Technology

eBay Takes on Craigslist


Will the online auctioneer's Kijiji.com be able to lure advertisers away from the popular local classified-ad site?

Online commerce giant eBay knew Craigslist had the right idea when it purchased a 25% stake in the online classified ad site three years ago. EBay has become so enamored with online classifieds that it's about to go head-to-head against Craigslist with the launch of its international classified-ad site Kijiji in 220 U.S. cities. But battling Craigslist in its own backyard won't be easy.

It's not hard to fathom why eBay (EBAY) cares about classifieds. EBay is expanding beyond its core business of online auctions in a bid to become a global e-commerce engine that's able to connect small businesses to buyers online, regardless of how they want to sell or shop. In addition to its flagship auction site, eBay offers comparison shopping through Shopping.com, payments through PayPal, ticket sales through StubHub, and Web store development tools through ProStores.

Outside the U.S., eBay also provides classified ads through a host of sites, including Kijiji, Netherlands-based Marktplaats, and LoQUo in Spain. "We are in one business, we are in the e-commerce business," explains Bill Cobb, president of eBay North America, in a recent interview. "And there are other forms of e-commerce [besides selling goods], especially selling services."

Growing Competition, Slowing Growth

Indeed, rivalry from scrappier players like Craigslist is contributing to eBay's transformation from online auctioneer to general e-commerce tool kit. "They have always viewed Craigslist as a competitor," says Derek Brown, an analyst at Cantor Fitzgerald. Car listings, for example, make up a significant part of the merchandise on eBay's core shopping site, as well as the listings on Craigslist's sites, Brown says.

Growth has slowed on eBay's core U.S. shopping sites as the number of options for sellers has increased. Sophisticated small-business owners can post items for sale on eBay.com, Amazon.com (AMZN), free classified sites, or on their own off-eBay Web sites (see BusinessWeek.com, 4/23/07, "eBay's Changing Identity").

Free Listings, Big Revenue

Who better to learn from about online classified advertising than Craigslist, which according to analysts generated $25 million in revenue last year (see BusinessWeek.com, 5/15/07, "Craigslist's Ongoing Success Story"). "From our 25% ownership of Craigslist we learned a lot in the U.S., and we applied some of that to our platform internationally," says eBay spokesman Hani Durzy.

Like Craigslist, eBay favors free listings. At least initially, eBay will keep Kijiji listings free in the U.S. (EBay does not yet have a timetable of when it will start charging for certain types of listings, such as, say, an ad for a local plumber.) Craigslist has been slow to charge for listings for fear of frustrating its core audience. Craigslist doesn't "seem to have the inclination to try to monetize this thing they have built," says Tim Boyd, an analyst at American Technology Research. "On some level it is all about protecting the network and they worry that, if they try to monetize it, it will change the experience and they will have churn." Messages sent via e-mail to Craigslist Founder Craig Newmark were not immediately returned.

International Auctioneers

So far, eBay's top executives have said they are pleased with the progression of the classified-ad business. Globally, eBay displays 8.3 million active ads per month on its suite of classified services. Kijiji is the leading classified-ad site in Canada, Italy, and Taiwan in terms of unique visitors. In certain markets, Kijiji charges $1 to feature listings more prominently over time. However, the company has not released figures on the revenue generated by those fees.

As effective as Kijiji has been abroad, it will be difficult for eBay to challenge Craigslist in the U.S. For one, eBay eventually will be pressured to make money from its investment in the classified-advertising business. Dutch site Marktplaats, for example, cost eBay about $290 million; the terms for other classified acquisitions were not disclosed. That means eBay will have to charge at the risk of driving away audiences.

EBay must also walk a fine line between making Kijiji a successful competitor to Craigslist and cannibalizing its own core shopping business. While some items, such as a couch, are clearly better suited to a local classified site than a global site, other items such as cars lend themselves to both sites.

Even when eBay starts charging on Kijiji, it will likely make more from fees charged on eBay.com transactions. "The economics of alternative platforms don't appear to be anywhere near as attractive as their core platform," says Brown. "If I have a car to sell and there are only two eBay properties in the world for me to choose, eBay.com and Kijiji, eBay would like it a whole lot more if I sold it on eBay.com." But even sales over Kijiji—if the site gains traction—will be better for eBay than sales via Craigslist.

Holahan is a writer for BusinessWeek.com in New York.

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