Shigeki Ohya has a neat little sideline that earns him $400 a month: selling Pez dispensers to Japanese kitsch collectors. The 32-year-old engineer for Nihon Texas Instruments in Tokyo buys the candy dispensers on eBay's U.S. site and sells them on Yahoo! Japan's online auction service. Why not do the whole transaction on eBay, which also has a Japanese site? Because Yahoo Japan makes eBay Japan look like a lightweight.
The contest isn't even close. Yahoo Japan has 95% of the online-auction market, where last year $1.6 billion worth of goods was traded. By contrast, eBay Japan has a measly 3% of the Japanese market--even though its American parent rules online auctions in the U.S. Concedes eBay Chief Executive and President Meg Whitman: "We're definitely in catch-up mode."
If eBay doesn't boost its fortunes in Japan, that failure would imperil Whitman's plan to dominate global e-auctions. In April, she set a target of $3 billion in worldwide sales by 2005, which requires annual revenue growth of 50%, up from 15% now. Whitman can't make those numbers without closing the gap in Japan, the world's second-largest Internet market.
EBay's first mistake in Japan was coming in late. And when eBay Japan did launch--five months after Yahoo Japan--it charged a commission for each transaction. Yahoo Japan doesn't. Not that the advantage will last. Yahoo Japan plans to start charging auction users a $2.25 monthly fee this July and will add a commission on each sale later on. That may send customers to eBay. But for now, Yahoo Japan dominates Japanese online auctions.
Ironically, not so long ago, few thought online auctions would work in Japan. Even Masahiro Inoue, president and CEO of Yahoo Japan, thought status-conscious Japanese wouldn't buy used goods from strangers. But nowadays, shopping in second-hand "recycle" shops is chic. Besides, Japanese are well-known fans of collectibles--think Pokémon--which are perfect fodder for the online-auction experience.
It was Jerry Yang, co-founder of Yahoo, which owns 32% of Yahoo Japan, who first got Inoue thinking about online auctions--and making sure eBay didn't steal a march in Japan. "Yang understood that it was critical to be first," says Inoue. "We knew catching up with a front-runner is hard, because in auctions, more buyers bring more sellers."
In September, 1999, the site launched. To prime the pump, Inoue told his 120 employees to list items for sale. He needn't have bothered. Before long, thousands of collectibles, electronics, and brand-name goods were being traded. Today, the site boasts 2.2 million users. Nicholas Spratt, an analyst at Lehman Brothers Inc. in Hong Kong, thinks the new fees could earn Yahoo Japan $12.5 million, or 3% of revenues, this fiscal year.
By contrast, eBay's Japanese launch was hobbled by a series of missteps. The first was the decision to charge commissions of 1.25% to 5%. Another possible misstep was the choice of Japanese-American exec Merle Okawara as president and CEO. Okawara was well-known in Japan for turning a faltering frozen-pizza business into a $100 million company. But at 60, she was new to the Internet. Okawara, who is leaving the company, attributes the problems to the late launch: "When we arrived, the 800-pound gorilla was positioned."
MORE MISSTEPS. Even when eBay did get in gear, it took too long, critics say, to embellish its Japanese site with the local touches needed to attract users. Nor did eBay bother to combat Yahoo Japan's major marketing blitz.
Still, eBay has the money for a long fight. The parent company had $314 million in cash as of Mar. 31, and its stock has more than doubled this year. But throwing money around doesn't guarantee success: eBay has spent more than $200 million to buy a Korean site, Internet Auction, and a European clone, iBazar. Yet both had combined revenues of just $20 million last year, and analysts doubt that future results will justify the high purchase price.
Some analysts think eBay Japan should sell a majority stake in the venture to a big local player. But even then, eBay would face an uphill struggle. Okawara says the company's strategy to catch up with Yahoo Japan involves "patience." Adds Whitman: "We're in it for the marathon, not the sprint." That's good. The race looks to be a long one.
By Ken Belson in Tokyo, with Rob Hof and Ben Elgin in San Mateo
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