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Online Extra: eBay's Patient Bid on China


Just in the year and a half since William C. Cobb took over as eBay's (EBAY) senior vice-president for international business, he has traveled to China four times -- more often than to any of the other 27 countries where eBay now operates. The former PepsiCo executive, who joined eBay in 2001 as senior vice-president for global marketing, views China as one of eBay's most promising opportunities. Despite the country's less developed banking and transportation systems, EachNet, the Chinese auction site that eBay acquired last year, has seen booming business.

Cobb recently discussed with BusinessWeek Silicon Valley Bureau Chief Robert D. Hof why he sees such potential in China. Following are edited excerpts from their conversation:

Q: How does eBay view the opportunity in China?

A: The unique opportunity is the confluence of our business model, our approach, with what's happening in China today. As that economy continues to expand at a very rapid rate, it looks like the Internet is going to be an enabler for this country to modernize even faster.

Our particular model serves a couple of purposes. From the buyer perspective, the access to supply out in the provinces and the rural areas is unmatched on eBay. This is also a model where people can start their own business. So it really comes together quite nicely in China. We've received great support from the government because they've realized how we can empower entrepreneurs and provide access to the rural areas.

Q: So you haven't run into resistance from the government, which has been uneasy about the Internet's wide-open nature?

A: Right now, the site is a China site. It doesn't really have access to the broader eBay site. So we haven't run into any issues on what people have found on eBay or anything like that. The government sees how this can aid economic expansion more quickly than waiting for people to put brick and mortar on the ground.

Q: What kind of growth have you seen?

A: We've already signed up over 4 million users. The compound annual growth rate has been over 300% for the last couple of years. The last quarter was the first one that we added over 1 million users in a single quarter. It wasn't that many years ago that we rejoiced when we hit 1 million U.S. users.

Q: Is there anything about China and the culture that's causing such rapid growth in e-commerce there?

A: There's a trading heritage here that works well for us. There are also some infrastructure improvements that most of us in the West haven't really noticed. The postal system isn't that bad. The shipments get to their location. That's an enabler for us. People have figured out ways to pay each other.

Q: At what stage is EachNet compared with the rest of eBay?

A: These are important years for us to set this market up for 25 or 50 years from now. We're mainly interested in making sure that we structure this to have long-term sustainability. We have the essential eBay formula -- insertion fees, final-value fees, and features fees, though at a lower level. We really want to train the community in how they can have the most vibrant marketplace possible.

It's less about how high can we drive our revenue in 2004. It's more about how we can expand our marketplace. We really at this point don't know how big it can be.

Q: How much of eBay's focus on China is because it sees a fundamental opportunity in China vs. the fact that EachNet happened to start something that meshed with eBay's business?

A: It's both. From the first meeting that Meg [Whitman, eBay's CEO] had with Bo [Shao, chairman and CEO of EachNet], which happened right around September 11 in 2001, she was incredibly impressed. He had studied eBay up one side and down the other and had really tried to adapt a lot of the eBay principles to the market.

Q: eBay at first bought only a minority stake in EachNet. Why not simply buy it outright at the start?

A: We felt that we could help to nurture this business and not just come barreling in there -- we wanted to let Bo and his management team grow and gain experience. Now, the EachNet team really feels like eBay employees. We put them on all the human resource systems. They get stock options. This is really an integrated part of our business.

Q: How much difference is there between EachNet and eBay sites in the U.S. and Europe?

A: It has a different texture. But the basic concepts of trade and the marketplace for buyers and sellers to get together travel there as well as anywhere.

Q: Does the existence of some other strong e-commerce companies here change how you proceed with EachNet?

A: Not really. The [recently announced] Sina (SINA) and Yahoo! (YHOO) marketplace apparently will come online in about six months. This is our business. This will be an ancillary business for everyone else. We'll see how they do. It's a very large market, with lots of room for other players. We think we identified the best marketplace and the best management team, and we feel like we have a lot of wind at our backs.


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