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Business: eBay Eyes Korea
The online auction house has designs on a local giant
By ASSIF SHAMEEN

November 17, 2000
Web posted at 12.00 p.m. Hong Kong time, 12.00 a.m. EDT

Imitation is the highest form of flattery, they say. But what if the company that is copying your business model is just too good at it? Well, if you are the world's leading online auctioneer, eBay, you might want to buy it out. And that's apparently what eBay CEO Meg Whitman is thinking of doing in South Korea, where she is eyeing the top online auction house, Internet Auction Co.

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eBay has a spotty record in Asia, but is still in an expansionist mood. It tried to move into Japan, but received a bloody nose from muscular Yahoo Japan, a joint venture between Yahoo! and Softbank. Yahoo Japan is not only entrenched in the country, but offers a free auction portal that was just too much for eBay's fee-based model to take on. Buying into Yahoo Japan is of course not an option for eBay, but Korea offers opportunities.

It is by far Asia's biggest and most lucrative Internet market, with, at last count, nearly 80 online auction sites. More are emerging every other day. Among the better known are Waawaa.com, Sellpia.com, Samsung Auction, as well as the auction sites of leading local portals Daum, Yahoo! Korea and Lycos Korea. But nothing beats Internet Auction Co. (IAC). With a first-mover advantage (it was established in April 1998), it is way ahead of the others. Internet Auction has nearly 1.5 million registered members, more than triple that of a year ago. Gross transaction volumes are now running at about $25 million a month — and I'm not talking about baseball caps or lapel pins. The value of the average transaction is nearly $200. Koreans are buying and selling CDs, DVDs, PCs and peripherals, household goods and all sorts of collectibles. As a former Seoul resident who regularly returns to the Korean capital, I can tell you there is nothing young Koreans like more than selling things to each other.

There are two basic business models in the online auction world. Yahoo and other large portals charge no fee to sellers or buyers, but collect revenue from banner advertising. Auction-only portals such as eBay and IAC carry banner advertising, but also charge a listing fee, as well as taking a commission on any sale. IAC's average levy is 2% of the total value of goods sold. This year, 4.5 million items have appeared on its site. Analysts believe its ad revenue from banners could total $3 million this year, and over $5 million next year.

There are other things going for the Korean e-business giant. It has $100 million cash in hand and a burn rate of just half a million dollars a month. That means it has quite a war chest available for marketing if a competitor starts to move in an build up a customer base. IAC is projected to lose $ 6.7 million this year on total net sales of $22.1 million, and $2.2 million on sales of $58 million next year. Most analysts believe it will start making money toward the end of 2001. Their message to investors is "buy, buy, buy." eBay's Whitman has probably figured that out already — which is why she has been on the phone to Seoul, seeking some sort of tie-up, equity or otherwise, with IAC.

Having been beaten down for weeks, Internet stocks around the world are now experiencing what is being called a "Dead Tech Bounce." IAC, which listed in June, is trading at just over 30,000 won (about $26), a shade below its IPO price. It surged to 60,000 won in the weeks following the IPO, and then plunged to just under 22,000 in late September. Since then, however, it has risen 33%. With e-Bay possibly prepared to pay a premium for a minority stake, the outlook for the company is bullish. ING Baring's regional Internet analyst, Douglas Kim, sees the price moving to 180,000 won within a year. Merrill Lynch has a more modest 50,000 target over the next 12 months — still a 66% gain from current levels. What's more, analysts say IAC stock is currently selling at a 43% discount to eBay on price-to-sales multiples, a measure used for loss-making Internet companies. In Asia, B2C (business-to-consumer) ventures such as online retailing are struggling, and many B2B (business-to-business) enterprises have too long a gestation period. But C2C (or consumer-to-consumer) companies such as Internet Auction Inc. may yet give Asia's Internet investors something to smile about.

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