.jpg)
Jay Lee, center, eBay s vice president of Asia Pacific, speaks during a news conference on eBay s acquiring of a controlling stake in Gmarket at a hotel in Seoul last Thursday. Joining Lee is Auction CEO Park Joo-man and Gmarket CEO Ku Young-bae. / Yonhap |
 Critics Say eBay-Gmarket Deal Could Hurt Shoppers, Small Merchants
By Kim Tong-hyung
Staff Reporter
Despite its suffering core business, eBay showed some serious mettle in splurging lavishly for Gmarket (www.gmarket.co.kr), South Korea's leading Internet retailer. But then again, opportunities to acquire a monopoly in a super-sized market don't come very often.
Ending seven months of circular talks and speculation, eBay finally closed the deal last week by agreeing to pay $413 million (about 550 billion won) for a controlling share in Gmarket, which is now subject to final approval by the Fair Trade Commission (FTC).
The American online auction giant will take a 34.2 percent stake in Gmarket from Interpark (www.interpark.com) and its chairman, Lee Ki-hyeong, at $24 per share, a 32.5 percent premium.
This is eBay's second major acquisition in Korea, following its 2001 purchase of Auction (www.auction.co.kr), which happens to be Gmarket's bitter rival in the customer-to-customer (C2C) online market. In spite of its 40 percent-plus market share, Auction slightly trails Gmarket as the country's biggest online auction and Internet retailer.
Adding Gmarket gives eBay a nearly 90-percent share of what has essentially been a two-player market. The C2C market, which was worth some eight trillion won at the end of last year, could grow to 20 trillion won by 2012, according to some industry estimates.
Besides getting a premium cut of Korea's massive e-commerce market, the combined traffic to Gmarket and Auction would give eBay a shot at challenging Naver (www.naver.com) and other major search engines in the game of online advertising.
``Online auction companies have two revenue streams ¡ª transactions and advertising. Both just got a lot stronger for eBay's Korean business, and the advertising business will now be expected to make much more of a difference,'' said Kim Chang-kwon, an analyst from Daewoo Securities.
Most market watchers seem to agree that the country's biggest Internet industry sale ever has the makings of win-win decision.
EBay is getting what it had originally sought to achieve in buying Auction eight years ago ¡ª a monopoly of the Korean online auction market ¡ª and possibly even more, considering Gmarket's solid starts in other Asian markets such as Japan and Singapore.
Interpark, which gets to keep some 400 billion won from the deal shedding taxes, can buy itself a new business model with money comparable to the market value of Daum (www.daum.net), the country's second-largest Web portal and search engine, behind Naver.
The ultimate losers of the deal just might be consumers, whose demands for value for money made Gmarket and Auction the cash-making machines they are today. It remains to be seen whether the hunt for bargains will become more difficult.
Fair Trade Problems
In approving eBay's bid for Gmarket in September last year, the FTC refused to take the C2C sector as a single market, but as a part of the e-commerce market as a whole, also including the online shopping sites operated by retail companies.
Under the criteria, Gmarket and Auction combine for ``only'' 37 percent of the country's 18 trillion won e-commerce market. Thus, eBay wouldn't be subject to fair trade restrictions that apply to companies that own more than 50 percent of a certain market or the No. 1 players of markets where the top three combine for more than a 75 percent share, the FTC said.
However, some industry watchers argue that the entry barrier for the online auction market is high, evidenced by the current duopoly of Gmarket and Interpark and the pile of failed sites, some backed by retail giants such as CJ and GS.
It could be argued that the Lee Myung-bak government, priding itself as ``business friendly'' and overzealous to attract foreign investment, bent the rules for eBay, critics say.
``The platform of the C2C market is very different from the B2B marketplace and it's difficult for newcomers to break into,'' said Park Jay-seok, an analyst from Samsung Securities, who says a monopoly in the C2C sector would eventually threaten the business of smaller vendors and drive up prices.
``The FTC prevented eBay from raising sales commissions for the first three years, but what happens after that? It's really hard to make any excuses for the FTC in this case,'' he said.
The elimination of competition is certainly a concern for online shoppers, who benefited from cheaper prices and improving consumer services, results of the cutthroat race between Gmarket and Auction. With eBay finally inking the Gmarket deal, consumers are expected to see fewer discount events and online coupons.
Price could become a bigger problem down the road. As a precondition for allowing eBay's control over Gmarket, the FTC barred Gmarket and Auction from raising sales commissions for the next three years and limited hikes in advertisement and other fees below national inflation.
However, few believe eBay will stay put after the mandatory three-year freeze, which means online products could become pricier. There are also concerns that eBay could use its near-monopoly to widen the gap with the No.3 player, 11th Street (www.11st.co.kr), an online auction site operated by mobile telephony giant SK Telecom.
Gmarket was hit with a 130 million won fine by the FTC in 2007 after it pressured its sellers from providing their products to the now-defunct Mple, an online auction site that was operated by CJ. Needless to day, eBay wouldn't be controllable with just such a slap on the wrist.
``After the first three years, it would be a logical business decision for eBay to raise sales commissions. There has never been a single company allowed nearly 90 percent of a consumer market here and now we are about to see what the consequences will be,'' said Lee Joo-hong, an official from Green Consumers Network, a consumer interest group.
``Price is not the only problem. Considering that the online sites have been basically just providing the platform for C2C deals, their responsibility in consumer protection and quality control has been limited, and a monopoly clearly wouldn't help.''
Eyes on Japan
At least for now, eBay doesn't seem to have intentions to merge Gmarket and Auction into a single unit.
When acquiring Auction, eBay bought out the remainder of the Korean company's shares through a tender offer and de-listed it from KOSDAQ. However, doing the same for the NASDAQ-listed Gmarket will require an immensely larger amount of money.
Gmarket saw 3.9 trillion won in total transactions last year, and Auction followed with 3.1 trillion won. The combined amount is comparable to the 10 trillion won in revenue posted last year by Lotte Department Store, the country's largest department store chain.
By improving business operations, eBay plans to improve the combined revenue of its two Korean companies by up to 10 trillion won.
EBay also has high hopes for Gmarket's experience in other Asian markets. Unlike its archrival, Amazon (www.amazon.com), eBay tried but failed miserably in Japan, Asia's kingpin market in online commerce. It's now hoping to use Gmarket's Japanese platform for a retry.
Unlike eBay, which relied entirely on the auction model, Gmarket has been successfully carving itself a niche market in Japan with a more targeted business approach and specialized sales items.
In a news conference last week, eBay announced that Gmarket's current chief executive, Ku Young-bae, will now head overseas operations for both Auction and Gmarket, while current Auction CEO Park Joo-man will takeover domestic operations.
Expanding further into Asia is part of eBay's long-term plans, but the deal will also allow the company to leverage into new markets in Korea.
Auction has been relying on other Web sites to bring traffic, spending around 10 billion won per year to put search advertisements on Naver, Daum and other major online destinations.
Now, aside of saving such costs, Gmarket and Auction could combine for a tremendously powerful advertising platform that will allow eBay to compete directly with Naver, the undisputed king of the online advertisement business.
The combined volume of Gmarket and Auction is larger than that of Yahoo! Korea (www.yahoo.co.kr), the country's fifth most popular Web site, according to industry figures.
thkim@koreatimes.co.kr
|
