Description
Online auction service used to buy and sell items. The company uses an electronic platform to facilitate millions of transactions every day.
Ebay in Japan
"I am not one for regrets, but I still regret we don't have a presence in Japan."1 - Meg Whitman, CEO, eBay in 2008. "When we 2arrived last year, the 800-pound gorilla [Yahoo Japan Auctions] was already positioned." - Merle Okawara, President and CEO, eBay Japan in 2001 "I think eBay learned what it did wrong in Japan. Because of the nature of the auction model, I think it now understands that you have to be the leader in the market. I think it's a smart move for the company to have closed its site in Japan and to wait for another time when it can go in and do what it takes to be the leader there."3 - Lindsay Hoover, Vice President, Houlihan Lokey Howard & Zukin4 in 2002
EBAY REENTERS JAPAN
In December 2007, eBay Inc. (eBay), the US-based online auction company, announced 5its reentry into Japan, through an agreement with US-based Internet services company, Yahoo! Inc. (Yahoo). eBay and Yahoo agreed to link their auction sites to facilitate cross-border bidding. This would enable the users of Yahoo Auctions Japan to bid for items listed on eBay's US site using their Yahoo Japan ID, and eBay users in the US to buy items 6auctioned on Yahoo Japan using their eBay ID. On Yahoo and eBay teaming up, Meg Whitman , President and CEO, eBay, said, "We are excited to partner with Yahoo Japan in providing Japanese users with localized site designed to enable them to shop on the eBay marketplace with ease and convenience."7 As a part of the agreement, the companies decided to start a Japanese website, Sekaimon8. Apart from translating the names and details of the items listed on eBay's US website into Japanese, the
Erick Schonfeld, "Meg Whitman's Exit Interview," TechCrunch, January 24, 2008. "How Yahoo! Japan Beat eBay at Its Own Game," BusinessWeek, June 04, 2001. Joan Harrison, "Asian Advances, and a Retreat, for Online Auctioneer eBay," Mergers & Acquisitions: The Dealermaker's Journal, April 2002. Houlihan Lokey Howard & Zukin is a US-based investment bank. The services provided include mergers & acquisitions, financing, financing opinions, and advisory services. The firm was established in 1970 and has 13 offices spread across the world. Yahoo! Inc., is a leading Internet services company headquartered in Sunnyvale, California, USA. In 2007, its revenues were at US$ 6.7 billion. Margaret C Whitman (Meg Whitman) announced that she would retire from eBay by March 2008. She was to be succeeded by John Donahoe. "eBay, Yahoo Japan Team up Services," www.taipeitimes.com, December 05, 2007. Sekaimon in Japanese means 'Gateway to the world'.
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Ebay in Japan
site would provide services like overseas shipping and customs clearance. According to Hiroko Sato, analyst at JP Morgan, Chase & Co, Tokyo, "the alliance will create a very attractive service for U.S. and Japanese users as it allows them to purchase items simultaneously in both countries."9 After several highly successful international ventures, eBay first entered Japan in 2000. By then, Yahoo was already a well-established portal in the Japanese market and its online auctions site, which had started a few months before eBay's entry into Japan, had started tasting success. eBay found it difficult to establish itself in the Japanese10market. Some of its practices like charging transaction fees and requiring the use of credit cards made the going tough for it. By 2002, it was able to garner only a 3 percent share of the Japanese online auctions market. eBay decided to exit the country in 2002. While exiting the country, Kevin Pursglove (Pursglove), spokesperson, eBay, said, "We may come back to Japan sometime when factors are a little more in our favor, but they are not at the current time."11 The news of eBay's reentry into the Japanese market in late 2007 was met with mixed reactions. Some analysts were of the view that eBay's return to Japan filled a major gap in its international business, while others were not too sure whether it would make any difference to eBay's fortunes.
BACKGROUND NOTE
eBay was founded by Pierre Omidyar (Omidyar), a software programmer, in 1995 as AuctionWeb. eBay was incorporated in May 1996. It was a person-to-person trading community, where sellers could list the items they wanted to put on sale, and specify the minimum bid and duration of the auction. The items were shown under different categories and the buyers could bid for the items. eBay's revenues came through the fees it collected from the sellers. When an item was listed, a listing fee was charged, depending on the opening bid specified by the seller. This fee was non- refundable. Additional fees were charged for listing options like bold display or highlight. When the listed item was sold, a fee ranging from 1.25 to 5 percent of the final sale price was collected. At the end of the auction, eBay notified the buyer and the seller through e-mail, and they completed the transaction. In 1996, Omidyar appointed Jimmy Griffith (Griffith), who till then, had been voluntarily helping eBay users through their auction processes, as eBay's first customer support representative. By 1996 end, eBay had conducted 250,000 auctions and had 41,000 users. In June 1997, Benchmark Capital, a leading venture capital firm, acquired a 22 percent stake in eBay by investing US$ 4.5 million. By 1997 end, eBay had around 341,000 registered users. In 1998, Harvard alumna Whitman joined the company as President and CEO. Whitman revamped the site to make it easier for users to participate in the auctions. The cumbersome payment process involving personal checks and money orders was changed and eBay began accepting payments through credit cards. In the same year, eBay entered into a three-year agreement with America Online12 (AOL), under which it became AOL's exclusive online trading community. In September 1998, eBay raised US$ 60 million through an IPO. By the end of the year, eBay had 2.1 million registered users and 138 employees. In May 1999, eBay acquired Billpoint13, an online payment service company. Another acquisition in the year was of Butterfield & Butterfield 14, a 134-year-old auction house based in San
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Masaki Kondo, Kiyotaka Matsuda, "Yahoo Japan Shares Gain on Online-Auction Alliance with eBay," www.bloomberg.com, December 04, 2007. Japan was largely a cash-based society, and the use of credit cards was limited. "Sayonara: For eBay, Japan is the Land of Setting Sun," Seattlepi.com, February 27, 2002. America Online Inc. is an Internet services company. In 2000, it merged with Time Warner. From April 2006, it has been known as AOL LLC. Although Billpoint was heavily promoted by eBay, it failed to capture market share from its rival PayPal.
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Ebay in Japan
Francisco, for US$ 260 million. In the same year, eBay acquired Indiana-based Kruse International, an automobile auction house. In 1999, it introduced a new service called Personal Shopper on its site. Through this service, buyers got e-mail alerts when the items they were searching for were put up for sale. In 2000, eBay launched 53 regional sites, covering around 50 of the largest metropolitan areas in the US. These sites helped the company to encourage trade in items that were too bulky or expensive to ship, and in items of local interest. In March 2000, eBay, in association with AutoTrader.com15, launched an online automotive si16 - te eBayMotors.com. In the same year, it also formed a strategic alliance with Wells Fargo & Co. to develop an online person-to-person payment platform. This resulted in the launch of a new payment option for eBay users - Electronic Check. In mid-2000, eBay acquired Half.com, a fixed price, personto-person online trading site, for US$ 300 million in stock. During the year, it launched the 'eBay Anywhere' service, which made it accessible from any Internet-enabled mobile device. By the end of the year, eBay had 22 million registered users. In January 2001, eBay launched eBay Premier, a site for antiques and collectibles. However, the performance of the site was dismal and eBay entered into a deal with Sotheby's17 which involved moving Sotheby's online business onto the eBay website. In 2002, eBay acquired PayPal18, for US$ 1.5 billion. PayPal allowed consumers to make and accept payments over the Internet without the use of credit cards. In August 2004, eBay acquired a 25 percent stake in craigslist19, an online classifieds site. In December 2004, it acquired rent.com20, a housing rental listing service, for US$ 415 million. This acquisition marked eBay's entry into the online real estate and housing market. In 2005, eBay set up its own online international classifieds group, Kijiji.com21 (Kijiji). Kijiji later purchased leading online classified sites such as the London-based Gumtree.com and the 22 Barcelona-based Loquo.com. In June 2005, eBay bo23 ught Shopping.com for US$ 620 million in cash. Another acquisition in the year was of Skype , an Internet communications company, for US$ 2.6 billion (US$ 1.3 billion in cash and US$ 1.3 billion in stock). Some of the other acquisitions made by eBay were Tradera.com24 for US$ 48 million in April 2006, ViA-Online GmbH25 in October 2007, StumbleUpon26 for US$ 75 million in May 2007, and StubHub.com27, for US$ 307 million in February 2007.
