By Perry Wu
American poet Walt Whitman famously said, "I accept reality and dare not question it." Over one hundred years later, investors should be asking themselves if they wish another Whitman could clearly see through the mist on the Pacific Ocean to the Great Wall of barriers on the other side. Meg Whitman, CEO of auction website eBay.com (EBAY), would then clearly see the hurdles many other would-be foreign conquerors have encountered and succumbed to when trying to pillage Chinese wealth. They all failed, and so will Meg.
eBay's trying to conquer China?! Well, one could also call it "cutting and running". AOL departed China many years ago. MSN, though getting many hits because it's the default page on many browsers, isn't even a cultural icon here. Earlier this year, Yahoo drank some electric kool-aid and thought it would be a great idea to pay a Chinese company a billion dollars and then give that Chinese company rights to run Yahoo on the mainland. And now eBay, which seemed intelligent, is leaving its standalone operations to partner with Chinese Internet firm Tom Online.
eBay many years ago bought Chinese auction website Eachnet.com to form the clunky eBay Eachnet. But now eBay Eachnet feels it needs to depart its old ways to find those type of VC-babble synergies that make day traders happy and long-term investors sad.
If you talk to friends in the United States who are often online, all have heard of eBay, and a good portion either have cruised through the website or have close relatives who have bought and sold goods via the large marketplace. Ask any frequent netizen in Xi'an, Chengdu, Nanjing, Dalian, or Hohhot and they should all be able to recognize the names Sohu.com, Sina.com, Netease.com, and Tom.com. But ask those same netizens if they've heard of eBay Eachnet, and the number who can recognize the name, let alone who have visited the website once in the last 6 months, will drop even further.
According to iResearch's China Online Auction Report, there will be about 35 million auction users in 2007. And in eBay's press release about the deal with Tom.com, it got a little slippery by also quoting iResearch numbers that "the China eCommerce market is experiencing explosive growth, and could rise to 46 billion yuan in value next year, from 5.6 billion yuan last year." I would sell my soul if even one percent of that total e-commerce went through this new eBay and Tom Online venture.
I remember back in 1998 there was a website called ClubCiti that opened and claimed to be the eBay of China. This was before the real eBay actually saw past the helium-high balloon of Silicon Valley, and ClubCiti could get away with their auctioneer aspirations. But they died, and eBay should have seen the writing on the Great Wall and stayed away too. eBay in 2002 pulled out of Japan, showing that it has an illustrious career of failing to find wealth in Asia.
I'm a fan of investing in what I know. I don't understand real estate in Hangzhou, so I would never buy an apartment there. I don't understand the ins and outs of mining for copper, so I choose to leave my money elsewhere. eBay is not a Chinese company, and even if Meg's family once visited China a long time ago (which is the rumored reason for her infatuation with the Middle Kingdom), it does not make her or her company a Chinese firm. Meg should sit back and look at this: Sohu.com, Sina.com, Tom.com, and Netease.com all basically serve users in the same way in China and they all co-exist in an economic relationship that could not exist in the United States. By partnering with Tom.com, eBay is saying it is ready to work with others, but I doubt its boardroom is ready to make the concessions necessary to co-exist with rivals. It's business with Chinese characteristics, and the barbarians from overseas will never understand.
Trying to fly too high and touch the sun is as old as fables, but humans rarely learn their lessons. Greed, ignorance, stupidity, and more greed create the vicious cycle of "I told you so". We are stuck with eBay trying to build a business in China. It has tried to spin this new venture into a good move, but it's really just a surrender flag.
About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.