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Amazon Acquires Chinese Joyo

UPDATED: Amazon.com makes its Chinese debut with the $75 million acquisition of Joyo.com, the country's largest online retailer of books, music, videos and DVDs.

The deal is expected to close in the next couple of months, subject to closing conditions in the United States and China. Of the $75 million purchase price, $72 million will be paid in cash and assumption of Joyo.com employee stock options. Officials don't expect the acquisition to bear any fruit in fiscal 2004.

Dan Geiman, a research analyst with Seattle-based investment research firm McAdams Wright Ragen, Inc., stated in a mid-morning note that the move into China was a good choice.

"In light of the cultural differences in China, we believe that Amazon.com has acted prudently in acquiring an established company with what appears to be a solid management team," he stated.

Earlier this year, according to several news sources and analysts, Amazon.com approached Dangdang.com and offered to buy into it. According to a news report at interfax.com, senior Amazon.com officials visited Dangdang.com's headquarters in Beijing in January and throughout the year, proposed a 70 percent to 90 percent investment for as much as $1 billion.

Patty Smith, an Amazon.com spokeswoman, said the company never comments on rumors and speculation.

If the $1 billion figure, attributed to an unnamed source within Dangdang.com, is true, it means that Amazon.com executives definitely found a bargain in the much cheaper $75 million price tag that goes with the largest online vendor for books, music and video in China.

The acquisition sets the stage for an e-tailer war in China. On one side is the partnership between Joyo and its new corporate giant partner from the United States. On the other, of course, is Dangdang, which, according to a Dow Jones report, is expected to reach sales of $1 billion CNY ($120.7 million USD) within the next two to three years.

Joyo officials say the acquisition will not result in any job losses at the company, which was launched in 2000 by the British Virgin Islands Company, which operates the site for its subsidiaries and affiliates.

"We are very pleased to be entering the Chinese market with Joyo.com," Jeff Bezos, Amazon.com founder and CEO, said in a statement. "In a relatively short time, Joyo.com has established itself as the leading online destination for books, music and videos in China, and we're happy to be part of one of the world's most dynamic markets."

According to figures provided by the China Internet Network Information Center (CNNIC), online shopping in the country is expected to explode in the coming year, by 190 percent. Its 14th Statistical Survey report shows the number of Internet users have grown to 87 million, 31 million of which are broadband users.

The acquisition marks Amazon.com's second foray into the Asian markets; in November 2000, the company launched a Japanese-language version of its service to capture the $34 million in annual sales the country brought into Amazon's coffers at the time.

This time around, officials decided to buy their way into a new market rather than develop a service from the ground up. Smith said there are certain challenges in the Chinese market that bear some similarities to its experience in the Japanese market.

"A lot of Chinese online customers use CODs (Cash on Delivery) instead of credit cards, and that's something we experienced with our Japanese site," she said. "Distribution can be a challenge because it's difficult to find reliable third-party couriers who can do nationwide deliveries, but Joyo already has an efficient distribution system in place."

The COD trend does seem to be giving way to more credit and debit card purchases, the CNNIC report indicates. Internet banking has grown by 13 percent, and 38 percent of Internet users chose debit and credit card purchases over COD.

Smith said that for the short term, Joyo.com will keep its own branding in China, though it's unclear to what extent Amazon.com logo and formatting features will make its way onto the site. However, the Joyo.com home page already features the distinctive Amazon.com "grin" underneath its logo.

"I am confident that Amazon.com's expertise in global e-commerce, in combination with Joyo's entrepreneurial management team and employees, will bring the development of e-commerce and online customer experience in China to a new level," said Lei Jun, Joyo.com founder and chairman, in a statement.