eBay's Exit From China Opens The Door For News Corp.

So much for China being eBay's biggest opportunity. EBay (EBAY) is calling it quits in China, after spending more than $250 million since 2002 to become the dominant online marketplace in the world's most populous country.

Late Tuesday, eBay announced a joint venture with Tom Online (TOMO). EBay will take a 49% stake and contribute $40 million in the JV, while Tom Online will take a 51% stake, contribute $20 million, and provide the local management to oversee the venture.

Two things come to mind with this deal:

1) News Corp's (NWS) MySpace will likely announce a partnerships with IDG/Accel Partners soon as the social network looks for a local entity to help it expand into China. After all, eBay was the latest U.S. company to accept defeat in China. Last year, Yahoo (YHOO) sold its China operations to Alibaba, and paid $1 billion for a 40% stake in the Chinese commerce company. You can't win in China without a local presence.

2) Despite eBay's JV with Tom Online, the new eBay/Tom Online entity will still face serious challenges as it competes with Alibaba's Taobao. According to iResearch, Taoboa has 30 million registered users, 60,000 new members per day, 40 million product listings and 110 million daily pageviews. The gross merchandise volume on Taobao was $1 billion in 2005, up 700% from the year earlier.

And, while eBay had 79% market share in 2003 and Taobao had 8%, in the last three years, that market share breakdown has changed. EBay now has 36% market share vs. Taobao's 59%. According to Citigroup's Mark Mahaney, China represented a scant 3% of eBay's global total. EBay was generating between $30 million and $50 million in sales but posting an operating loss of $20 million to $40 million in that market, the analyst wrote.