Ebay has decided to take another shot at the Chinese consumer market this week partnering with luxury goods site Xiu.com, who will be representing them in their next great foray into China. Xiu will be handling all their listings, payments, shipping, customer service and regulatory concerns as they sell luxury American brands at a discounted price to Chinese consumers.
Whenever companies discuss entering China, no matter what type of tech business they are talking about, the most notorious example always discussed is still the disastrous failure of Ebay back in 2002. At that time, Alibaba’s Taobao outsmarted them bidding for the hearts and minds of Chinese consumers.
The case began when Ebay decided to enter China with what it thought would be a win-win successful in the US, namely payments to bid products online and auction prices that brought a higher return for all parties. This calculation was gravely mistaken, however, as Chinese consumers were not (and often still aren’t) keen on paying online and preferred to purchase on arrival.
Alibaba’s Taobao service, founded in 2003, ran on a system that allowed payment on delivery. In 2004, they began to introduce several different options for online payments with their Alipay system. Additionally, the company aggressively established themselves as culturally Chinese, creating forum avatars from Chinese kung fu novels and adding better feedback services.
Long story short, Ebay decided in 2006 to close shop and in defeat moved operations to Hong Kong. It is only now deciding that it cannot ignore China anymore after a 6 year break.
In essence, Ebay was a victim in this case, but its example has served as a reminder to tech companies worldwide about the uncertainties of China’s market. One thing in all this that is worth pointing out is that Ebay’s partner in 2002, EasyNet, was originally running a payment system for its services. Taobao was simply being competitive in this regard.
Ebay’s chances look much more promising now that the e-commerce market is rapidly maturing. Its largest issue will still be competition, but at least now its business model is viable in China. Certainly they won’t repeat any of their previous mistakes, at least one can hope.
Image source: Qing’s Tea House