eBay Returns to China With Xiu eBay联手走秀重返中国

After failing badly in its first attempt in China, US e-commerce giant eBay (Nasdaq: EBAY) is preparing for a second try at the market by teaming up with a local player online apparel seller named Xiu.com. Media reports are citing an unnamed knowledgeable source about this latest tie-up, but from my perspective it seems quite credible as eBay has been reportedly looking for a new China partner for much of the last year. (Chinese article)

If the reports are true, this new attempt at the China market would be quite different from eBay’s last try, which ended in 2006 when it unofficially abandoned its domestic C2C online auctions site after a bruising battle with current e-commerce leader Alibaba. Since that time, the e-commerce market has changed dramatically, with Alibaba finding much bigger profits in the B2C market that sees major retailers set up shops on its TMall platform to sell their products to consumers.

eBay also seems to realize the bigger money is in B2C, as Xiu.com is a more traditional online shop that specializes in high-end apparel and other luxury products. The media reports don’t provide much detail, and say eBay will make a formal announcement later this month; but they add that Xiu.com’s current site will be rebranded as ebay.xiu.com, raising the intriguing possibility that eBay may actually take an equity stake in Xiu.

Before we go any further, let’s do a quick recap of eBay’s rocky history in China, which began with its 2003 purchase of EachNet, China’s leading online auction site at the time. Despite investing more than $100 million in the site, which charged fees for its services, eBay ultimately had to abandon the initiative after losing a bloody battle to Alibaba, whose competitor Taobao site didn’t charge any fees. eBay ultimately folded EachNet into a joint venture run by Hong Kong-listed Tom Group (HKEx: 2383) in 2006, and that deal prohibited it from entering into new partnerships until the end of last year.

eBay has reportedly been looking for new partners for much of the last year, and now seems to have found one in Xiu.com. I previously wrote about Xiu.com about a year ago, when the company reportedly received around $100 million in funding from a group that included such venture capital giants as Warburg Pincus and Kleiner Perkins Caufield & Byers. (previous post) Much has changed since then, and now China’s e-commerce space has become plagued by cutthroat competition that has sent most players deeply into the red.

Against that backdrop, I wouldn’t be surprised if part of this new tie-up would see eBay provide Xiu.com with some much-needed new cash in exchange for a minority stake in the company. So, what are eBay’s chances for success with this second bid for the domestic China market? The company hopefully has learned from its previous mistakes and will let Xiu.com management continue to run the company this time, rather than installing its own managers.

I also like the fact that eBay is choosing a more niche-oriented company rather than the general merchandise retail space where big names like Alibaba, Jingdong Mall and Amazon (Nasdaq: AMZN) are fighting a bruising battle for dominance. We’ll need to see a few more details before making any final judgment on eBay’s chances for success this second time around; but the early signs look good that the company at least has learned some valuable lessons from its previous high-profile failure, which may help it to succeed this time.

Bottom line: eBay’s new try at the China market could come in a B2C tie-up with Xiu.com, which could stand a moderate chance of success if eBay retains Xiu’s current format and management.

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