Alibaba: The House That Jack Ma Built pdfdrive com

eBay Comes to China
In the fall of 2001, eBay CEO Meg Whitman made a trip to Shanghai to meet
Bo. In March 2002, EachNet once again surprised the market with a landmark
deal, announcing it was selling a 33 percent stake to eBay for $30 million.
Despite EachNet’s challenges, eBay had been impressed by what it saw.
The EachNet website had more than three million registered users, of which over
100,000 visited the site each day. The company had expanded from Shanghai to
Beijing and Guangzhou. More than half of its business involved a party outside
one of these cities. The site featured more than 50,000 items at any time, ranging
from clothing to real estate, and offered by fixed prices or via auctions.
Transactions exceeded $2 million a month.
EachNet was tiny compared to eBay. But the allure of China was of critical
importance to Whitman. She badly needed some good news to reassure investors
after announcing just one month earlier the loss of the Japanese market to Yahoo
Japan, backed by Masayoshi Son’s SoftBank, a blow to Whitman’s ambition to
build eBay as a “truly global marketplace.” From $750 million in 2001, eBay
was targeting $3 billion global revenue by 2005. Japan would have been a big
step in achieving this, with more than $1.6 billion in goods traded, but eBay was
late
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to the party there, launching only in February 2000, five months after
Yahoo Japan. eBay’s strategy was a mess from the start. In Japan, eBay charged
commissions but its competitor Yahoo Japan did not. Credit cards were still a
rarity in Japan but eBay required customers to use them to register on its site.
eBay chose a Japanese CEO and a local partner (NEC) with little experience of
the Internet, charting a rapid course for irrelevance in the country. By the
summer of 2001 it had garnered a measly 3 percent of the market. When in
February 2002 eBay pulled the plug, its site offered just 25,000 products,
compared to the 3.5 million on offer from its rival Yahoo Japan. In the Land of
the Rising Sun, the sun had already set on eBay’s ambitions and the company
laid off its staff.
Where next? eBay had more success in South Korea
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and Taiwan,
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but
only China could really move the needle. By 2002, China’s Internet population
had grown to over 27 million, the world’s fifth largest.
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Whitman was earlier
than many in Silicon Valley to recognize the importance of China: “With the
demographics and incredible changes in China, our hypothesis is this could be
one of the largest e-commerce markets in the world,” she told the media,
projecting $16 billion in e-commerce revenue by 2006.

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eBay had failed to understand the needs of local customers in Japan but
Whitman was determined not to repeat the experience in China. They wanted to
back a leading player in the local market. EachNet was an obvious target. eBay
senior vice president Bill Cobb later commented, “[Bo] had studied eBay up one
side and down the other and had really tried to adapt a lot of the eBay principles
to the market.” It didn’t hurt of course that Bo (and his cofounder, Tan Haiyin)
had both attended Harvard Business School, Meg Whitman’s alma mater.
Yet eBay didn’t just want to back EachNet; it wanted to buy it. The initial
deal
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gave eBay one-third of the company but also an option to take full
control, which it did just fifteen months later, taking its total outlay to $180
million. Rebranded eBay EachNet, the company became a vessel for eBay’s
China aspirations. The decision to own EachNet outright set the stage for
Alibaba’s triumph, and eBay’s humiliation.
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Things looked good at the outset. With EachNet, eBay gained a 90 percent
share of China’s consumer e-commerce market. But within two years eBay was
reduced to irrelevance in China and forced to beat another embarrassing retreat
from Asia.
Why did things go so wrong so fast? Even though Whitman had granted Bo
a generous allocation of options, making EachNet a subsidiary inevitably
changed the dynamics with managers at eBay. Soon after the acquisition, for
family reasons Bo had to move to California, which Meg Whitman was very
generous in facilitating, as Bo had recounted to me in 2015. He stayed involved
in the business, but the long distance between San Jose and Shanghai started to
show. With Bo no longer in Shanghai, the head of marketing in the United States
began to tell marketing in China what to do, and the head of technology did the
same.
With the acquisition, eBay had dented EachNet’s entrepreneurial culture.
The damage was revealed when another entrepreneurial company arrived on the
scene: Alibaba. Worse still, Alibaba had the backing of SoftBank, the author of
eBay’s defeat at the hands of Yahoo Japan.
One senior EachNet engineer, who would soldier on for several years after
the acquisition, summed up the critical problem: “eBay thought it was a done
deal, but it turned out it was not.” eBay had a leading position at the outset, but
the market was growing so fast that all that really mattered was grabbing the
dominant share of the millions of new online shoppers. Incremental users, not
incumbency, was the name of the game.
In his B2B business Alibaba.com, Jack had trained his firepower on Merle
Hinrichs at Global Sources. For his new consumer e-commerce venture, Jack set

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his sights on a much bigger target, an icon of Silicon Valley: eBay and its CEO
Meg Whitman.

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