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In 2002 eBay sold Butterfield & Butterfield to Bonhams. Autotrader.com deals with buying and selling used cars both offline and online. Wells Fargo & Co. is a financial services company based in the US. Sotheby's is one of the leading auction houses in the world, with auction centers at London, Geneva, New York, Hong Kong, Sydney, Melbourne, Milan, Paris, Zurich, Amsterdam, and Singapore. It mainly auctions collectibles, fine art, and antiques. California-based PayPal, founded in 1998, is an online payment company. Through PayPal, individuals and businesses can send or receive money over the Internet. As of 2002, PayPal was available in 38 countries and had revenues of US$ 100 million, 17 million customers, and US$ 1.5 million transactions. craigslist, founded in 1995, is an online community featuring classified listings for jobs, goods, personals, houses, events. Craigslist had dedicated sites for 45 cities all over the world. Launched in 2001, rent.com helped property buyers and sellers to come together to trade. Users could find properties for purchase, flats for rent, and even housemates. Kijiji means "village" in Swahili. Shopping.com is a website that provides price comparison services for goods sold on the web. It was founded in 1998 and had sites in the US, the UK, and France. Skype Technologies SA allows users to make voice calls through its peer-to-peer software. Skype was launched in 2003. Tradera.com, launched in 1999, is a Sweden-based online marketplace. Germany-based ViA-Online launched auction management software Afterbuy in 2002.
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Ebay in Japan
In 2006, Yahoo and eBay announced a strategic partnership in the areas of search and graphical advertising, online payments, co-branded toolbar, and click-to-call advertising28. eBay also entered into an agreement with Google Inc.29 (Google) wherein Google became the exclusive text-based advertising provider for eBay. Both the companies also planned to cooperate on click-to-call advertising.
EBAY'S INTERNATIONAL VENTURES
eBay's international ventures began in late 1998. Due to growing competition in the US from websites like Amazon, Yahoo, and AuctionWatch, eBay began exploring opportunities in other markets. At that time, eBay's US website was gaining popularity in Canada, the UK, and Germany. eBay launched country specific websites for these countries in 1999. In the same year, eBay also acquired Germanybased alando.de30, for US$ 50 million. eBay entered Japan and France in 2000. Its next foray was into Australia, for which it partnered with eCorp31. In these countries, eBay customized the web pages and denominated the transactions in the local currency. In January 2001, eBay entered Korea by acquiring a majority stake in Internet Auction Co. 33 32, Ltd then the largest auction website in Korea. In May 2001, it acquired Paris-based iBazar SA , the company that operated the leading auction sites in Europe, for US$ 112 million. Through this acquisition eBay was able to enter several European countries including Belgium, the Netherlands, Spain, Portugal, Italy, and Sweden. The acquisition also helped eBay enter Brazil, where iBazar had a significant presence. In October 2001, eBay and MercadoLibre, the company that operated the Latin American trading site, MercadoLibre.com, entered into an agreement under which MercadoLibre agreed to acquire the Brazilian subsidiary of iBazar; in return eBay received 19.5 percent ownership in MercadoLibre. This helped eBay establish a strong presence in the Latin American market. By the end of the year, eBay was the leading auction website in the US, the UK, Germany, Canada, and Australia. eBay entered Taiwan in 2002, through the acquisition of Neocom Technology Co. Ltd34. Taiwan's leading auction website operator, for US$359.5 million. During the year, it entered China by acquiring a 33 percent stake in EachNet Inc. , a leading online Chinese e-commerce company, for
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StumbleUpon helps users to discover and share content online. The company was founded in 2001. StubHub.com enables customers to buy and sell tickets for sports, concerts, theaters, live entertainment, etc. Click-to-call advertising enables advertisers to generate customer leads using the Internet. The click-to-call capability allows users to click on a link or icon in the advertisements to call the advertisers directly to pursue a transaction. Google, Inc. was co-founded by Sergey Brin and Larry Page in 1998. It is the world's most popular Internet search engine and has a diversified range of products such as E-mail, blogs, etc. Alando.de was a leading online person-to-person trading company. It had more than 80,000 listed items in 500 categories and had around 50,000 registered members, as of 1999. Australia-based eCorp is Australia is involved in Internet portals, ticketing services, financial services, career management services, and online gaming. Internet Auction Co. Ltd was established in April 1998, and was the first Korean company to offer online trading. In 2000, it had 2.8 million registered users and around 450,000 items on sale. The company was listed on the Korean stock exchange in June 2000. iBazar SA launched iBazar in 1998 as an online person-to-person trading website. By 2001, it had a presence in 8 countries and over 2.4 million registered users. iBazar is the leading online auction site in France, Italy, Spain, Brazil, the Netherlands, Belgium, and Portugal, and the second in Sweden. Neocom Technology Co. Ltd. was launched in 1998, and operated two websites uBid.com.tw and bid.com.tw. EachNet a leading online trading community in China was founded in 1999. As of 2002, it had more than 3.5 million registered users.
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US$ 30 million. In 2003, it acquired the remaining 67 percent stake in EachNet, for US$ 150 million. In August 2004, eBay entered India through the acquisition of the online auction company, Bazee.com Inc. and its subsidiary Bazee.com India Pvt. Ltd.36, for US$50 million. In the same year, it launched eBay Malaysia and eBay Philippines. In April 2004, eBay acquired Germany- based mobile.de37, a classifieds website for automobiles, for US$ 149 million. In November 2004, it acquired Marktplaats.nl,38 a Dutch classifieds website, from Het Goed Beheer BV (a company that owned a chain of retail shops selling second-hand goods in the Netherlands) for US$ 290 million. In June 2005, Kijiji acquired Opusforum.org39, a Germany-based local classifieds website. By 2005, eBay was present in 29 countries across the world. In the year it recorded sales of US$ 4.5 billion, with international sales accounting for 46 percent of the total sales. According to Whitman, "International [sic] is a very important part of the future growth. We're entering new countries that are at a much earlier stage of e-commerce development than the U.S. They should provide higher levels of growth for the foreseeable future."40 In 2007, eBay acquired a minority stake in GittiGidiyor.com, one of the leading players in the Turkish online trading market. In the same year, it entered into an agreement with the leading Internet portal in Thailand, Sanook!41, to launch a co-branded site. The site www.shopping.co.th was launched in January 2008.
