eBay owned 85% of China's online auction market. Then Taobao launched for free.

eBay entered China in 2002 and acquired the leading online auction platform EachNet in 2003 for US$180 million. At the time of acquisition, eBay-EachNet controlled approximately 85% of China's online auction market. It looked like a dominant position in what would become the world's largest e-commerce market.

In May 2003 — just months after eBay's acquisition — Alibaba launched Taobao, a consumer-to-consumer marketplace that was completely free for sellers. Taobao charged no listing fees and no transaction fees, while eBay charged both. Taobao also introduced AliWangWang, an instant messaging tool for buyer-seller communication, and Alipay, an escrow-based payment system that only released payment after the buyer confirmed receipt.

Within two years, the market had flipped. Taobao's market share grew from 8% to 59%, while eBay-EachNet dropped from 79% to 36%. eBay's attempt to integrate EachNet into its global platform backfired — moving the technology from China to the US caused slow loading times and crashes, eroding user trust. By 2006, eBay's market share had fallen to roughly 20%.

In December 2006, eBay announced it would shut down its China site and form a joint venture with Tom Online Inc. eBay contributed US$40 million for 49% of the venture; Tom Online contributed US$20 million for 51% and management control. The eBay China site was redirected to the Tom Online joint venture in 2007, by which point eBay's market share had dropped to 7.7%. The joint venture never recovered meaningful market share.