EBay Inc. (EBAY), the owner of e-commerce sites and the PayPal payment service, plans to focus on exports and cross-border trades involving China instead of competing in the domestic market, Chief Executive Officer John Donahoe said.
“Over time, we will look for opportunities to partner or joint venture or work together with Chinese companies,” Donahoe, 50, said in an interview today in Hangzhou, China. “We’ve, in essence, exited the domestic market.”
Cross-border trades will probably rise more than 80 percent to $4 billion this year, Donahoe said. 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 Holding Ltd.
“We don’t think the battle with Alibaba over the next five years is a game breaker,” said Bill Smead, an EBay investor who manages $160 million at Smead Capital Management Inc. in Seattle. “The story is way bigger than that little bit of duking it out.”
Although competition from Alibaba is stiff, EBay’s efforts in China, which has more Internet users than the total U.S. population, could pay big rewards, Smead said.
Donahoe said Alibaba Group and its Alipay system shouldn’t be seen as rivals to EBay and PayPal. PayPal now has 1 million users 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.”
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 turns 46 today and Donahoe wished him a happy birthday.
“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,” Ma said.
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.
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 through a joint venture with Tom Online Inc., controlled by billionaire Li Ka-shing, in addition to PayPal.
“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.”
--Edmond Lococo, Stephen Engle, Joseph Galante. Editors: Jonathan Annells, Young-Sam Cho.
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