EBAY IN JAPAN
In February 200042, eBay entered into a joint venture with NEC Corporation43 (NEC), to form eBay Japan; NEC held a 30 percent stake in the company while the rest was held by eBay Inc. On the JV, Ichi Yoshikawa, Executive Vice President, NEC, said, "Our work with eBay will help bring the excitement of the online auction format to Japan and create a new marketplace for trading virtually anything."44 Merle Okawara45 (Okawara), who till then, had worked as the CEO of JC Foods Ltd., was chosen as CEO of eBay Japan. Even before eBay was launched in Japan, its websites were popular among auction enthusiasts and collectors. eBay launched its Japanese website, www.ebayjapan.co.jp, on February 28, 2000. NEC began promoting the site through BIGLOBE, its Internet Service Provider. On the launch, Okawara said, "We feel that the launch of eBay Japan is a milestone in the company's
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Bazee.com India Pvt. Ltd, a subsidiary of US-based Bazee.com Inc., started operating in India in 2000. Bazee.com had over 1 million registered users at the time it was acquired by eBay. Mobile.de was founded in 1996. It was one of the first websites dedicated to buying and selling automobiles. Marktplaats.nl was launched in 1999 and enabled buyers and sellers to trade in various items like cars, clothing items, collectibles, etc. www.opusforum.org, founded in 2002 is a Germany-based classifieds website. As of 2005, it provided services in 45 cities in Germany and in 10 cities in Switzerland and Austria and had more than 1 million unique visitors (as of May 2005). Erick Scholfeld, "The World According to eBay," Business 2.0, January 2005. Sanook.com, is a subsidiary of the MH Group, which, in turn, is a subsidiary of Naspers Limited. Sanook! offered search engine, online marketplace, social networking, mobile services, search marketing, online advertising, and other services. In 2000, Japan was the second largest economy in the world. NEC Corporation is a Japan-based multinational. The company provides IT and network solutions to business enterprises, communication providers, and government. "eBay and NEC Announce Joint Venture in Japan," www.nec.co.jp, February 17, 2000. Okawara was one of the most prominent businesswomen in Japan. She was born in Hawaii and studied in Northwestern University in the US and the University of Geneva, Switzerland.
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Ebay in Japan
international expansion, bringing the excitement and fun of the online auction format to the world's second biggest Internet market."46 The site was in Japanese, and the items were listed in the order of the Japanese alphabet. The items on the site, denominated in yen, were listed under more than 800 categories though this was much fewer than the number of categories on eBay's US site. This was because several categories on the Japanese site were combined; books, movies, and music were under a single category, as were travel and tickets. Apart from categories like computers and electronics which were common across eBay's international sites, the website also had some Japan-specific categories like Hello Kitty47, and Pokémon48 merchandise. The online help information about bidding and selling items was more detailed on the Japanese site compared to eBay's US site. Details highlighting the safety of transactions on eBay were displayed prominently. Some links like using wireless phones to bid were highlighted as graphic links, while on the US site, they were displayed as a part of the text. The website allowed the Japanese consumers to view the items listed on eBay websites across the world, along with their prices in yen. (Refer to Exhibit I for screenshot of the eBay Japan homepage.) On the Japanese site, eBay had Supershops, a merchant-to-person section through which individual users could bid for items listed by companies. Several companies such as Mitsui Real Estate, Kinkou, Culture Convenience Club, @venture, and Marubeni Corporation, participated in the Supershops selling computers, electronics, real estate, jewelry, etc. As in the other markets, in Japan too, eBay charged listing fees and final value fees. The listing fees were in the range of ¥ 30 to 240 and the final value fees ranged from 1.25 to 5 percent, depending on the final sale price of the listed item. After one year in Japan, eBay was able to secure only a 3 percent share of the online auctions market, valued at US$ 1.6 billion. Not finding many takers for its online auctions, it decided to scrap fees for online transactions in March 2001. On the fee being waived, the marketing manager of eBay Japan said, "We are 49 taking the business here as a marathon not a sprint. We are not focused on short-term profits." eBay claimed that after it stopped levying the commissions it had witnessed an increase in the number of listings. While millions of items were listed on eBay worldwide, in Japan there were only around 4,000 items listed on the website even in 2001. At that time, Yahoo Auctions was the leading auction site in Japan with more than 2 million items listed and around 180,000 transactions per day. In the second position was www.bidders.co.jp, with around 100,000 items. Online mall Rakuten, which had both B2C and C2C auctions, was in the third position. eBay was unable to make any headway in Japan in 2002 too. Chris Donlay, spokesperson, eBay said, "Over the past six months we've been taking a serious look at it. We've been doing a lot on the ground growing the business there, and it has been growing, but slowly."50 In 2002, eBay was ranked fourth in the Japanese online auctions market. Yahoo Japan Auctions maintained its lead, followed by the Japanese players. At that time, analysts were of the view that eBay could improve its position only by acquiring one of the top three players.
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"eBay Launches in Japan," www.ebay.com, February 28, 2000. Hello Kitty is a fictional character created in 1974. Hello Kitty merchandise includes stationery products, clothing, bags, jewelry, etc. Pokémon (Poketto Monsut? in Japanese) is a media franchise owned by Nintendo, which was originally a Game Boy video game. Pokémon also refers to more than 450 fictional species that have appeared in Pokémon media. Pokémon merchandise includes trading cards, toys, and books. Gail Nakada, "eBay Japan Revenues Going, Going??" www.marketwatch.com, April 02, 2001. "eBay Mulls Japan Options, Including Site Sale," Bloomberg News, January 14, 2002.
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Ebay in Japan
In February 2002, eBay announced that its website in Japan would be closed 51 March 31, 2002. by At that time, eBay Japan employed 17 people and had around 25,000 items listed on the site. According to Pursglove, "Despite the hard work of eBay's team in Japan, we simply believe the issues eBay is facing there are insurmountable without changes in the Japanese market."52 After the site was closed customers accessing the site were redirected to eBay's website in the US.
WHAT WENT WRONG?
Several reasons were cited for eBay's failure in Japan. According to analysts, however, the main reason was the dominance of Yahoo Auctions in the Japanese online auctions market. Yahoo having entered Japan in 1996 through a joint venture with SoftBank53 made the right moves to become the largest Internet access provider and the largest portal in Japan. Before online auction sites started operations in Japan, analysts believed that these would not be successful in the country as the Japanese were image conscious, and would not buy second hand and used goods. Therefore, not many Japanese and international Internet companies were interested in entering the market. eBay, however, was keen on entering the market. In fact, it was the first company to announce its plans for Japan. When Yahoo in Japan learnt that eBay was planning to enter Japan, it decided to move ahead and get a headstart by launching online auctions before eBay did. It immediately set out to develop a Japanese auctions site. According to Masahiro Inoue, President, CEO, Yahoo Japan, "We knew catching up with a front-runner is hard, because in auctions, more buyers bring more sellers."54 Yahoo Japan Auctions was launched in September 1999, just four months after Yahoo decided to launch the site. Being the first auction website in Japan, it was able to attract several sellers, which brought in many buyers. Initially, Yahoo Japan Auctions did not charge transaction fees and all its services were free. Analysts were of the view that the five-month lead which Yahoo got over eBay was crucial. In the absence of competition, Yahoo was able to establish itself firmly. According to an analyst from SoundView Technology Group, "The online m55rketplace really becomes difficult a to prosper in when you don't secure the first-mover advantage." By the time eBay entered the market, Yahoo had developed a loyal customer base. Moreover, eBay's practices -- especially that of charging listing fees and final value fees - also worked against the company. Most Japanese were not willing to pay for services that Yahoo Auctions had till then been providing free. Although eBay stopped levying fees in March 2001, the situation did not change much. And even when Yahoo Japan Auctions decided to charge transaction fees (a nominal monthly listing charge and commission in the range of 3-5 percent) from July 2001, it did not affect Yahoo adversely.56 Another factor that worked against eBay was the strength of the Yahoo brand in Japan. Yahoo was the best known online brand in Japan and was successful in channeling traffic from its other services like Yahoo mail, search, etc. toward Yahoo Auctions. eBay, on the other hand, was known only to those who were interested in online auctions. The Japanese generally trusted well- known and established brands, and this proved to be an advantage for Yahoo.
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At that time Yahoo offered more than 3.5 million items on its auction website in Japan. Tiffany Kary, "eBay Exits Japan, moves into Taiwan," www.news.com, February 26, 2002. SoftBank Corp. is a leading telecommunications and media company in Japan. Its businesses include broadband, fixed-line telecommunications, e-commerce, Internet, technology services, marketing, finance, and media. As of September 2007, Yahoo held a 33.42 percent stake while Softbank held 41.09 percent in Yahoo Japan. "How Yahoo! Japan Beat eBay at Its Own Game," BusinessWeek, June 04, 2001. "eBay Pulls out of Japan," news.bbc.co.uk, February 27, 2002. According to Yahoo, though there was opposition from the users initially, after they learned about the security features of the escrow system, they agreed to pay the fees.
