Majestic Research

Reuters

EBay's US Classifieds Goal Ambitious, Experts Say

By Alexandria Sage
Published: October 14, 2008

EBay plans a major expansion of its fast-growing U.S. web classifieds unit, but experts doubt it can overtake well-loved rival Craigslist and build a viable business as its online auctions slow.

EBay Inc says its U.S. classifieds business could take the top spot from Craigslist within three to five years through growth in its U.S.-based Kijiji business and acquisitions. Kijiji, which means “village” in Swahili, is currently the top site in Canada and launched last year in the United States.

The company plans to expand its classifieds globally, too. Large areas of Europe remain untapped and more acquisitions in the $500 million to $2 billion range are expected, eBay executives said. They believe today’s weak economy will prompt even more people to sell goods online or look for bargains.

“It’s (Kijiji) a business that is a nice complement to eBay’s business and it’s one that has attractive growth,” eBay Chief Executive John Donahoe told Reuters in an interview. But experts warn that San Jose, California-based eBay must not underestimate privately-owned Craigslist, which operates in over 50 countries and claims more than 40 million U.S. users.

Forrester Research’s Sarah Rotman Epps called eBay’s classifieds goal in the United States “extremely ambitious.”

“I haven’t seen anything in eBay’s strategy that they would be the dominant player in the time frame they’ve stated,” she said. “It’s very difficult to overcome the dominance that Craigslist has in the U.S.”

Craigslist does not disclose sales and would not comment on eBay’s U.S. strategy. But a study this spring by consultants Classified Intelligence estimated 2008 global revenues at $81 million—roughly one-third of eBay’s current business.

Billion-Dollar Opportunity?

After jumping into online classifieds in 2004 with the purchase of Germany’s auto site Mobile.de, eBay Inc has quietly built a worldwide business whose sales are projected to reach $250 million at fiscal year’s end, with operations in over 20 countries and 83 million unique visitors.

People with bulky items to sell or those who do not like the auction format use online classifieds. EBay considers their local focus an add-on to its auctions and sees extra benefit in areas such as job listings, housing and services.

Where EBay has an advantage, analysts agree, is in the clean image of its classifieds and its technical ability to cross-post items for sale in neighboring cities.

Pornography and sex ads are easily found on Craigslist, but eBay says its format will be family-friendly and easier to use for novice Internet users.

But while eBay says the fragmented, broad classifieds market could reach $11 billion by 2010, some analysts consider the number inflated.

“They look at this opportunity and say: ‘This could be billions.’ They see themselves as the company that could take it there, but their problem is consumers in the U.S. may not be willing to follow them there,” Rotman Epps said.

Wall Street gives short shrift to eBay’s classifieds, given more pressing concerns about decelerating auctions sales, which make up the bulk of its biggest business, whose second-quarter sales totaled $1.46 billion.

“For it to be a move-the-needle part of their business, it would have to grow substantially,” said Majestic Research’s John Aiken.

EBay shares are down 44 percent year to date.

The company has spent at least $829 million on classifieds purchases so far, in addition to building sites such as Kijiji.

Its portfolio also includes Gumtree, the No 1 local classifieds site in the United Kingdom, South Africa and Australia; the Netherlands’ Marktplaats, Loquo in Spain and Mobile.de in Germany.

EBay’s latest acquisitions, announced last week, are Danish online classifieds businesses Den Bla Avis and BilBasen for which the company paid about $390 million. The companies are expected to contribute $55 million to revenues in fiscal 2009.

Craigslist Competition

Despite eBay’ deep pockets, the elephant in the room remains Craigslist, which former eBay CEO Meg Whitman expressed interest in buying in 2007, according to legal documents.

The companies are locked in a legal dispute over eBay’s minority stake in Craigslist, which has accused its larger rival of using its holding to glean competitive information.

“I think it’s hard for companies to look at Craigslist and sit on their hands and do nothing,” said Rotman Epps. “It’s hard for them to believe they’re ceding this multibillion dollar industry to a company that says it doesn’t care about making money.”

Scot Wingo, CEO of ChannelAdvisor, a sales consultancy that advises online merchants, sees eBay caught in a “squeeze play” where online retailers such as Amazon.com Inc cut into business on the high end, while locally-oriented sites such as Craigslist attract smaller sellers.

Social networking sites such as Facebook may be an eventual home for classifieds, as users turn to a trusted network of peers, Wingo said, while subscription-model sites such as Angie’s List may become a preferred method when searching for services.