Why eBay Went Shopping Again


By Rob Hof Will eBay's (EBAY) shopping spree never end? For years, the online marketplace has been trotting the globe in search of new selling venues to keep its growth perking. It has bought auction and classified advertising sites from the Netherlands to China, Korea, and India, and housing rental site Rent.com in the U.S.

On June 1, it bagged its biggest U.S. purchase since the $1.5 billion acquisition of payment processor PayPal in 2002: It agreed to buy comparison-shopping site Shopping.com (SHOP) for $620 million in cash.

This could prove to be a savvy way for eBay to attract new buyers and sellers. Shopping.com at first glance looks like quite a different business from the more direct marketplaces eBay has been purchasing. Unlike eBay, which charges merchants fees for listing and selling merchandise, Shopping.com is essentially an advertising play. It makes money from fees it charges merchants for sending potential customers their way, regardless of whether those visitors buy anything.

POTENTIAL MATCH. But the purchase has the potential to plug a longstanding hole for eBay. Its own marketplace appeals mostly to small merchants, who sell a wide variety of second-hand and overstock goods at auction and for fixed prices, and to customers seeking unique items and deep discounts. eBay has been trying for years to appeal to merchants that want to sell new and in-season merchandise as well -- with middling success.

The result of this acquisition could be a new venue for merchants that want to sell products to eBay's more than 60 million active buyers. "I can see things that [the purchase] brings to eBay -- mainly targeted buyers," says Derek L. Brown, an analyst with Pacific Growth Equities, which has an underperform rating on eBay. "If eBay can match that targeted demand to its listings, that could drive sales."

eBay can certainly use a boost. Its revenue growth rate has skidded in the past couple of quarters, knocking its stock down 31% year-to-date, to $39.11 a share. In its first quarter, revenue growth in eBay's core U.S. market plummeted to 19%, possibly the slowest in its history, and slumped as well in Germany, its second-biggest market.

LONG-TERM IMPACT? Overall, eBay is still growing nicely, as first-quarter revenues rose 36%, to $1.03 billion. But some analysts have worried that in the near term, at least, even fast-growing new markets such as China and Korea won't make up for any further slowdowns in mature markets.

The purchase of Shopping.com, the only publicly held comparison site, won't fix that situation anytime soon. Although Shopping.com reported a 38% jump in first-quarter revenues, to $28.9 million, that's a small fraction of eBay's $1 billion in first-quarter sales. But the bigger impact could come down the road, after an expected closing of the deal by September.

The purchase is true to eBay's custom of following its customers into new markets. Bill Cobb, president of eBay North America, says the company noticed many of its merchants were starting to list products not just on eBay but on comparison sites such as Shopping.com.

Indeed, the two companies provide complementary services that could prove useful both to eBay's merchants and to their buyers. Cobb says eBay's feedback system, by which buyers and sellers rate each other on their transactions, could mesh well with Shopping.com's user reviews of products and ratings of merchants. "We think they match up in spirit very well," Cobb says.

STRUGGLE FOR TRACTION. As with many combos, however, meshing the two businesses could prove to be a big challenge. Although Web watcher comScore Networks says some 13.8 million people visited both sites in April, it's unclear how many buyers on Shopping.com care about the used and overstock merchandise on eBay, or whether eBay buyers really want more mainstream merchandise.

Likewise, merchants that use Shopping.com -- including some larger retailers -- may not care to compete with legions of small eBay sellers that might undercut them. Moreover, given the difference in types of merchants, it could be tough to combine the back-end technologies of the two companies, says analyst Brown. He notes that Shopping.com merchants are used to listing mainstream items with established stock-keeping unit numbers, which eBay mostly doesn't use.

At the same time, comparison sites have struggled to gain traction. Relatively few consumers go direct to sites such as Shopping.com. Instead, they're going to merchant sites or simply searching on Google (GOOG), on which Shopping.com buys boatloads of keywords. That's why some analysts think most of the comparison sites, including NexTag, PriceGrabber, and Shopzilla, will eventually get acquired or merge.

eBay is unfazed. It'll gain another channel to reach more mainstream shoppers and retailers. "Their focus [at Shopping.com] is very similar to ours -- getting buyers and sellers together," Cobb says. "It's a way to get exposure to a whole new set of buyers." And that has been eBay's successful strategy from the get-go. Hof is BusinessWeek's Silicon Valley bureau chief


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