eBay Takes On Craigslist
Vishesh Kumar
07/09/07 - 11:04 AM EDT
eBay(EBAY Quote) is ready to play hardball.
Last week's U.S. launch of its local listings service, called Kijiji, puts eBay in a solid position to muscle into a fast-growing market -- and pits the auction giant against
Craigslist, the popular classifieds service in which eBay has owned a 25% stake since 2004.
But unlike Craigslist's famously idealistic ways, eBay will make no bones about squeezing a profit out of the space.
Moreover, eBay has what it takes to beat Craigslist at its own game.
Kijiji will give eBay a bigger role in the market for local goods and services -- the next logical step for a company that dominates the auction market. Buyer and sellers of grand pianos and sofas, for example, can join the ranks of eBay users along with those interested in
Apple's (AAPL Quote) iPods or
Nintendo's (NTDOY Quote) Wii video game devices.
"The opportunity here is local commerce, and it will complement what buyers and sellers are doing on our Marketplace at a local level," says eBay spokesman Jose Mallabo. "If you want to sell something large, for example, it may not be a good fit online -- but we still see those items as a huge market."
And eBay can easily apply its existing strengths to the new market.
Well-known eBay features, such as the auction format, ratings and feedback system -- and its key PayPal payment service -- can contribute to taking the buying and selling of local goods to the next level.
eBay also is probably the most sophisticated user of search advertising in the world, and this will enable it to cheaply drive interested users to the site.
"We will certainly leverage what we have learned with search advertising in this new arena," says Mallabo. He says the company is currently relying on world-of-mouth marketing, and initial results are bullish thus far. The company will launch a direct marketing campaign using search advertising later in the month.
eBay's move is undoubtedly aggressive and heavy-handed. After all, eBay's main competition is now a company in which it owns a 25% stake.
But given Craigslist's casual attitude toward maximizing profit -- its CEO has told Wall Street that its guiding mission is simply helping people find cars, jobs and dates -- eBay may have felt it needed a more direct route to take advantage of a lucrative market that hadn't been fully capitalized on.
That's especially true given that eBay's stock, which traded recently at $33.41 , has traded sideways for about three and a half years. The company and its investors are hungry for growth opportunities. Encroaching further onto Craigslist's turf seems to be a price eBay was willing to pay.
Oh, and keep in mind the invaluable lessons eBay has learned by peering over Craigslist's shoulder for the last three years. That will give eBay a big advantage as opposed to starting from scratch.
The success or failure of community-type Web sites can hinge on small decisions that take years of trial and error to iron out. But eBay has learned tricks such as when to remove problem users or how to solicit feedback from the best in the game.
The size of the market, meanwhile, remains huge. UBS analyst Ben Schachter believes it could rival the size of eBay's core search business -- which generated revenue of $1.3 billion in the first quarter -- over time. "To get some of idea of the potential market size and opportunity, think of what Craigslist has achieved despite the fact that it has shown zero interest in even attempting to maximize revenue," he wrote in a research note on Friday.
Schachter estimates that Craigslist brings in between $50 million and $70 million in revenue per year, just by charging for job listings in select cities and apartments listings in New York. (UBS makes a market in eBay shares.)
eBay's aggressive push into the local listings market is likely to be felt by traditional newspaper companies as well. Already bruised by the migration of classified ad dollars online, major local groups like
Gannett(GCI Quote) and
McClatchy (MNI Quote) are going to be further pressured by competition from eBay.
And while the rise of more casual sites like Cragslist is already taking its toll on newspaper companies, competition from hard-charging giants like eBay could take the carnage to another level.
Given its wealth of experience in the auction space and a prime perch from which to observe Craigslist over the last three years, eBay may also be uniquely positioned among Internet companies to take advantage of the local commerce opportunity.
Other major Internet companies have often stumbled when it comes to eBay's turf.
Yahoo!(YHOO Quote), for example, shuttered a rival auction site in May, though the company continues to run an online classified business.
Google(GOOG Quote) recently repositioned its product search, formerly called Google Base, but has yet to become a significant force in the market.
For now, eBay's Kijiji service is free. But the company could charge selective fees once it gains enough market share. Tapping into more display advertising spending -- which is set to explode this year -- could grow into another important source of revenue.
The auction giant's latest move, in other words, should hearten its investors. But for companies that partner with or sell stakes to eBay, it's another story.
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