Tencent, eBay In Potent Partnership
After its first attempt to develop the China e-commerce market failed miserably nearly a decade ago, US Internet giant eBay (Nasdaq: EBAY) is making some smarter moves this time around by choosing better partners and also building up its business more gradually. In the company’s latest China development, media are reporting eBay has formed a new joint venture with Chinese Internet giant Tencent (HKEx: 700). At the same time, separate reports are saying that eBay may fail in its bid to become the first foreign licensee to offer electronic payment services in China.
This new wave of activity by eBay looks quite interesting because it could ultimately create a potent new player in China’s crowded e-commerce space to compete with the likes of Jingdong and industry titan Alibaba, the company responsible for the humiliating defeat for eBay during its first foray into China.
The latest reports are rather vague, saying only that the new eBay-Tencent joint venture will be operated by Xiu.com, a seller of clothing and designer goods and eBay’s current partner in China. (English article) Xiu and eBay announced their original partnership back in November when they launched a new site called eBay Style, marking eBay’s return to the market after more than a 5 year absence. (previous post)
This latest alliance, if true, would pool eBay’s long experience in e-commerce with Tencent’s aspirations to become a major player in the China market. Tencent has been moving aggressively into e-commerce for much of the last year despite its late arrival, targeting the fast growing market where it is still a relatively small player.
Since none of the companies is commenting on the latest reports, it’s difficult to say what exactly this new joint venture would include. I suspect that eBay could move its entire joint venture with Xiu.com into the new Tencent venture, which would then become eBay’s main platform in China. I would expect the joint venture to initially focus on apparel, drawing on Xiu’s experience as an e-commerce operator and eBay’s links with some 5,000 sellers of apparel, handbags, shoes and other health and beauty products.
If the partnership does well, I could see Tencent gradually injecting some of its other e-commerce product areas into the joint venture, with eBay providing support through its global network of suppliers. I previously said I liked the original joint venture’s structure, as it allowed Xiu to be the site operator while eBay focused on its role as supplier and strategic adviser. Likewise, Tencent looks like a good business partner for this new tie-up since it wants to build up its e-commerce business and is willing to support its aims with big financial resources.
Another major plank in eBay’s return to China has been its strong lobbying to become the first foreign licensee to offer electronic payments in China for its PayPal unit. Alibaba already offers such complementary services through its AliPay unit, and Tencent also offers such service through its TenPay service.
eBay Chief Executive John Donahoe had said last month he was seeing encouraging signs that e-payment licenses for foreign companies might be coming soon, and added he expected eBay and PayPal to be the first recipients. (previous post) The latest Chinese media reports are citing an unnamed regulator saying that licenses are indeed coming soon, possibly later this month. But that same regulator is quick to add that eBay will not be the first recipient. (Chinese article)
While some could interpret this latest signal with alarm, I think the regulator was probably just responding to Donahoe’s bullish remarks last month. I still think that eBay will still get the license soon, even if it’s not the actual first foreign licensee. When that happens, look for eBay to keep rapidly building up its China business, as it seeks to play catch-up with not only domestic players like Alibaba and Jingdong, but also aggressive foreign rivals including Walmart (NYSE: WMT) and Amazon (Nasdaq: AMZN).
Bottom line: eBay’s new joint venture with Tencent looks like a potent partnership that could help it to rapidly rebuild its presence in China’s e-commerce market.
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