If at first you don't succeed, try again with another partner. That may be sage advice for dating or ballroom dancing, but will it work for eBay (NASDAQ:EBAY) in China?
The world's largest online marketplace is ready to give it another go in the world's most populous nation. The company's first foray into China, partnered with the country's own EachNet, proved to be no match for Alibaba's Taobao.
eBay isn't the type to settle for anything less than the blue ribbon. When Yahoo! (NASDAQ:YHOO) teamed up with Softbank to whip the company in Japan, eBay pulled out of the country.
The company is taking a different approach this time. Instead of surrendering, it is simply retreating. It will be back with a new partner -- this time TOM Online (NASDAQ:TOMO) -- to see if it can get it right the second time around.
Second time is the charm
Is China more important than Japan or is eBay simply less of a quitter these days? The next few months will shed some light there. Just because eBay's going in with a different local guide and a fresh attitude doesn't mean that it won't get pummeled again.
In a New York Times interview, CEO Meg Whitman spells out the need for a new attack strategy. The secret ingredient may be the addition of an escrow service that won't release payment of a transaction until the buyer is satisfied with the deal.
"We have a good shot at it," she explains. "Whatever we do elsewhere to assure trust and safety, in China we have to do more."
The problem is that Taobao is too strong in a country that is growing too fast. If any of the new eBay features prove popular, Alibaba's marketplace can simply copy it before eBay gets too big. The same luxury that eBay pockets domestically -- the ability to stomp out smaller consumer-to-consumer auction sites like Yahoo!, Overstock.com (NASDAQ:OSTK), and Amazon.com (NASDAQ:AMZN) -- is now in Alibaba's corner in China.
It won't be easy, but it can work if eBay is willing to settle for silver.
So we meet again, Yahoo!
Further complicating the battle is Yahoo!'s minority stake in Alibaba. Yahoo!-fronted auction sites have humbled eBay in China and Japan. The same can't be said for Yahoo!'s own efforts closer to home. It finally axed its domestic Yahoo! Auctions website earlier this month. One can argue that Yahoo! had to do so before it would choke on the stray tumbleweed that was coating the moribund marketplace.
Another eBay failure in China would be embarrassing, but clearly not fatal. If anything, it may be just the nudge both companies need to step up to the altar. When it comes to auctions, they're a perfect fit, with Yahoo! owning minority stakes in the winners of the two most important countries in which eBay is firing blanks at the moment.
But what if eBay is successful in China? That would be interesting. We're talking about a country with a citizenry of 1.3 billion people. Why do we have to have just one victor? Sure, I understand the network effect -- where bidders go where the sellers are and vice versa -- but what if eBay's new security enhancements with TOM Online help it cater to a thin niche of wealthy Chinese traders?
If the slice is too thin for Taobao -- already commanding 65% of the market -- there is no reason why the two can't thrive, given realistic expectations. Baidu.com (NASDAQ:BIDU) commands a similar slice of the paid search market in China, yet no one is complaining of Google's (NASDAQ:GOOG) profitability prospects as the distant No. 2 player in the country.
There is no shame in red ribbons, silver medals, and runner-up sashes, eBay. Just make sure you smile proud and pretty for the camera.
Yahoo!, TOM Online, and eBay are active recommendations for Stock Advisor subscribers. Baidu is a Rule Breakers newsletter service selection. You can still aim for the blue ribbon, gold medal, and beauty pageant crown as an investor. A free 30-day trial subscription to either service will get you started.
Longtime Fool contributor Rick Munarriz is an eBay fan, with a 172 positive feedback rating to show for it. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
