Can eBay make e-hay with Baazee?

Build a world-class organisation, turn it into a profitable venture, then sell it off for a bundle—that seems to be the mantra for becoming a millionaire these days. eBay’s acquisition of Baazee underlines the fact that global e-commerce companies are now seriously eyeing Indian online players who stuck to their guns, says VENKATESH GANESH

GIL PENCHINA says that eBay is currently on an expansion drive across Europe and Asia, and the Baazee buy-out fits perfectly into its scheme of things

THE epitaph of Indian dotcoms that was scripted a couple of years ago is a thing of the past. Two recent events testify to this. First, a few weeks ago, Nasdaq-listed online recruitment firm Monster acquired Indian job portal jobsahead.com for close to $9 million. Now comes the acquisition of baazee.com by eBay for approximately $50 million. eBay sold goods worth $20 billion on the Net last year, and is expected to report revenues of $30 billion by next year. By this yardstick, baazee has done pretty well for itself to attract the attention of a global e-commerce giant such as eBay.

Virtual sanity

The heyday of the dotcom summer saw the Rs 499-crore buyout of Indiaworld by Satyam Infoway in November 1999. A lot of water has flown under the bridge since then. Even though the baazee-eBay deal in no way matches the Indiaworld deal, it is a sign that there’s still life in the Indian webspace.

Analysts are of the view that dotcoms have caught the acquisition fever from the BPO sector. But with the Indian Net population in the region of only 17 million (according to IDC), and buying on the net still in a nascent stage, is it a wise buy for eBay? This is a point worth pondering as eBay has gone in for a mixture of buy-out and build-from-scratch business models in the 28 countries where it does business. Avers Gil Penchina, vice-president, international, eBay, “We are currently on an expansion drive across Europe and Asia, and this buy-out fits perfectly into our scheme of things.” eBay will bring in expertise in creating a safe marketplace, and also leverage its experience in payments and logistics.

Baying for India

So why is there a sudden fascination with India? A growing Net population which is starting to embrace the concept of buying online has led industry observers to opine that eBay has entered the market at the right time. Additionally, there is growing interest in the international community in tapping producers of low-cost products in India and China. Says Gil, “Our clients in countries such as Germany and the US are keen on [sourcing] low-cost products from India and China, but find it tough to do so. That’s why tapping the wholesale market is a key focus [for us].” With India’s GDP growing by 7-8 percent in 2003-04, eBay is well-placed now to grab a substantial share of the growing Indian online market. With the Baazee deal, it gets access to one million confirmed registered users, plus a presence in B & C category towns that account for 45 percent of Baazee’s business.

AVINASH BAJAJ believes that Baazee's local expertise combined with eBay's global perspective will help them take e-commerce in India to the next level

The Indian B2C audience veers to purchasing electronic products including cameras, phones, computers and mobiles in addition to other consumer durables such as toys and music systems. Baazee has tie-ups with all the leading banks in India for facilitating smooth payments.

Part of an Asian campaign

The Baazee acquisition is in line with eBay’s overall strategy as it recently started operations in Hong Kong and acquired a Chinese auction company called Eachnet. “Our local expertise combined with eBay’s global perspective will let us take e-commerce in India to the next level,” declares Avinash Bajaj, chairman and co-CEO, baazee.com.

After the legalities of the acquisition are completed (it is expected to close in the third quarter of 2004), eBay will retain Baazee’s existing management team, and Bajaj and Suvir Sujan (the other CEO) will join the board of directors. Also, the name will remain Baazee, which makes sense considering its strong brand recall in India. One issue that needs ironing out is payment for goods purchased from abroad, and implementation of systems for the same.

Reality check

While things may seem to be rosy on the surface, there are several factors that act as a reality check. For example, a recent study conducted by ValueNotes (a provider of research in India) revealed some interesting facts about Net usage in the country. According to the study, the majority of Indian users (both corporate and retail) use the Internet merely for sending e-mail messages. eBay understands these issues; Gil says that the company’s strategy will be to ‘walk the streets’ and get a perspective on how merchandising is done here.

Creating a value proposition out of challenges is going to be the number one task for eBay. But despite the cynicism of the mid-nineties, when MNCs failed to impress the great Indian middle class, this time the indicators look more realistic. With broadband and other forms of Net access poised to take off in the future, eBay has probably got its timing right. In addition to the B2C global approach, it plans to use the Indian subsidiary to raise the percentage of export transactions that are conducted online, especially in sectors such as textiles, garments, leather, apparel, gemstones, handicrafts and jewellery. The company is aware that these are early days, but Gil says that eBay is prepared to wait for 5-10 years for its investment to bear fruit.

Interesting bid
Positives	Challenges
The acquisition is a step forward for eBay, and gives it a strong presence in an emerging market	17 million Indian Net users exist, but most use it for e-mail. It will take time for online transactions to mushroom
eBay gets access to Baazee's million registered users	A payment integration system needs to be put in place to give Indian users access to products listed on eBay's other sites

venkatesh@expresscomputeronline.com