FROM THE ECONOMIST INTELLIGENCE UNIT
In a country with no tradition of classified advertising, eBay
sees a bright future for an online version of it
Already a multi-billion-dollar industry in the US, Internet classified
advertising has arrived in China, courtesy of online-auction giant eBay.
But China has no history of classifieds, online or offline. So it begs the
question: can online classifieds in China make money? According to the
people behind Kijiji.com, eBay’s entry into the international
online-classifieds market, the answer is yes—easily. How do they plan to
pull it off? By taking their online operation offline.
In August 2004 eBay purchased a 25% stake in San Francisco-based online
classifieds pioneer Craigslist.com for a reported US$10m-12m. Six months
later, eBay launched Kijiji (it means “village” in Swahili), a mostly
non-English network of Craigslist-inspired community websites where people
advertise jobs, apartments, goods, activities and services for free. After
a series of acquisitions, Kijiji now has websites covering more than 150
cities in 20 countries. And Kijiji China, launched in February with the
other Kijiji sites around the world, is leading the pack with more than
80,000 postings at any given time.
China’s huge population obviously provides Kijiji with a solid base
from which to grow. Even with very low Internet penetration, the number of
Chinese going online is estimated to be more than 100m, second only to the
US. But China’s low labour costs allow Kijiji to try things there that it
would think twice about in other parts of the world, especially when the
operation has little or no revenue.
For example, in May Kijiji China opened a Shanghai call centre where
its employees take classified-advertisement information from phone calls,
mobile-phone text messages and online instant messages. While Kijiji China
would not reveal how many employees the call centre has, it is safe to
assume that the company, which has seven full-time administrative
staffers, already has or will soon have more workers than the entire
175-site Craigslist network. Craigslist, with 18 employees and very little
overhead, has an estimated annual revenue of US$10m-20m.
Kijiji’s China director has a much bigger venture in mind, however.
Wang Jianshuo, 28, envisions a workforce of several hundred in the
not-too-distant future. The former Microsoft employee whom eBay tracked
down through his popular English-language blog, says he wants to grow
Kijiji China as a start-up company. “I want Kijiji to be a household brand
instead of an online brand,” says Mr Wang.
Kijiji China currently has localised sites covering 30 cities, although
most of the traffic during the first seven months of its existence was
generated in Shanghai, Beijing and Guangzhou, where the company focused
its marketing push. In Shanghai, full-page ads on Kijiji—also featuring a
big selection of its own online classifieds—appear twice a week in the
free newspaper distributed to the city’s subway commuters. They carry
information about how readers can post their own advertisements on
Kijiji’s websites. Such bridges to the offline community are crucial
components in Mr Wang’s plans to grow Kijiji in China’s second- and
third-tier cities. He sees a day when there will be neighbourhood “Kijiji
stations”, where people can go both to place classified listings and to
pick up a paper version of the online Kijiji ads.
Megaphones and cowbells
Of course, this is all assuming the typical Chinese small-city dweller
takes to the foreign idea of placing and answering classified ads. China
is still largely a country where things are used until they can be used no
more and then sold for scrap value to the “garbage collector”, who rides
his bicycle through neighbourhoods with a megaphone and a cowbell. Many
day workers, too, do not have access to computers, and usually announce
their availability to the public by pasting or painting their phone
numbers on city walls.
For his part, Mr Wang says Kijiji’s market research has shown that
there is demand for both offline and online classifieds in China. But the
question remains: will the Chinese pay for something that they can now do
for free? Mr Wang is confident they will, saying some Kijiji China users
have already asked if they could pay in order to get better placement for
their ads. Mr Wang’s answer to them is “eventually”, but he does not want
to monetise the sites too soon. The core service of Kijiji—a basic online
classified ad—will always be free, he says. When the time is ripe,
however, the company plans to charge users for such value-added features
as preferred placement or guaranteed inclusion in Kijiji China’s newspaper
section. Kijiji China could charge customers who place ads over the phone,
as well.
As with many online ventures, Mr Wang’s ideas will be worthless until
they are proven in practice. But most analysts agree that Kijiji China’s
potential upside greatly outweighs any financial risks eBay is taking on
with the project. The investment needed to launch and maintain Kijiji
sites around the world is minor for a company of eBay’s size (it has a
market capitalisation of some US$53bn). If it follows the Craigslist model
of providing a quality service, generating substantial traffic and then
monetising certain aspects of the sites, profits could be substantial.
Nowhere is this truer than in China, where there is virtually no
competition for classified ads, and where some analysts expect the
Internet population to almost double in the next two years—or sooner.
