Sunday, October 23, 2005

First Report on Yahoo/Alibaba Integration

First report on Ya/ba integration: Taobao fighting with eBay to see who "burns money" faster

21CN economic report by Zhonghui Lei from Beijing

Oct. 20, Alibaba announced increased investment of 1 billion yuan(about $120 million dollars)in Taobao and also annouced that Taobao will be free for listing for three years.

Dongyu Sun, general manager of Taobao said that in the next three years, users can still enjoy free store renting, product registration, and deal completion services. "Taobao hasn't make any money, and will continue to invest in three areas, these are customer service, secure trading, and brand building." Each of the three areas would take about one third of the investment.
Far away in the US, eBay release a global annoucement---"free is not a viable commercial model. Taobao's announcement only indicates our strong growth in China's business." The annoucement came in a few hours after eBay's third quarter earning report.

Market analysts think, the announcement of eBay's increased investment of $100 million dollars in Eachnet and Alibaba's announcement of investment of $120 million dollars in Taobao indicate the China's C2C e-Commerce is entering a decisive battle. It could be time and resource consuming period for both.

"The investment is not coming from Yahoo"

Added investment in Taobao is the first large investment made by Yun Ma(founder and CEO of Alibaba) after the Ya/ba integration. It is also the third investments by Alibaba. Sun said that the total investment has amounted to 1.45 billion yuan($175 million). "the previously invested $55 million has not been used up yet".

A few days before the annoucement, Alibaba and Yahoo.China's executives held a strategic meeting in Zhuhai and the decision was made in the meeting.

According to sources, the Ya/ba integration is in the final conclusion. Oct. 21 is the last day and the details will be announced at the end of the month.

Sun denied that the money is part of the conditions from Yahoo and indicated that it is from Alibaba's fund. "Alibaba has enough profitability power to invest more money into Taobao. It is not coming from Yahoo's $1 billion cash investment in Alibaba".

Sun indicated that the integration with Yipai, which is a joint venture between Yahoo and Sina, will have detailed plan announced soon. However, one thing is certain that "the money for purchasing Sina's holding will come from this announced investment and not going to be a large sum".

Sun explained that the addtional investment is needed because "Taobao has been growing super fast since it's establishment in July, 2003. In the first three quarters, the total trading volume has already surpassed 5 billion yuan. Third quarter alone has reached 2.34 billion yuan. Membership also reached 10.04 million. Taobao hopes to create 1 million job opportunities in the next three years in the online personal trading market."

Advertisement leading the fight

Oct. 19, eBay released third quarter earnings. Revenue reached $1.106 billion and a 37% annual growth. Net income was $255 million or 40% growth over a year ago. In the report, it specially mentioned that they have acquired 2 million new users in China to make it total of 15.1 million.

eBay also cited iResearch's recent data that shows eBay/Each owns 65% of Chinese online auction market. However, for two quarters in a roll, eBay did not reveal the total trading volume in China.

Intrestingly, Taobao also announced that their updated market share is around 60%. Nobody knows which of these two data is more objective reflection of the market. It is unquestionable though that Taobao and Ebay/Each is fighting everywhere on the C2C market.

Related person at eBay/Each indicated that, as the C2C market evolves in China, the almost exclusive market share of Eachnet will fall inevitably. "however, the number of members, and the total deals are growing very fast".

In January, this year, eBay annouced addtional investment of $100 million in Eachnet; in May, it announced the reduction in transaction fees; in July, eBay announced the introduction of Paypal in China. eBay's CEO Whitman admitted that the series of moves are aimed at occupying the market early.

Market analysis indicated that, after Taobao announced the free listing, the fighting between the two sides will first appear at the battle ground of brand establishment. eBay/Each's ads have already occupied many protals' website. Because many are exclusive deals, the several largest portals such as Sina, Netease, and Baidu are on eBay's side. Only Sohu has signed strategic alliance with Taobao. However, Taobao has also attracted thousands of personal or free communities into it's own camp.
"Secondly, it will raise the barrier of entry and slow down the potential competitors on gaining market shares". There was news that DangDang net intends to invest $50 million to create a new C2C website. Tencent is already established "Paipai net" on it's community oriented areas.


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