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Analysts were of the view that eBay could have benefited if it had started its Japanese website earlier, for example, immediately after Yahoo launched its Japanese site. eBay had spent considerable time in establishing a subsidiary and in finding a country head. It had also spent a lot of time developing a site that would appeal to the Japanese. According to sources, eBay consumed a lot of time in developing add-ons such as a daily horoscope, detailed product descriptions, and newsletters for its Japanese site. Moreover, even though Yahoo had a wide presence in the Japanese Internet market at the time, it spent money on advertising the launch of its online auction site in Japan. It advertised through billboards in some of the prominent locations across the country, and through magazines. Even after the launch, Yahoo continued to spend around 8 percent (on an average) of its annual revenues in the country on promotions. eBay, on the other hand, did not spend much on advertisements and relied on word-ofmouth publicity. And as very few users registered with eBay, this strategy did not work as anticipated. Industry analysts pointed out that eBay had used its American-centric payment model in Japan, instead of modifying the service model to suit the needs of the Japanese. eBay charged user fees for listing and selling the items and users were required to submit their credit card information at the time of signing up - a process that did not go down well with most Japanese. Also, most of the Internet savvy people in Japan were young, and did not use credit cards. Even otherwise, Japan was largely a cashbased society and the Japanese preferred to pay for purchases with cash or through bank transfers. The design of the site also seemed to have contributed to eBay's troubles in Japan. On its Japanese site, eBay put in a search function instead of creating sub-categories under each category. This seemed to have annoyed many customers as they had to spend a lot of time finding items on the site. For example, a user in the US searching for external modems for desktop PCs could find them in Home > Buy > Computers & Networking > Desktop & Laptop Components > Modems for Desktop PC > External. On the Japanese website, however, as there were no sub-categories under Computers & Networking, users had to use the search function. And the results given by the search function often included items that were not relevant to the search request. Analysts pointed out that eBay had also erred in its choice of country head. eBay was keen on having a country head who knew the local language and English. Okawara was made the CEO of eBay Japan as she was of Japanese origin and had entrepreneurial experience. The fact that she was new to the Internet business and may not have been aware of the trends in the business was not taken into consideration, and this, in hindsight, proved to be a serious mistake.
THE AFTERMATH
After its Japanese misadventure, eBay chose to expand into countries like China and Taiwan by acquiring leading auction websites, where it relied on local brands for growth and market share. According to Sherif Mityas, a vice president in the consumer business and retail practice at A.T. Kearney57, "Two important issues for companies like eBay are novelty and loyalty. In North America, where eBay was one of the first companies to institute the Internet auction model, it is enjoying both. Its experience in Japan, however, has taught it that if you're not the first one in a market, it is very difficult to get people to use your site. In those markets you have to buy the leaders, and the loyal customer bases attached to them."58 By 2007, eBay was able to establish a strong presence in other Asian markets like Taiwan, the Philippines, India, Malaysia, and Hong Kong. Despite that, it appeared that without Japan, the
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A T Kearney Inc. is a US-based management consulting firm. Joan Harrison, "Asian Advances, and a Retreat, For Online Auctioneer eBay," Mergers & Acquisitions: The Dealermaker's Journal, April 2002.
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largest market in the region, eBay's Asian expansion would not be complete. Therefore, eBay decided to explore the available options to reenter Japan. After Yahoo closed down its auction sites in the US and Canada, and agreed to collaborate with eBay in the US on online advertising, communication, payments, etc. in 2006, eBay decided to partner with Yahoo in its second attempt to enter the Japanese market. It entered into an agreement with Yahoo according to which, by March 2008, eBay would list its items on Yahoo Japan Auctions. By the end of 2008, items on Yahoo Japan Auctions were to be listed on eBay's US website. The sellers would get a wider platform to display their items, while the buyers would get more choice. The website, Sekaimon, would be used to translate names and details of the items listed on eBay's website into Japanese, and also provide shipping and customs clearance services, etc. The website was to be operated by Shop Airlines -- a unit of Netprice.com59. Shop Airlines would handle payment, customs clearance, and delivery. A fee of 15 percent of the sale price would be charged for these services. Analysts were of the opinion that the association would help both the companies benefit from the growing online auction markets, which were valued at US$ 172 billion in the US and at US$ 36.4 billion in Japan as of 2007. In 2007, eBay announced that it planned to extend the deal with Yahoo in the future to include other markets and services like PayPal and Skype. According to Masahiro Inoue, President, Yahoo Japan, "We are also considering allying with eBay in countries where eBay has a strong foothold, but we will study this once the US and Japanese business proves successful."60 Some analysts were, however, not very upbeat about the Yahoo--eBay joint venture. They felt that as it would involve highly complex shipment and payment processes, customers might not want 61 to use the services on offer. According to Masato Araki, an analyst at Mitsubishi UFJ Securities , "When you take into consideration shipping and transaction fees, participation may be limited."62
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Netprice.com is a Japanese online shopping company. Vivian Wai-yin Kwok, "Bids Across the Pacific: Yahoo! Japan and eBay Ally," www.forbes.com, December 04, 2007. Mitsubishi UFJ Securities is an investment arm of Mitsubishi UFJ Financial Group, which was formed in October 2005, through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. Mayumi Negishi, "eBay, Yahoo Japan to Link up Auction Services," Reuters Canada, December 03, 2007.
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Exhibit I eBAY Japan's Homepage
Source: bbc.co.uk
Exhibit II Internet and E-Commerce In Japan
Broadband penetration in Japan picked up from 2001 onward, soon after liberalization of the telecom sector. Broadband penetration was at 25 percent in 2002. As of 2005, Japan stood third in the world in terms of number of Internet users with 86.3 million users; only USA (197.8 million users) and China (119.5 million users) were ahead of Japan. At that time, broadband penetration in Japan was at 50 percent. With the growth of high-speed broadband, the e- commerce market in Japan also grew. In 1999, after NTT DoCoMo introduced Internet-enabled wireless handsets in Japan, mobile phones began to be used to access the Internet. In 2000, the government issued 3G licenses. With the increase in mobile penetration, mobile phone-based Internet usage also increased. By 2005, the number of mobile Internet users was greater than the number of PC Internet users. Consumers in Japan started trading using the Internet in 1999. After a slow start, online shopping picked up in Japan, led by Yahoo, which is also the largest general information website in Japan. Another popular destination for online shoppers in Japan is Raukten Ichiba. As of 2003, Japan was the third largest e-commerce market in the world at US$ 255.7 billion, after USA at US$ 733.4 billion, and Western Europe at US$ 516.2 billion. As of 2006, B2B e-commerce in Japan was valued at US$ 1.3 trillion. The largest users of B2B e-commerce were manufacturing (US$ 714 billion), wholesalers (US$ 363 billion), and finance (US$ 58 billion). The market size of B2C e-commerce was US$ 37.8 billion. The largest users were IT/telecommunications (US$ 10.2 billion), general retail (US$ 8.5 billion), electric appliances (US$ 4.9 billion), and travel (US$ 4.4 billion), according to the Electronic Commerce Promotion Council in Japan. The value of B2B e-commerce in Japan is greater than in the US; the value of B2C e-commerce in the US is much greater in value than in Japan.
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Ebay in Japan
Japanese B2B Market Year 2000 2001 2002 2003 2004 2005 US$ billion 220 360 510 670 870 1110
Source: Electronic Commerce Promotion Council, Japan
There are some barriers to the growth of B2C e-commerce in Japan like the limited usage of credit cards. Shopping is considered to be a social activity in Japan and a large majority of young people prefer to spend their free time visiting shopping areas and trying out new products, rather than buying new products on the Internet.
doc_652027002.docx
Online auction service used to buy and sell items. The company uses an electronic platform to facilitate millions of transactions every day.
