eBay takes on big ad players

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Displaying the scrappiness of a Silicon Valley upstart, eBay has taken on both Google and Craigslist in the past month as it continues to expand beyond its core auction Web site.

On Friday, June 29, San Jose, CA-based eBay launched Kijiji in 220 cities in the United States. The free classifieds site was previously only available internationally, in approximately 20 countries and 300 cities. The news follows closely on the heels of eBay's 10-day boycott of Google AdWords and its subsequent decision to buy AdWords in smaller numbers. EBay was previously Google's largest customer of AdWords.

The biggest hurdle facing the success of Kijiji in the United States is Craigslist, in which eBay owns a 25 percent interest, and which is a well-regarded brand.

Jose Mallabo, senior manager of corporate communications for eBay, said, "We are leveraging a lot of that learning [from overseas] into the US. EBay will continue to maintain its relationship with Craigslist from both an investor and strategic point of view."

"These moves seem to indicate that [eBay] is confident in its business model," said Rob Haley, a research analyst for investment firm Gabelli & Co., Rye, NY.

During its recent annual meeting for stockholders, eBay said that one of its main strategies is "to help people everywhere connect, discover and interact with each other through commerce."

Kijiji is just the latest example of how it is attempting to accomplish this. Other initiatives include eBay's expansion into comparison shopping with Shopping.com, ticket sales via StubHub and Web store development tools through ProStores.

"[EBay] wants people to be on the auction site, using Skype for communication, using Paypal for payment and, to the extent that it can add some additional user time and focus through classifieds, this is positive for the company," Haley said.

Like Craigslist, Kijiji is currently free to buyers and sellers. However, that could change. Overseas, there are some regions where Kijiji has a $1 fee for ads and eBay, San Jose, CA, may test the same fee structure in the United States, according to Jose Mallabo, senior manager of corporate communications at eBay Inc.

However, for right now, the company's focus is on building a community for the site through word of mouth and direct marketing, Mallabo said. To that end, this month it will roll out a direct mail campaign for Kijiji targeting young professionals and young families.

While Haley said that he doesn't expect the financial impact from Kijiji to be tremendous, others are more positive about its earnings potential. "There is an enormous market for local goods and services that is not address by the core site," said Benjamin Schachter, an analyst with UBS financial services firm, New York. "It may take time, but this is an interesting and potentially large opportunity for eBay," he continued. Plus, eBay has already proven that it can successfully run a classifieds business internationally.

While Schachter has concerns about the core business - which eBay continues to tweak - he feels several recent moves indicate the auction site's confidence in its ability to expand.

The biggest hurdle facing the success of Kijiji in the United States is craigslist, which eBay owns a 25 percent interest in and which is a well-regarded brand.

According to Mallabo, Kijiji is organized differently from other classifieds sites and offers a very clean user interface, which is one of the reason's it is the marketshare leader for unique visitors in Taiwan, Italy, German and Canada.

"We are leveraging a lot of that learning [from overseas and Canada] into the US," he said. EBay will continue to maintain its relationship with craigslist from both an investor and strategic point of view, he continued.

While Kijiji is currently essentially a clone of craigslist, Schachter believes eBay can compete by taking advantage of its core competencies, such as its existing user base, its feedback system, communications through Skype, transaction engine and fraud protection through Paypal and spam filtering.

In addition, eBay could potentially have more resources to throw at Kijiji than craigslist, which is a nonprofit. For example, eBay may monetize the site in a variety of ways, including charging for certain listings such as apartments and jobs and driving more auctions around local goods and services using eBayís core engine. Schachter also envisions eBay extending its existing cooperation with Yahoo for ad-supported models to Kijiji over time.


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