EBay, Alibaba Seek Partnership Rather Than Competition in China

EBay Inc. (EBAY), the owner of e-commerce sites and the PayPal payment service, sees partnerships, even with former rival Alibaba Group Holding Ltd., as the best way to generate sales from China, rather than going it alone in the world’s biggest Internet market.

PayPal is being increasingly accepted by China partners looking to expand international sales, including sporting goods maker Li Ning Co. (2331), EBay Chief Executive Officer John Donahoe said in an interview in Hangzhou, China today. Alibaba announced in April it would accept PayPal on AliExpress, its product-sourcing marketplace.

EBay is counting on PayPal and partnerships with local companies to help it expand revenue from China after failing to gain a local foothold to compete against entrepreneur Jack Ma’s Alibaba Group. Helping Chinese companies connect with customers in other countries will boost EBay’s export volume from China more than 80 percent to $4 billion this year, Donahoe said.

“EBay tried to apply its global playbook in China without customizing it or localizing it and that was a mistake,” Donahoe, 50, said. “We’re partnering with local Chinese companies, whether they be payment companies, commerce companies. That’s the best way that we can proceed in the domestic Chinese market.”

San Jose, California-based EBay first entered China in 2002 under the leadership of former CEO and current California gubernatorial candidate Meg Whitman. Competition from Taobao.com, Alibaba’s auction business, saw EBay’s market share decline by half and it shut down its site in 2006.

Strategic Partnership

“U.S. Internet companies have had difficulty entering the China market due to both political reasons and cultural differences,” Galant Ng, a Hong Kong-based Internet analyst at Tai Fook Securities, said in an interview. “They may have to use something other than a direct approach. Maybe strategic partnership is the way. Alibaba is a good strategic partner.”

Donahoe joined EBay in 2005 as president of its Marketplaces unit from Bain & Co., where he was worldwide managing director. He became CEO in March 2008. Today, EBay operates in China, which has more Internet users than the total U.S. population, through a joint venture with Tom Online Inc., controlled by billionaire Li Ka-shing, in addition to PayPal.

Donahoe is in Hangzhou, headquarters of Alibaba, to speak at Alibaba’s annual Netrepreneur Summit. Donahoe said he met with Ma last night and the two appeared on stage at the summit, seated in armchairs, joking with each other. Ma turned 46 today and Donahoe wished him a happy birthday.

Cooperation Outside China

Alibaba sees benefit from cooperating with EBay outside China, Ma said. “EBay can support us globally so we can build a website on which small and medium-sized enterprises from China can sell to the world.”

Alibaba Group and its Alipay system shouldn’t be seen as rivals to EBay and PayPal, Donahoe said. PayPal now has 1 million merchants using the service in China, he said. Alibaba Group said its rival Alipay system has 300 million registered users in the world’s largest market by Internet users.

“Alibaba dominates the Chinese domestic market,” Donahoe said in the interview. “We are the leading cross-border global e-commerce and payments network. I don’t view Alibaba as a competitor. I view them as a colleague and a potential partner.”

In contrast, Alibaba no longer needs its partner of five years Yahoo! Inc. because the U.S. company is moving away from its own search-engine technology, the head of Alibaba’s listed unit said.

Any decision on Alibaba’s relations with Yahoo rests with the parent company, Alibaba.com Ltd. Chief Executive Officer David Wei said today. May Petry, a Yahoo spokeswoman, declined to comment on the company’s plans related to Alibaba.

In 2005, Alibaba Group sold a stake of about 40 percent to Yahoo for $1 billion and ownership of Yahoo’s Chinese unit. Alibaba Group operates e-commerce businesses including Alibaba.com and Taobao.com, in addition to Yahoo’s local website.

--Edmond Lococo, Stephen Engle, Joseph Galante, with assistance from Mark Lee in Hong Kong. Editors: Jonathan Annells, Young-Sam Cho.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Stephen Engle in Beijing at sengle1@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net.

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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