Ebay in Japan
"I am not one for regrets, but I still regret we don't have a presence in Japan."1 - Meg Whitman, CEO, eBay in 2008. "When we 2arrived last year, the 800-pound gorilla [Yahoo Japan Auctions] was already positioned." - Merle Okawara, President and CEO, eBay Japan in 2001 "I think eBay learned what it did wrong in Japan. Because of the nature of the auction model, I think it now understands that you have to be the leader in the market. I think it's a smart move for the company to have closed its site in Japan and to wait for another time when it can go in and do what it takes to be the leader there."3 - Lindsay Hoover, Vice President, Houlihan Lokey Howard & Zukin4 in 2002
EBAY REENTERS JAPAN
In December 2007, eBay Inc. (eBay), the US-based online auction company, announced 5its reentry into Japan, through an agreement with US-based Internet services company, Yahoo! Inc. (Yahoo). eBay and Yahoo agreed to link their auction sites to facilitate cross-border bidding. This would enable the users of Yahoo Auctions Japan to bid for items listed on eBay's US site using their Yahoo Japan ID, and eBay users in the US to buy items 6auctioned on Yahoo Japan using their eBay ID. On Yahoo and eBay teaming up, Meg Whitman , President and CEO, eBay, said, "We are excited to partner with Yahoo Japan in providing Japanese users with localized site designed to enable them to shop on the eBay marketplace with ease and convenience."7 As a part of the agreement, the companies decided to start a Japanese website, Sekaimon8. Apart from translating the names and details of the items listed on eBay's US website into Japanese, the
Erick Schonfeld, "Meg Whitman's Exit Interview," TechCrunch, January 24, 2008. "How Yahoo! Japan Beat eBay at Its Own Game," BusinessWeek, June 04, 2001. Joan Harrison, "Asian Advances, and a Retreat, for Online Auctioneer eBay," Mergers & Acquisitions: The Dealermaker's Journal, April 2002. Houlihan Lokey Howard & Zukin is a US-based investment bank. The services provided include mergers & acquisitions, financing, financing opinions, and advisory services. The firm was established in 1970 and has 13 offices spread across the world. Yahoo! Inc., is a leading Internet services company headquartered in Sunnyvale, California, USA. In 2007, its revenues were at US$ 6.7 billion. Margaret C Whitman (Meg Whitman) announced that she would retire from eBay by March 2008. She was to be succeeded by John Donahoe. "eBay, Yahoo Japan Team up Services," www.taipeitimes.com, December 05, 2007. Sekaimon in Japanese means 'Gateway to the world'.
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site would provide services like overseas shipping and customs clearance. According to Hiroko Sato, analyst at JP Morgan, Chase & Co, Tokyo, "the alliance will create a very attractive service for U.S. and Japanese users as it allows them to purchase items simultaneously in both countries."9 After several highly successful international ventures, eBay first entered Japan in 2000. By then, Yahoo was already a well-established portal in the Japanese market and its online auctions site, which had started a few months before eBay's entry into Japan, had started tasting success. eBay found it difficult to establish itself in the Japanese10market. Some of its practices like charging transaction fees and requiring the use of credit cards made the going tough for it. By 2002, it was able to garner only a 3 percent share of the Japanese online auctions market. eBay decided to exit the country in 2002. While exiting the country, Kevin Pursglove (Pursglove), spokesperson, eBay, said, "We may come back to Japan sometime when factors are a little more in our favor, but they are not at the current time."11 The news of eBay's reentry into the Japanese market in late 2007 was met with mixed reactions. Some analysts were of the view that eBay's return to Japan filled a major gap in its international business, while others were not too sure whether it would make any difference to eBay's fortunes.
BACKGROUND NOTE
eBay was founded by Pierre Omidyar (Omidyar), a software programmer, in 1995 as AuctionWeb. eBay was incorporated in May 1996. It was a person-to-person trading community, where sellers could list the items they wanted to put on sale, and specify the minimum bid and duration of the auction. The items were shown under different categories and the buyers could bid for the items. eBay's revenues came through the fees it collected from the sellers. When an item was listed, a listing fee was charged, depending on the opening bid specified by the seller. This fee was non- refundable. Additional fees were charged for listing options like bold display or highlight. When the listed item was sold, a fee ranging from 1.25 to 5 percent of the final sale price was collected. At the end of the auction, eBay notified the buyer and the seller through e-mail, and they completed the transaction. In 1996, Omidyar appointed Jimmy Griffith (Griffith), who till then, had been voluntarily helping eBay users through their auction processes, as eBay's first customer support representative. By 1996 end, eBay had conducted 250,000 auctions and had 41,000 users. In June 1997, Benchmark Capital, a leading venture capital firm, acquired a 22 percent stake in eBay by investing US$ 4.5 million. By 1997 end, eBay had around 341,000 registered users. In 1998, Harvard alumna Whitman joined the company as President and CEO. Whitman revamped the site to make it easier for users to participate in the auctions. The cumbersome payment process involving personal checks and money orders was changed and eBay began accepting payments through credit cards. In the same year, eBay entered into a three-year agreement with America Online12 (AOL), under which it became AOL's exclusive online trading community. In September 1998, eBay raised US$ 60 million through an IPO. By the end of the year, eBay had 2.1 million registered users and 138 employees. In May 1999, eBay acquired Billpoint13, an online payment service company. Another acquisition in the year was of Butterfield & Butterfield 14, a 134-year-old auction house based in San
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Masaki Kondo, Kiyotaka Matsuda, "Yahoo Japan Shares Gain on Online-Auction Alliance with eBay," www.bloomberg.com, December 04, 2007. Japan was largely a cash-based society, and the use of credit cards was limited. "Sayonara: For eBay, Japan is the Land of Setting Sun," Seattlepi.com, February 27, 2002. America Online Inc. is an Internet services company. In 2000, it merged with Time Warner. From April 2006, it has been known as AOL LLC. Although Billpoint was heavily promoted by eBay, it failed to capture market share from its rival PayPal.
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Ebay in Japan
Francisco, for US$ 260 million. In the same year, eBay acquired Indiana-based Kruse International, an automobile auction house. In 1999, it introduced a new service called Personal Shopper on its site. Through this service, buyers got e-mail alerts when the items they were searching for were put up for sale. In 2000, eBay launched 53 regional sites, covering around 50 of the largest metropolitan areas in the US. These sites helped the company to encourage trade in items that were too bulky or expensive to ship, and in items of local interest. In March 2000, eBay, in association with AutoTrader.com15, launched an online automotive si16 - te eBayMotors.com. In the same year, it also formed a strategic alliance with Wells Fargo & Co. to develop an online person-to-person payment platform. This resulted in the launch of a new payment option for eBay users - Electronic Check. In mid-2000, eBay acquired Half.com, a fixed price, personto-person online trading site, for US$ 300 million in stock. During the year, it launched the 'eBay Anywhere' service, which made it accessible from any Internet-enabled mobile device. By the end of the year, eBay had 22 million registered users. In January 2001, eBay launched eBay Premier, a site for antiques and collectibles. However, the performance of the site was dismal and eBay entered into a deal with Sotheby's17 which involved moving Sotheby's online business onto the eBay website. In 2002, eBay acquired PayPal18, for US$ 1.5 billion. PayPal allowed consumers to make and accept payments over the Internet without the use of credit cards. In August 2004, eBay acquired a 25 percent stake in craigslist19, an online classifieds site. In December 2004, it acquired rent.com20, a housing rental listing service, for US$ 415 million. This acquisition marked eBay's entry into the online real estate and housing market. In 2005, eBay set up its own online international classifieds group, Kijiji.com21 (Kijiji). Kijiji later purchased leading online classified sites such as the London-based Gumtree.com and the 22 Barcelona-based Loquo.com. In June 2005, eBay bo23 ught Shopping.com for US$ 620 million in cash. Another acquisition in the year was of Skype , an Internet communications company, for US$ 2.6 billion (US$ 1.3 billion in cash and US$ 1.3 billion in stock). Some of the other acquisitions made by eBay were Tradera.com24 for US$ 48 million in April 2006, ViA-Online GmbH25 in October 2007, StumbleUpon26 for US$ 75 million in May 2007, and StubHub.com27, for US$ 307 million in February 2007.
