Second chance

Can eBay lure them from Taobao?

If Taobao’s success story merits a business school case study, at least a page should be devoted to this month’s Singles’ Day (on November 11) when the e-commerce site achieved record sales. Taobao’s owners Alibaba are even reporting that it welcomed 213 million different visitors on the day in question – almost a fifth of the Chinese population.

By contrast, a comparable study of Taobao’s close equivalent in the United States might include a chapter on “How Not to Succeed in China”. Despite arriving early on the Chinese e-commerce scene, eBay has struggled to build up much of a customer following. Most attribute this failure to an insistence on doing things the Silicon Valley way, such as charging its sellers for listing and transactions. Taobao started out by offering the same services for free. In the years after, Taobao has stayed ahead of eBay with innovations in payment systems, as well as via its ad network and customer service. In 2006, the US site surrendered, leaving the market to Taobao.

But while eBay’s days of challenging Taobao directly are long gone, it does seem to have settled on a Plan B for the China market. Last week Southern Metropolis Daily reported that the Californian firm will partner with Xiu.com, a local online retailer of luxury goods.

But don’t call this a comeback. “Actually, eBay can’t say that it’s ‘returning’, because we never left,” its vice president Chen Xiaofeng told the newspaper, adding that the company continues to run a technology centre with 1,500 employees in Shanghai. Also included in its ‘China business’: it generates revenue from around 7,500 Chinese merchants who use its platform as an international sales channel for their China-made goods.

Based in Shenzhen, Xiu.com went online in 2008 and employs about 1,000 people. Kleiner Perkins Caufield & Byers, the Silicon Valley venture capital firm, invested $20 million in the firm in 2011, and then joined Warburg Pincus for a second $100 million round later that year.

So how does the new partnership – which has been named eBay Style – work? According to Southern Weekend, eBay will use Xiu as a platform to list its global inventory in Chinese. And Xiu, with expertise in importing merchandise into China, will help by showcasing the items that it expects to be most desirable to Chinese consumers. Xiu will handle everything from the translation of site content and the shipping of all items from US vendors once they arrive at a specialised warehouse in Dallas.

The other part of the eBay plan is to target a smaller slice of the import market, capitalising on existing inventories of unsold goods from retailers like Macy’s, Calvin Klein and Coach, which have increasing cachet in China.

According to Lin Yichang, eBay’s Greater China CEO, the venture will also focus on higher-margin sales in China, rather relying on the consumer-to-consumer segment that Taobao dominates. “That is why this time round we target the business-to-consumer segment, importing the products from eBay’s largest merchants to China,” Lin told Southern Weekend.

Industry observers are generally supportive of the strategy.

“By acting largely as a supplier and adviser to the venture, eBay is drawing on its biggest strength of identifying strong e-commerce suppliers and using its scale, resources and experience to work with them to help boost their business,” says Doug Young, author of the YoungChinaBiz blog. “At the same time, eBay has realised that it doesn’t know much about operating an online store in China, and is leaving that part of the business to Xiu.”

To help consumers know more about its new marketplace, eBay has launched an $8 million advertising campaign, targeting social media and high-end fashion magazines. But Taobao and a number of other domestic e-commerce sites may still have a leg up on eBay Style, said David Zhao, founder of Shangpin.com, a Chinese e-commerce site. He told Bloomberg that the US company may have trouble gaining traction with a Chinese consumer audience. Another challenge is that shipping times for items purchased from the United States look like being slower than the two-day delivery Taobao-inculcated consumers are used to.

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