Online Extra: EachNet: Bringing E-Commerce to China

CEO Bo Shao says the huge online marketplace can be life changing for buyers and sellers outside the big cities

With 4.3 million registered users, EachNet is China's largest cyber marketplace. But with more than 80 million people online in China, the five-year-old startup has plenty of opportunity still ahead. Co-founded by two Chinese-born Harvard grads in 1999, EachNet started out purposely emulating eBay (EBAY ). So it's no surprise that eBay bought the rest of EachNet last year after taking an initial one-third stake.

On a recent trip to the U.S., EachNet Chairman and Chief Executive Bo Shao talked to BusinessWeek Silicon Valley Bureau Chief Robert D. Hof about how he thinks EachNet and eBay could help spur a new surge of entrepreneurship in China. Following are edited excerpts from the interview:

Q: What's driving the acceleration of Internet use in China?


The pace has actually slowed down a bit because [Net use is growing from a larger base]. But at the same time, it's entering the mainstream. Ten million is not mainstream, but 80 million is mainstream. I'm glad investors are starting to notice it. But I think it will remain strong regardless of what investors do.

Q: EachNet has changed quite a bit since you started it. Can you sketch out the site's evolution?


The transaction mix has changed a lot. It used to be computers because at first it was the hard-core early adopters. Now, the biggest category is clothing. We have lots of women, and also men, buying and selling clothes online. We have 10,742 sweaters listed online right now, about 2,771 T-shirts.

These people are really the regular shoppers, average 20- or 30-year-old, blue-collar men and women. Cosmetics are very large. In China, even some of the in-season retail markets are inefficient, and that gives us an opportunity. So the product mix has changed quite a bit.

Q: At the start, most of the trading was within large cities such as Shanghai. Is that still the case?


Another thing that has changed is the mix of buying and selling in big cities vs. small cities. When we started, probably 80% or 90% of products were bought and sold in Shanghai. But now, Shanghai is only a small percentage of the overall business. The major cities compose less than 50% of the business. It's very exciting because value and convenience are benefits that aren't available in small cities. People there don't really have a very good retail alternative. So we have potential to become the most desirable place to buy in smaller cities.

Also, trading between cities and regions has now become the majority. When we started four years, 90% of transactions were between people in the same cities -- because shipping didn't work very well, payment was difficult, and people simply didn't trust that they could buy from somebody sight unseen. Now, most of the transactions use the China post office or some courier service to ship the products and also use the banks or the post office to wire money.

Q: Is that because the infrastructure has improved that quickly, or because people have come to trust each other more?


Both. The shipping networks have certainly improved, and courier services have come out of nowhere. There are more than 1,000 couriers in Shanghai alone. Plus, we have gone a long way toward solving some of the trust issues. We have the feedback system just like eBay. We also have a seller-verification program where a seller has to verify his or her national identity number with us. We use a government database to do that. So it's not anonymous. We also offer free insurance.

Q: It sounds quite similar to eBay. What are some of the differences?


There are no personal checks in China, and credit cards are not widely used online yet. But things are changing very rapidly.

Q: Is EachNet profitable yet?


I can't disclose financial information. But we're very much in the mode of building a marketplace. I think we even have the opportunity to change how people live.

Q: How so?


Imagine if you're a 25-year-old living in a remote region in China. If you're a buyer, you don't have much alternative -- a local store with 10,000 square feet, without much selection. They'll have maybe 10 T-shirts. But if you go online, you find 2,700 T-shirts. So the selection we offer is so dramatically bigger than the alternative that I think it can be a pretty life-changing experience.

Q: What about for sellers?


For a seller, it's even more life-changing. We have many people on EachNet who are making a living on it. They make several hundred U.S. dollars in revenue a month, and that's enough to support them. So we have examples of university graduates in Shanghai who say, "I'm not going to look for a job, I'm going to continue to sell on EachNet."

We have people who have lost jobs because of the massive restructuring of state-owned enterprises in China, and we have unemployed couples who make a living on EachNet. One couple was living on about $30 a month in unemployment insurance benefits. They decided to buy broken copiers and printers very cheaply and fix them and sell them on EachNet. About a year ago, they actually bought an apartment in Shanghai, which is a big deal. It's quite eye-opening.

Q: What impact could this have on China at large, given that relatively few people have computers?


China has close to 80 million Internet users. What eBay is about is creating a level playing field. Everybody won't be successful. But we're providing an opportunity to everybody to discover what they can do. We're all about creating this chance for them to do something.

Q: Is there anything you've learned in working with eBay that you've applied to EachNet?


Too many things to mention. One is site stability. The demand on our site has been quite large. In terms of traffic, we're by far the largest e-commerce site in China. We've been growing so rapidly that eBay's experience in building a scalable site has been very helpful. We go down for a day, and people lose income for a day. We've also learned from eBay in [terms of] trust and safety. We've refined the feedback system and made fraud detection more efficient.

Q: What made you decide to hook up with eBay?


What I'm interested in is to build a marketplace that will be here to last. We have very good local knowledge, but eBay has very good technology and a strategy for expanding around the world. The combination of us knowing China, plus eBay's proven business practices around the world is dynamite.

Q: EachNet faces seemingly more competition in China than eBay has generally faced in the U.S. and elsewhere. How does that change your strategy?


China is a huge market, and it's at a relatively early stage. So it's not surprising that we have competition. Ultimately, buyers and sellers are going to go to the site with the most selection, that provides the most stability and speed, that's the safest. We're just going to focus on doing all of these things better. We've now had four-and-a-half years of experience on the ground, learning through successes and failures. So I don't think there's anything different to do.

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