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In 2002 eBay sold Butterfield & Butterfield to Bonhams. Autotrader.com deals with buying and selling used cars both offline and online. Wells Fargo & Co. is a financial services company based in the US. Sotheby's is one of the leading auction houses in the world, with auction centers at London, Geneva, New York, Hong Kong, Sydney, Melbourne, Milan, Paris, Zurich, Amsterdam, and Singapore. It mainly auctions collectibles, fine art, and antiques. California-based PayPal, founded in 1998, is an online payment company. Through PayPal, individuals and businesses can send or receive money over the Internet. As of 2002, PayPal was available in 38 countries and had revenues of US$ 100 million, 17 million customers, and US$ 1.5 million transactions. craigslist, founded in 1995, is an online community featuring classified listings for jobs, goods, personals, houses, events. Craigslist had dedicated sites for 45 cities all over the world. Launched in 2001, rent.com helped property buyers and sellers to come together to trade. Users could find properties for purchase, flats for rent, and even housemates. Kijiji means "village" in Swahili. Shopping.com is a website that provides price comparison services for goods sold on the web. It was founded in 1998 and had sites in the US, the UK, and France. Skype Technologies SA allows users to make voice calls through its peer-to-peer software. Skype was launched in 2003. Tradera.com, launched in 1999, is a Sweden-based online marketplace. Germany-based ViA-Online launched auction management software Afterbuy in 2002.
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Ebay in Japan
In 2006, Yahoo and eBay announced a strategic partnership in the areas of search and graphical advertising, online payments, co-branded toolbar, and click-to-call advertising28. eBay also entered into an agreement with Google Inc.29 (Google) wherein Google became the exclusive text-based advertising provider for eBay. Both the companies also planned to cooperate on click-to-call advertising.
EBAY'S INTERNATIONAL VENTURES
eBay's international ventures began in late 1998. Due to growing competition in the US from websites like Amazon, Yahoo, and AuctionWatch, eBay began exploring opportunities in other markets. At that time, eBay's US website was gaining popularity in Canada, the UK, and Germany. eBay launched country specific websites for these countries in 1999. In the same year, eBay also acquired Germanybased alando.de30, for US$ 50 million. eBay entered Japan and France in 2000. Its next foray was into Australia, for which it partnered with eCorp31. In these countries, eBay customized the web pages and denominated the transactions in the local currency. In January 2001, eBay entered Korea by acquiring a majority stake in Internet Auction Co. 33 32, Ltd then the largest auction website in Korea. In May 2001, it acquired Paris-based iBazar SA , the company that operated the leading auction sites in Europe, for US$ 112 million. Through this acquisition eBay was able to enter several European countries including Belgium, the Netherlands, Spain, Portugal, Italy, and Sweden. The acquisition also helped eBay enter Brazil, where iBazar had a significant presence. In October 2001, eBay and MercadoLibre, the company that operated the Latin American trading site, MercadoLibre.com, entered into an agreement under which MercadoLibre agreed to acquire the Brazilian subsidiary of iBazar; in return eBay received 19.5 percent ownership in MercadoLibre. This helped eBay establish a strong presence in the Latin American market. By the end of the year, eBay was the leading auction website in the US, the UK, Germany, Canada, and Australia. eBay entered Taiwan in 2002, through the acquisition of Neocom Technology Co. Ltd34. Taiwan's leading auction website operator, for US$359.5 million. During the year, it entered China by acquiring a 33 percent stake in EachNet Inc. , a leading online Chinese e-commerce company, for
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StumbleUpon helps users to discover and share content online. The company was founded in 2001. StubHub.com enables customers to buy and sell tickets for sports, concerts, theaters, live entertainment, etc. Click-to-call advertising enables advertisers to generate customer leads using the Internet. The click-to-call capability allows users to click on a link or icon in the advertisements to call the advertisers directly to pursue a transaction. Google, Inc. was co-founded by Sergey Brin and Larry Page in 1998. It is the world's most popular Internet search engine and has a diversified range of products such as E-mail, blogs, etc. Alando.de was a leading online person-to-person trading company. It had more than 80,000 listed items in 500 categories and had around 50,000 registered members, as of 1999. Australia-based eCorp is Australia is involved in Internet portals, ticketing services, financial services, career management services, and online gaming. Internet Auction Co. Ltd was established in April 1998, and was the first Korean company to offer online trading. In 2000, it had 2.8 million registered users and around 450,000 items on sale. The company was listed on the Korean stock exchange in June 2000. iBazar SA launched iBazar in 1998 as an online person-to-person trading website. By 2001, it had a presence in 8 countries and over 2.4 million registered users. iBazar is the leading online auction site in France, Italy, Spain, Brazil, the Netherlands, Belgium, and Portugal, and the second in Sweden. Neocom Technology Co. Ltd. was launched in 1998, and operated two websites uBid.com.tw and bid.com.tw. EachNet a leading online trading community in China was founded in 1999. As of 2002, it had more than 3.5 million registered users.
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US$ 30 million. In 2003, it acquired the remaining 67 percent stake in EachNet, for US$ 150 million. In August 2004, eBay entered India through the acquisition of the online auction company, Bazee.com Inc. and its subsidiary Bazee.com India Pvt. Ltd.36, for US$50 million. In the same year, it launched eBay Malaysia and eBay Philippines. In April 2004, eBay acquired Germany- based mobile.de37, a classifieds website for automobiles, for US$ 149 million. In November 2004, it acquired Marktplaats.nl,38 a Dutch classifieds website, from Het Goed Beheer BV (a company that owned a chain of retail shops selling second-hand goods in the Netherlands) for US$ 290 million. In June 2005, Kijiji acquired Opusforum.org39, a Germany-based local classifieds website. By 2005, eBay was present in 29 countries across the world. In the year it recorded sales of US$ 4.5 billion, with international sales accounting for 46 percent of the total sales. According to Whitman, "International [sic] is a very important part of the future growth. We're entering new countries that are at a much earlier stage of e-commerce development than the U.S. They should provide higher levels of growth for the foreseeable future."40 In 2007, eBay acquired a minority stake in GittiGidiyor.com, one of the leading players in the Turkish online trading market. In the same year, it entered into an agreement with the leading Internet portal in Thailand, Sanook!41, to launch a co-branded site. The site www.shopping.co.th was launched in January 2008.
