EBay's Challenge to Craigslist
What is eBay, anyway? That is the question investors are asking after the world's largest online auction site announced last month that it was launching its own free classified advertising site in the United States—daring to tread into territory that craigslist has dominated for years.
Called Kijiji, which means "village" in Swahili, the site was launched internationally in 2005. Since then, people in 20 countries have been using it to do what they can't do on eBay: buy and sell not just products but services, too. On top of the usual array of cast-off cameras, furniture, and motorcycles offered by eBay, Kijiji allows users to search within their own cities for everything from job openings to carpools to apartments for rent. The site is now up and running in 220 cities in 50 states.
Whether it will catch on—and what it says about the long-term prospects of eBay's vaunted auction business—is a matter of some debate. Kijiji isn't eBay's first step away from auctions, of course. When it bought Skype in 2005, the company became a global Internet telephone service; when it bought StubHub, the online ticket reseller, earlier this year, it moved into ticket sales. Its PayPal system makes it an online payment processor and a virtual bank, of sorts.
Clever or desperate?
EBay is many things, in other words, to many people. But as the company prepares to release its quarterly earnings next week, the Kijiji launch has analysts mulling over what this latest move says about where the Silicon Valley giant is headed—and whether this is a case of cleverness or desperation.
At first glance, the move makes sense. People go to eBay to buy stuff; Kijiji simply expands the pool of stuff they can buy. EBay was originally conceived as an E-commerce site, and even though it is best known for auctions, the company's focus is commerce, in the broadest sense of the word.
Still, there's a reason eBay hasn't done this before: Since the dawn of the Internet boom, classified ads have been the domain of craigslist, the San Francisco-based brainchild of entrepreneur Craig Newmark. More than 15 million people use craigslist every month, giving it a huge leg up on eBay.
By its very nature, classified advertising tends to be a one-stop shopping experience. Who wants to go to five websites to find an apartment? In some ways, craigslist is in a position as dominant as eBay's was when it fended off attempts by Yahoo! and Amazon to push into auctions.
The stock is stuck
So what's behind eBay's move? Simple, analysts say: The company needs to grow, and its auction business may not be able to do the job. EBay's stock has been stuck for several years, trading between $22 and $35 since last summer, down from a high of $58 in 2004. That's largely because investors are worried about the rise of Google and eBay's failure to catch on in Asia—both of which have put a damper on its growth prospects.
In the United States, eBay's auction business isn't exactly saturated, but it is rapidly moving toward maturity, and the company has stumbled in its efforts to expand in new markets in Taiwan and China. Last year, eBay shut down its sickly China site and put $40 million into a joint partnership with a Chinese company that will oversee its operations.
Auctions still account for 69 percent of eBay's revenue, and its auction business grew 23 percent on sales of $1.25 billion last year. Only a few years ago, though, those numbers were closer to 40 percent. More than 81 million people use eBay, but the total number of listings on the site is flattening, and as competitors like Google have pushed out new features like Google Checkout, some analysts wonder if eBay's auction model may eventually be replaced in large part by search.
Acquisitions like StubHub have steadied eBay's ship, but in classifieds, that's not an option. Craigslist isn't for sale, and even though eBay owns a 25 percent stake in the company, it doesn't have control.
Soft launch
Thus, Kijiji—an attempt to push into an adjacent market with a potentially rosy future. Some analysts see it exactly this way, in fact. Benjamin Schachter, an analyst at UBS, wrote a research note last week expressing nothing but enthusiasm for the launch: "We have been anxiously awaiting eBay's move to more aggressively compete in the classifieds market in the United States, and while it is certainly very, very early, we are encouraged to see the company taking steps to compete," he wrote. "With its PayPal payment platform and feedback system, eBay is perfect for this type of local goods and service exchange."
To Schachter and others, Kijiji represents a low-cost way forward for eBay: Push Kijiji out without much fanfare or investment (the company may be setting records for soft-pedaling a launch; the eBay website doesn't even list the news on its announcements page), wait a little while, and see if it catches on.
EBay has gobs of cash, so its site should have more bells and whistles than craigslist, a notoriously barebones operation. And there is no shortage of ways eBay could make money from the site—by charging fees for listings, selling ads, or simply using Kijiji to generate more PayPal and Skype traffic.
Kijiji and commitment
All of which depends on getting people to use Kijiji, of course, and that's where some analysts are expressing reservations. "It's not obvious to me that this is a good place to make inroads," says John Morgan, a professor of business at the University of California-Berkeley's Haas School of Business.
Classifieds, Morgan says, are primarily about searching within a very specific locale for a very specific product. "It's really all about, 'I want a beige couch in such and such a place, and I don't want to move it,'" he says. This, he notes, is not exactly eBay's forte.
EBay is known for breaking down geographical barriers, allowing someone in Beijing to buy a bike from someone in Denver. Classified ads tend to do just the opposite, as people look to make sales in a specific city or neighborhood: Craiglist, for example, allows users to find exactly the kind of apartment they're looking for in a five-block radius. EBay may ultimately hone its abilities in more localized search, but right now, that is not what the company is good at. "If I was advising eBay," says Morgan, "I don't think I would do this."
EBay, for its part, isn't saying yet how committed it is to Kijiji. For the time being, the company, like most analysts, seems content to wait and see. "As usual," as Schachter wrote in his research note, "execution will be the key." In the meantime, anyone know a few million people with something to sell?