eBay Buys Out EachNet
eBay, the world's largest online auction place, has purchased
the remaining two-thirds of EachNet, a major Chinese online
consumer auction place, for $150 million in cash on June
12.
eBay first purchased one-third of EachNet in March 2002
for $30 million. Based on the transaction value and total
company valuation, EachNet, which was valued at $90 million
in March 2002, is now valued at $225 million, growing
two and a half times in a one-year period. EachNet was
founded by Bo Shan and Haiyin Tan in 1999, and early investors
included Whitney and Co., AsiaTech Ventures Ltd. and Orchid
Asia Holdings.
The company is not yet profitable, and is expected to
record an operating loss of US$10 million in the third
quarter and $5 million in the fourth quarter.
According to the China Internet Network Information Center,
there are more than 59 million Internet users, placing
it only second to the US. It claims that there will be
86 million users at the end of this year, and the value
of online transactions will grow to $16 billion by 2005.
The number of users in China, and company valuations
of the main Chinese portal players have grown precipitously
since their lows in September 2002. The three main players
are Netease (NASDAQ: NTES), Sohu (NASDAQ: SOHU) and Sina(NASDAQ:
SINA). All were nearly delisted by Nasdaq because of their
low share value, but have since clawed their way back,
and are now trading in the $15-30 per share range.
It is believed that Chinese online activity has been
a beneficiary of the SARS crisis in China, which is almost
past. Many Chinese consumers spent their time at home
during the crisis instead of going out. Popular activities
were online gaming, SMS (short message service) and buying
and selling items on online auctions. The SARS crisis
helped companies engaged in online services, but hurt
hardware sales. For instance, sales of cell phones have
been hurt, and inventories are building up.
Although online auction sites have been available in
China since 1998, activity has been slow to grow until
very recently. The main barriers have been lack of trust,
and an efficient and effective payment mechanism. Traditionally,
Chinese would want to meet before completing an online
transaction to verify the quality of the product and meet
the seller. Ironically, the SARS crisis removed this trust
barrier, as people were afraid of meeting. In the US,
eBay has historically relied on its own feedback system
and third-party solutions to resolve these problems. Most
payments are handled by PayPal, and in July 2002, eBay
purchased PayPal, and now makes it the preferred payment
provider for eBay auctions. It is not known if eBay will
introduce these solutions to China through EachNet now.
eBay's purchase also reflects a strategic move into the
China market, which has much greater room for growth than
the US and European markets, which are much more developed
and are near saturation. As a result, in these markets
eBay has shifted to courting corporate customers, and
getting them to sell their excess inventories on eBay.
This has come at the cost of upsetting the family sellers,
who grew the eBay community in the early days. Recently,
eBay has introduced VAT taxes on sales in the EU. As US
states and the federal government have come under increased
budget pressures, there has been more active discussion
of taxing online transactions.
In comparison, the Chinese online market is almost completely
unregulated. Buyers and sellers are still individuals;
corporations do not sell their inventories online yet.
Before you go, did you like this article?
If so, you can receive a free email newsletter version
each weekday. Sign up using the China Business Express
form on this page.