EBAY IN JAPAN
In February 200042, eBay entered into a joint venture with NEC Corporation43 (NEC), to form eBay Japan; NEC held a 30 percent stake in the company while the rest was held by eBay Inc. On the JV, Ichi Yoshikawa, Executive Vice President, NEC, said, "Our work with eBay will help bring the excitement of the online auction format to Japan and create a new marketplace for trading virtually anything."44 Merle Okawara45 (Okawara), who till then, had worked as the CEO of JC Foods Ltd., was chosen as CEO of eBay Japan. Even before eBay was launched in Japan, its websites were popular among auction enthusiasts and collectors. eBay launched its Japanese website, www.ebayjapan.co.jp, on February 28, 2000. NEC began promoting the site through BIGLOBE, its Internet Service Provider. On the launch, Okawara said, "We feel that the launch of eBay Japan is a milestone in the company's
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Bazee.com India Pvt. Ltd, a subsidiary of US-based Bazee.com Inc., started operating in India in 2000. Bazee.com had over 1 million registered users at the time it was acquired by eBay. Mobile.de was founded in 1996. It was one of the first websites dedicated to buying and selling automobiles. Marktplaats.nl was launched in 1999 and enabled buyers and sellers to trade in various items like cars, clothing items, collectibles, etc. www.opusforum.org, founded in 2002 is a Germany-based classifieds website. As of 2005, it provided services in 45 cities in Germany and in 10 cities in Switzerland and Austria and had more than 1 million unique visitors (as of May 2005). Erick Scholfeld, "The World According to eBay," Business 2.0, January 2005. Sanook.com, is a subsidiary of the MH Group, which, in turn, is a subsidiary of Naspers Limited. Sanook! offered search engine, online marketplace, social networking, mobile services, search marketing, online advertising, and other services. In 2000, Japan was the second largest economy in the world. NEC Corporation is a Japan-based multinational. The company provides IT and network solutions to business enterprises, communication providers, and government. "eBay and NEC Announce Joint Venture in Japan," www.nec.co.jp, February 17, 2000. Okawara was one of the most prominent businesswomen in Japan. She was born in Hawaii and studied in Northwestern University in the US and the University of Geneva, Switzerland.
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international expansion, bringing the excitement and fun of the online auction format to the world's second biggest Internet market."46 The site was in Japanese, and the items were listed in the order of the Japanese alphabet. The items on the site, denominated in yen, were listed under more than 800 categories though this was much fewer than the number of categories on eBay's US site. This was because several categories on the Japanese site were combined; books, movies, and music were under a single category, as were travel and tickets. Apart from categories like computers and electronics which were common across eBay's international sites, the website also had some Japan-specific categories like Hello Kitty47, and Pokémon48 merchandise. The online help information about bidding and selling items was more detailed on the Japanese site compared to eBay's US site. Details highlighting the safety of transactions on eBay were displayed prominently. Some links like using wireless phones to bid were highlighted as graphic links, while on the US site, they were displayed as a part of the text. The website allowed the Japanese consumers to view the items listed on eBay websites across the world, along with their prices in yen. (Refer to Exhibit I for screenshot of the eBay Japan homepage.) On the Japanese site, eBay had Supershops, a merchant-to-person section through which individual users could bid for items listed by companies. Several companies such as Mitsui Real Estate, Kinkou, Culture Convenience Club, @venture, and Marubeni Corporation, participated in the Supershops selling computers, electronics, real estate, jewelry, etc. As in the other markets, in Japan too, eBay charged listing fees and final value fees. The listing fees were in the range of ¥ 30 to 240 and the final value fees ranged from 1.25 to 5 percent, depending on the final sale price of the listed item. After one year in Japan, eBay was able to secure only a 3 percent share of the online auctions market, valued at US$ 1.6 billion. Not finding many takers for its online auctions, it decided to scrap fees for online transactions in March 2001. On the fee being waived, the marketing manager of eBay Japan said, "We are 49 taking the business here as a marathon not a sprint. We are not focused on short-term profits." eBay claimed that after it stopped levying the commissions it had witnessed an increase in the number of listings. While millions of items were listed on eBay worldwide, in Japan there were only around 4,000 items listed on the website even in 2001. At that time, Yahoo Auctions was the leading auction site in Japan with more than 2 million items listed and around 180,000 transactions per day. In the second position was www.bidders.co.jp, with around 100,000 items. Online mall Rakuten, which had both B2C and C2C auctions, was in the third position. eBay was unable to make any headway in Japan in 2002 too. Chris Donlay, spokesperson, eBay said, "Over the past six months we've been taking a serious look at it. We've been doing a lot on the ground growing the business there, and it has been growing, but slowly."50 In 2002, eBay was ranked fourth in the Japanese online auctions market. Yahoo Japan Auctions maintained its lead, followed by the Japanese players. At that time, analysts were of the view that eBay could improve its position only by acquiring one of the top three players.
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"eBay Launches in Japan," www.ebay.com, February 28, 2000. Hello Kitty is a fictional character created in 1974. Hello Kitty merchandise includes stationery products, clothing, bags, jewelry, etc. Pokémon (Poketto Monsut? in Japanese) is a media franchise owned by Nintendo, which was originally a Game Boy video game. Pokémon also refers to more than 450 fictional species that have appeared in Pokémon media. Pokémon merchandise includes trading cards, toys, and books. Gail Nakada, "eBay Japan Revenues Going, Going??" www.marketwatch.com, April 02, 2001. "eBay Mulls Japan Options, Including Site Sale," Bloomberg News, January 14, 2002.
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In February 2002, eBay announced that its website in Japan would be closed 51 March 31, 2002. by At that time, eBay Japan employed 17 people and had around 25,000 items listed on the site. According to Pursglove, "Despite the hard work of eBay's team in Japan, we simply believe the issues eBay is facing there are insurmountable without changes in the Japanese market."52 After the site was closed customers accessing the site were redirected to eBay's website in the US.
WHAT WENT WRONG?
Several reasons were cited for eBay's failure in Japan. According to analysts, however, the main reason was the dominance of Yahoo Auctions in the Japanese online auctions market. Yahoo having entered Japan in 1996 through a joint venture with SoftBank53 made the right moves to become the largest Internet access provider and the largest portal in Japan. Before online auction sites started operations in Japan, analysts believed that these would not be successful in the country as the Japanese were image conscious, and would not buy second hand and used goods. Therefore, not many Japanese and international Internet companies were interested in entering the market. eBay, however, was keen on entering the market. In fact, it was the first company to announce its plans for Japan. When Yahoo in Japan learnt that eBay was planning to enter Japan, it decided to move ahead and get a headstart by launching online auctions before eBay did. It immediately set out to develop a Japanese auctions site. According to Masahiro Inoue, President, CEO, Yahoo Japan, "We knew catching up with a front-runner is hard, because in auctions, more buyers bring more sellers."54 Yahoo Japan Auctions was launched in September 1999, just four months after Yahoo decided to launch the site. Being the first auction website in Japan, it was able to attract several sellers, which brought in many buyers. Initially, Yahoo Japan Auctions did not charge transaction fees and all its services were free. Analysts were of the view that the five-month lead which Yahoo got over eBay was crucial. In the absence of competition, Yahoo was able to establish itself firmly. According to an analyst from SoundView Technology Group, "The online m55rketplace really becomes difficult a to prosper in when you don't secure the first-mover advantage." By the time eBay entered the market, Yahoo had developed a loyal customer base. Moreover, eBay's practices -- especially that of charging listing fees and final value fees - also worked against the company. Most Japanese were not willing to pay for services that Yahoo Auctions had till then been providing free. Although eBay stopped levying fees in March 2001, the situation did not change much. And even when Yahoo Japan Auctions decided to charge transaction fees (a nominal monthly listing charge and commission in the range of 3-5 percent) from July 2001, it did not affect Yahoo adversely.56 Another factor that worked against eBay was the strength of the Yahoo brand in Japan. Yahoo was the best known online brand in Japan and was successful in channeling traffic from its other services like Yahoo mail, search, etc. toward Yahoo Auctions. eBay, on the other hand, was known only to those who were interested in online auctions. The Japanese generally trusted well- known and established brands, and this proved to be an advantage for Yahoo.
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At that time Yahoo offered more than 3.5 million items on its auction website in Japan. Tiffany Kary, "eBay Exits Japan, moves into Taiwan," www.news.com, February 26, 2002. SoftBank Corp. is a leading telecommunications and media company in Japan. Its businesses include broadband, fixed-line telecommunications, e-commerce, Internet, technology services, marketing, finance, and media. As of September 2007, Yahoo held a 33.42 percent stake while Softbank held 41.09 percent in Yahoo Japan. "How Yahoo! Japan Beat eBay at Its Own Game," BusinessWeek, June 04, 2001. "eBay Pulls out of Japan," news.bbc.co.uk, February 27, 2002. According to Yahoo, though there was opposition from the users initially, after they learned about the security features of the escrow system, they agreed to pay the fees.
