EBay and Yahoo head for showdown in Asia

When Joyce Yang’s family fell on hard times she turned to online auctions for help.

In July 2002, the interior decoration business run by Yang’s father in Taipei was struggling and both of her older brothers were unemployed.

Compounding the family’s financial problems, Yang’s mother fell ill and was forced to quit her sales job, giving up a monthly salary of around NT$30,000 (US$868). With no income of their own, Yang’s parents turned to her to help the family make ends meet; but Yang’s receptionist salary of NT$30,000 wasn’t enough to keep the family going.

Needing to find a second source of income, 25-year-old Yang turned to eBay Inc.’s Taiwan auction site, figuring she could raise a little bit of cash for her family by selling some of her old clothes online. Encouraged by the enthusiastic response from buyers, Yang soon began selling new clothes, purchased at a Taipei market, and demand soared.

Today, Yang, who still lives at home with her parents, no longer works as a receptionist. Yang quit her job at the end of last year to focus solely on her online auction business, which earns her between NT$40,000 and NT$50,000 every month, she said. The most she has made in one month is NT$250,000, Yang said.

The popularity of online auctions has grown at a breakneck pace in Taiwan in recent months, mirroring Yang’s rapid success. With a relatively affluent population of 23 million, Taiwan is one of the most developed Internet markets in Asia and is seen as one of the most important emerging markets for online auctions in the region.

“Beginning from late last year, I would say Q4 last year, (our auction business) has grown quite quickly,” said Charlene Hung, director of e-commerce business services at Yahoo Taiwan Inc., noting that the number of transactions on Yahoo’s auction site has doubled in the past six months. Hung attributed this rapid growth, which eBay has also seen, to an increase in the number of broadband users in Taiwan and ongoing promotional efforts by the two companies.

While eBay and Yahoo are seeing rapid growth in Taiwan, Yahoo has a commanding lead over its rival, at least in terms of the number of items listed for auction on its site. Yahoo has nearly 2.4 million items for sale on its Taiwan auction site, compared with 166,000 items listed on eBay’s Taiwan site, according to a check of both sites on Aug. 12.

Yahoo also has an advantage over eBay in that its site is easier to use, said Yang, who has switched to Yahoo’s auction site along with many of her friends.

“Right now there is a huge gap between Yahoo Kimo auctions and eBay so we have a lot of advantage,” said Hung, referring to the brand name Yahoo uses in Taiwan. “Even if they grow a little bit, that won’t affect our market share.”

However, these are early days in Taiwan’s online auction business and the stakes are high. International markets like Taiwan have become an increasingly important source of revenue for both Yahoo and eBay and both companies say they are committed to building their presence here.

“The Taiwan market is very important to Yahoo’s business,” said Hung. “Taiwan ranks among the top five or seven key international markets.”

International markets are also an important source of revenue for eBay, which saw its 2003 second-quarter transaction revenue from international operations rise 146 per cent compared with the same period one year earlier, according to the company’s most recent quarterly report filed with the U.S. Securities and Exchange Commission. Riding that growth, international markets accounted for 31 per cent of eBay’s second-quarter transaction revenue, which excludes the revenue eBay earns from third-party advertising and other services.

“EBay is totally committed to this market and it’s part of a larger Asian strategy,” said Jeffrey Noles, the managing director of eBay Taiwan. “In 2001, we went in to Europe aggressively and now this is sort of the next stage.”

EBay and Yahoo have competed for online auction business in other international markets. In many cases, one of the companies has eventually conceded victory to the other, such as in Japan, where eBay withdrew last year after failing to make a dent in Yahoo Japan’s dominance of the market there.

In those markets where eBay has been more dominant, the two companies have negotiated agreements to work together, rather than compete.

In the most recent example of these collaborative efforts, Yahoo Australia & NZ Pty Ltd. announced plans to shutter its Sold.com.au auction site. Instead of competing against eBay’s Australian subsidiary, Yahoo now refers auction users to eBay’s site, which the company calls its “preferred auction service.” That follows a similar deal in Europe, where Yahoo last year shut down its own auction sites in six countries after signing an agreement to work with eBay.

As a result, Yahoo no longer operates its own auction services in Europe. Of the seven auction sites that the company still operates outside of the U.S., four of them – Hong Kong, Singapore, Japan and Taiwan – are in Asia. Those remaining are located in North American and South American markets.

How things will turn out in Taiwan’s online auction market, and which company will prove most successful here, remains to be seen.

“Right now we’re competing, maybe in the future we won’t be. We’ll see,” Noles said, acknowledging that an opportunity exists for eBay and Yahoo to work together.

Ultimately, success may depend on which company can both build a large online auction community and introduce fees for auction services. For now, neither Yahoo nor eBay charges a fee to list items on their auction sites, although they do sell advertisements to auction sellers looking to promote their products. Looking ahead, both companies plan to introduce such fees. It’s just a question of timing, according to both Hung and Noles.

“We always want to monetize (our auction business) but in the beginning auction markets are always free to the public,” Hung said. “The reason this is pretty important is that auctions are pretty new to all the users so we have to educate them.”

However, that process may be nearing an end as more and more Taiwanese turn to online auctions. “If we talk about how mature the market is, we see it’s almost ready for people to start paying a fee,” she said, noting that Yahoo is researching the effect that introducing auction fees would have on the company’s market share.

While Yahoo feels the time for introducing fees may be getting closer, eBay’s Noles is more cautious.

“What it’s ultimately going to take is when sellers feel it is a good idea,” Noles said. “They’re going to feel that when they know buyers are coming to a Web site and even though they’re selling a high-quality good, buyers can’t find that good because there’s so much trash on it. Then they’ll say, ‘Help me out, help us out. Make the quality on the site better.'”

“That time hasn’t come yet,” he said.

For her part, clothing seller Yang is opposed to the introduction of auction fees by Yahoo and eBay. “There’s no need for them to do that, they already charge enough money to place ads on their site,” Yang said, noting that she spends NT$4,000 to NT$6,000 of the money she earns every month to buy advertisements on Yahoo’s auction site.

When Yahoo does start charging auction fees, Yang plans to examine the financial impact on her business before she considers other alternatives. However, she ruled out a switch back to eBay, even if the company does not begin charging auction fees at the same time as Yahoo.

“Their site is too hard to use and customers don’t like that,” she said. “Maybe I’ll just open my own Web site.”