNet.

 (The above picture indicates the 2005 China online shop market share. 淘宝网Taobao was the market share leader with 57.74%. eBAY controled second largest market share at that moment which was 31.45%. The current second laregest online shop 拍拍网 PaiPai only had 3.76% market share)

By March 2008, Taobao kept its advantage to  eBay EachNet in China’s consumer-to-consumer (C2C) market, with 86 percent market share in terms of users, while eBay EachNet had only 7 percent market share. “The competition is over,” Ma exclaimed. “It’s time to claim the battlefield.” Actually, on cecember 20, 2006, Meg Whitman anounced new eBay China strategy which joint venture with Beijing-based Internet portal Tom Online, which provides wireless value-added multimedia services. It was, in reality, a formal announcement of eBay’s withdrawal from the online auction market in China. 

In 2009, the raise up of the Chinese online shopping website slightly decreased the Taobao's market share to 79.9% but still can not change the domination position. Meanwhile, eBay was keeping lose its market to 6.2%. Actually when eBay dramtaically lost its market share to under 20%, it already declaimed failed of eBay in Chinese market.

The case of Alibaba provides an invaluable lesson for multinationals to succeed in China market:

 

 The  Ex-CEO of eBay (currently as CEO of HP) stated the learning from fault of eBay in Chinese market during a Technology Conference in China.

(1) eBay failed to recognise that the Chinese market and the business environment are very different from that of the West. EBay sent a German manager to lead the China operation and brought in a chief technology officer from the United States. Neither one spoke Chinese or understood the local market. It was eBay’s biggest mistake. 

(2) Because the top management team didn’t understand the local market, they spent a lot of money doing the wrong things, such as advertising on the Internet in a country where small businesses didn’t use the Internet. The fact that eBay had a strong brand in the United States didn’t mean it would be a strong brand in China. 

(3) Rather than adapt products and services to local customers, eBay stuck to its “global platform,” which again did not fit local customers’ tastes and preferences.

Reference

Chaffey, D, Ellis-Chadwick, F, Mayer, R, Johnston, K, 2009, Internet Marketing: Strategy, Implementation, and Practice, Pearson Education, England.

Helen, HW 2010, How Ebay failed in China, viewed on 2 September, http://www.forbes.com/sites/china/2010/09/12/how-ebay-failed-in-china/

Rob, H 2006, eBay's China Challenge, viewed on 2 September, http://www.businessweek.com/the_thread/techbeat/archives/2006/12/ebays_china_cha.html