Taobao, eBay bury hatchet to vet China trades

SHANGHAI (Reuters) - Taobao, which has edged out U.S. giant eBay Inc. (EBAY.O) to become China's biggest online auction firm, said on Thursday it is cooperating with its rival for the first time, to clamp down on illegal trade of Internet accounts over their Web sites.

The move marks a departure from the long-running enmity between the erstwhile competitors after eBay, which struggled to gain traction in China's fast-growing online market, agreed last year to put its China business into a local joint venture.

The agreement to cooperate was mutual, said Toto Sun, general manager of Taobao, the consumer-to-consumer arm of Alibaba.com, China's largest e-commerce company.

"EBay found some of our service accounts for sale online, and they got in touch with us," Sun told Reuters in a telephone interview.

"We think this is something we simply must deal with. It's vital for the industry that we do. They could have been stolen accounts or been sold on. We'll do the same for eBay."

Beijing is trying to crack down on sales of "virtual assets", especially virtual weapons for online games and auspicious account numbers for instant messaging services.

Authorities worry that unregulated trade in virtual assets can foster anti-social behavior and the central bank is concerned that such online trade may have a negative impact on the country's currency circulation, as most buyers and sellers make transactions by exchanging so-called "virtual coins" for real cash.

CYBER-WEAPONS

Last year, an online gamer in Shanghai killed a player who had taken his cyber-weapon, called a Dragon Sabre in the popular online game Legend of Mir III, and sold it for 7,200 yuan ($930), according to the official China Daily.

EBay has for years been locked in a war of words and business models with Taobao in China, a fast-growing media market with around $500 million in online advertising spending and as much as $75 billion in e-commerce last year, according to industry estimates.

But the China e-commerce market is also one of the most challenging for service providers, due to its fragmentation and government oversight.

In 2003, eBay dominated China's online auctions market with a 79 percent share. But Taobao was launched that year and fee-charging eBay's share fell to 36 percent in 2005, compared with Taobao's 59 percent, according to research firm iResearch.

Taobao, which charges no fees for its services, forced eBay -- which has said that "free is not a business model" -- to cut prices in 2005.

Alibaba said in December, however, that it would soon start charging some users of its free Alipay online payments service on Taobao as it seeks new sources of revenue.

Taobao had transaction volume of more than $900 million in the first quarter of 2007, double from the same period a year earlier, the company said in a statement late on Wednesday.

Taobao had more than 35 million registered users in the quarter.

Yahoo Inc. (YHOO.O) bought 40 percent of Alibaba in 2005 for $1 billion. Japan's Softbank Corp. (9984.T) is also an investor in Alibaba.

EBay said in December it would put its China business into a joint venture with Tom Online 8282.HK (TOMO.O), a Beijing-based Internet portal and wireless services firm that is partly owned by Hong Kong tycoon Li Ka-shing.

($1 = 7.73 Yuan)