Out-eBaying eBay In Korea

The giant's most successful Asian business is under attack from Gmarket

eBay Inc.(EBAY ) is a $4.6 billion global powerhouse in Internet commerce, but it has struggled recently in Asia. Now it faces a dogfight in South Korea, its strongest Asian market, with an upstart that offers an intriguing mix of cheaper listings, fixed prices, and a Web site that explodes with flashing product come-ons. And to top it off, the outfit -- Gmarket Inc. -- has a pocketful of cash following a 9% ownership stake taken by Yahoo! Inc. (YHOO ) and a recent IPO.

Just two years ago, eBay's subsidiary, Internet Auction Co., was the dominant player in Korea. It accounted for 75% of eBay's Asian revenues, industry officials say. But less than three years after Gmarket got into the business, it has caught up. In the first quarter of 2006, Gmarket and Internet Auction both sold about $490 million worth of goods, says one industry insider. EBay won't confirm that. Gmarket saw its first-quarter net revenues from commissions and advertising triple from last year, to $29.6 million. "Its stunning growth has made Gmarket neck-and-neck with Internet Auction," says Lee Hyun Chang, director at Seoul-based market researcher Metrix.

What's the appeal of Gmarket? For one thing, it places less emphasis on an open-auction format than eBay does. The company offers goods at fixed prices, with an option to negotiate with a seller on an exclusive basis. This allows buyers to conclude deals instantly instead of making them wait until all bids are completed in open auctions. The option is available on eBay in Korea, but Gmarket is further along, with 90% of its sales volume using that method. The formula attracts enthusiastic buyers such as Moon Ji Won, a 26-year-old Seoul office worker. Says Moon: "I feel I have the best deal at Gmarket. It offers great prices and an excellent search function."


Merchants say it's cheaper to list items at Gmarket than at Internet Auction. Gmarket also has introduced marketing initiatives to differentiate itself. The goal is to constantly provide new features while injecting fun into shopping. One such program is a lottery called "lucky auction." It gives shoppers chances to buy everything from LCD televisions to T-shirts at a small fraction of the market value. Gmarket's computer picks the winner at random.

In the U.S., Yahoo and eBay have forged a broad-ranging advertising and online-payments alliance. But in Asia, their rivalry is ferocious. Yahoo's Japan subsidiary crushed eBay in the profitable e-commerce market, the region's biggest, earlier this decade. Yahoo also has a 40% interest in Alibaba.com Corp., eBay's chief rival in China. And on June 6, Yahoo purchased a 10% stake in Gmarket for some $60 million from Oak Investment Partners, a U.S. venture capital firm.

Gmarket raised $92.7 million in the June 29 NASDAQ public offering. That, plus help from Yahoo -- whose stake was reduced slightly, to 9%, by the IPO -- will help Gmarket push into other markets, including at least one other Asian country next year. "The NASDAQ listing, instead of an IPO in Korea, underlines our determination to grow in international markets," says Jo Chang Sun, Gmarket senior vice-president of business development.

To better compete, eBay recently introduced a fashion-oriented Korean site called "Club Sancy" that it hopes will appeal to younger female shoppers. It upped the placement of its listings in shopping-comparison sites, allowed them to be posted on personal blogs, and cut its own commissions on sellers. Matthew J. Bannick, president of eBay International, told analysts in May: "We're on the right path."

By Moon Ihlwan and Rob Hof

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