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Analysts were of the view that eBay could have benefited if it had started its Japanese website earlier, for example, immediately after Yahoo launched its Japanese site. eBay had spent considerable time in establishing a subsidiary and in finding a country head. It had also spent a lot of time developing a site that would appeal to the Japanese. According to sources, eBay consumed a lot of time in developing add-ons such as a daily horoscope, detailed product descriptions, and newsletters for its Japanese site. Moreover, even though Yahoo had a wide presence in the Japanese Internet market at the time, it spent money on advertising the launch of its online auction site in Japan. It advertised through billboards in some of the prominent locations across the country, and through magazines. Even after the launch, Yahoo continued to spend around 8 percent (on an average) of its annual revenues in the country on promotions. eBay, on the other hand, did not spend much on advertisements and relied on word-ofmouth publicity. And as very few users registered with eBay, this strategy did not work as anticipated. Industry analysts pointed out that eBay had used its American-centric payment model in Japan, instead of modifying the service model to suit the needs of the Japanese. eBay charged user fees for listing and selling the items and users were required to submit their credit card information at the time of signing up - a process that did not go down well with most Japanese. Also, most of the Internet savvy people in Japan were young, and did not use credit cards. Even otherwise, Japan was largely a cashbased society and the Japanese preferred to pay for purchases with cash or through bank transfers. The design of the site also seemed to have contributed to eBay's troubles in Japan. On its Japanese site, eBay put in a search function instead of creating sub-categories under each category. This seemed to have annoyed many customers as they had to spend a lot of time finding items on the site. For example, a user in the US searching for external modems for desktop PCs could find them in Home > Buy > Computers & Networking > Desktop & Laptop Components > Modems for Desktop PC > External. On the Japanese website, however, as there were no sub-categories under Computers & Networking, users had to use the search function. And the results given by the search function often included items that were not relevant to the search request. Analysts pointed out that eBay had also erred in its choice of country head. eBay was keen on having a country head who knew the local language and English. Okawara was made the CEO of eBay Japan as she was of Japanese origin and had entrepreneurial experience. The fact that she was new to the Internet business and may not have been aware of the trends in the business was not taken into consideration, and this, in hindsight, proved to be a serious mistake.
THE AFTERMATH
After its Japanese misadventure, eBay chose to expand into countries like China and Taiwan by acquiring leading auction websites, where it relied on local brands for growth and market share. According to Sherif Mityas, a vice president in the consumer business and retail practice at A.T. Kearney57, "Two important issues for companies like eBay are novelty and loyalty. In North America, where eBay was one of the first companies to institute the Internet auction model, it is enjoying both. Its experience in Japan, however, has taught it that if you're not the first one in a market, it is very difficult to get people to use your site. In those markets you have to buy the leaders, and the loyal customer bases attached to them."58 By 2007, eBay was able to establish a strong presence in other Asian markets like Taiwan, the Philippines, India, Malaysia, and Hong Kong. Despite that, it appeared that without Japan, the
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A T Kearney Inc. is a US-based management consulting firm. Joan Harrison, "Asian Advances, and a Retreat, For Online Auctioneer eBay," Mergers & Acquisitions: The Dealermaker's Journal, April 2002.
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largest market in the region, eBay's Asian expansion would not be complete. Therefore, eBay decided to explore the available options to reenter Japan. After Yahoo closed down its auction sites in the US and Canada, and agreed to collaborate with eBay in the US on online advertising, communication, payments, etc. in 2006, eBay decided to partner with Yahoo in its second attempt to enter the Japanese market. It entered into an agreement with Yahoo according to which, by March 2008, eBay would list its items on Yahoo Japan Auctions. By the end of 2008, items on Yahoo Japan Auctions were to be listed on eBay's US website. The sellers would get a wider platform to display their items, while the buyers would get more choice. The website, Sekaimon, would be used to translate names and details of the items listed on eBay's website into Japanese, and also provide shipping and customs clearance services, etc. The website was to be operated by Shop Airlines -- a unit of Netprice.com59. Shop Airlines would handle payment, customs clearance, and delivery. A fee of 15 percent of the sale price would be charged for these services. Analysts were of the opinion that the association would help both the companies benefit from the growing online auction markets, which were valued at US$ 172 billion in the US and at US$ 36.4 billion in Japan as of 2007. In 2007, eBay announced that it planned to extend the deal with Yahoo in the future to include other markets and services like PayPal and Skype. According to Masahiro Inoue, President, Yahoo Japan, "We are also considering allying with eBay in countries where eBay has a strong foothold, but we will study this once the US and Japanese business proves successful."60 Some analysts were, however, not very upbeat about the Yahoo--eBay joint venture. They felt that as it would involve highly complex shipment and payment processes, customers might not want 61 to use the services on offer. According to Masato Araki, an analyst at Mitsubishi UFJ Securities , "When you take into consideration shipping and transaction fees, participation may be limited."62
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Netprice.com is a Japanese online shopping company. Vivian Wai-yin Kwok, "Bids Across the Pacific: Yahoo! Japan and eBay Ally," www.forbes.com, December 04, 2007. Mitsubishi UFJ Securities is an investment arm of Mitsubishi UFJ Financial Group, which was formed in October 2005, through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. Mayumi Negishi, "eBay, Yahoo Japan to Link up Auction Services," Reuters Canada, December 03, 2007.
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Exhibit I eBAY Japan's Homepage
Source: bbc.co.uk
Exhibit II Internet and E-Commerce In Japan
Broadband penetration in Japan picked up from 2001 onward, soon after liberalization of the telecom sector. Broadband penetration was at 25 percent in 2002. As of 2005, Japan stood third in the world in terms of number of Internet users with 86.3 million users; only USA (197.8 million users) and China (119.5 million users) were ahead of Japan. At that time, broadband penetration in Japan was at 50 percent. With the growth of high-speed broadband, the e- commerce market in Japan also grew. In 1999, after NTT DoCoMo introduced Internet-enabled wireless handsets in Japan, mobile phones began to be used to access the Internet. In 2000, the government issued 3G licenses. With the increase in mobile penetration, mobile phone-based Internet usage also increased. By 2005, the number of mobile Internet users was greater than the number of PC Internet users. Consumers in Japan started trading using the Internet in 1999. After a slow start, online shopping picked up in Japan, led by Yahoo, which is also the largest general information website in Japan. Another popular destination for online shoppers in Japan is Raukten Ichiba. As of 2003, Japan was the third largest e-commerce market in the world at US$ 255.7 billion, after USA at US$ 733.4 billion, and Western Europe at US$ 516.2 billion. As of 2006, B2B e-commerce in Japan was valued at US$ 1.3 trillion. The largest users of B2B e-commerce were manufacturing (US$ 714 billion), wholesalers (US$ 363 billion), and finance (US$ 58 billion). The market size of B2C e-commerce was US$ 37.8 billion. The largest users were IT/telecommunications (US$ 10.2 billion), general retail (US$ 8.5 billion), electric appliances (US$ 4.9 billion), and travel (US$ 4.4 billion), according to the Electronic Commerce Promotion Council in Japan. The value of B2B e-commerce in Japan is greater than in the US; the value of B2C e-commerce in the US is much greater in value than in Japan.
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Ebay in Japan
Japanese B2B Market Year 2000 2001 2002 2003 2004 2005 US$ billion 220 360 510 670 870 1110
Source: Electronic Commerce Promotion Council, Japan
There are some barriers to the growth of B2C e-commerce in Japan like the limited usage of credit cards. Shopping is considered to be a social activity in Japan and a large majority of young people prefer to spend their free time visiting shopping areas and trying out new products, rather than buying new products on the Internet.
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