Sina, Yahoo! Join To Challenge eBay
Sina.com, one of China's leading Internet portals, and
Yahoo!, one of the US's leading portals, have joined forces
in China to develop an online auction service to challenge
eBay's wholly-owned subsidiary in China, Eachnet.
This is a breakthrough agreement for Sina and Yahoo!,
which have up until now, been strong competitors for an
Internet presence in China. Yahoo! and Sina.com's predecessor,
Sinanet, were founded by Stanford graduates in Silicon
Valley in the mid-nineties when the Internet began to
take off, and in the late nineties competed directly to
win Chinese Internet users.
But, their paths began to diverge when the Internet bubble
collapsed in the US in 2000 and 2001. Yahoo!, with its
headquarters in the US, largely focused on the US market.
With the collapse of the online advertising market, Yahoo!
became unprofitable, laid off workers domestically and
overseas and changed its management team, eventually settling
on a team led by Terry Semel, who came from a Hollywood
studio production and management background. By cutting
costs and adding paid services, Yahoo! has been able to
work itself back into the black. Terry Semel has taken
a much more hard-nosed approach to profitability and earnings
than the management team he replaced, and has cut back
significantly on international operations to keep costs
low.
Sina.com took largely the same approach as Yahoo!, but
since it is based in Beijing, it sought to conserve its
base in China, and cut back on non-Chinese operations
in Taiwan, Hong Kong and the US. The share price closed
at a low of less than US$1 per share, but with new profitability
and growth from paid services including SMS (short message
services) and online gaming, it has hit more than US$40
per share.
Sina.com and Yahoo! have agreed to establish a new online
auction company to go directly against EachNet,
which became a wholly-owned subsidiary of eBay last year.
The exact terms of the deal were not disclosed.
The traditional obstacles for online auctions in China
have been a lack of trust for buying goods from strangers,
and lack of a payment mechanism. eBay has a significant
advantage in this area because it bought PayPal in 2002,
which allows buyers and sellers to transmit funds using
email accounts which are linked to credit cards and bank
accounts.
The willingness of both companies to cooperate means
that their management teams are much more focused on conserving
earnings and profitability than they were in the pre-crash
days. For Yahoo!, it offers a way to expand into China
without carrying all of the costs itself, and for Sina.com,
it brings association with the internationally respected
Yahoo! brand name, and it opens the way for possible closer
cooperation with Yahoo! in the future.
Sina.com's two leading competitors in China are Sohu
and Netease. Both are very well known in China, but unlike
Sina.com, have almost no presence outside China.
Following the news on Wednesday, Sina (Nasdaq:SINA) closed
up $4.08 at $47.05.
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