June 23, 2005

As Competition Looms, So Do eBay Challenges

SAN FRANCISCO -- EBay Inc., at its annual user conference this week, will be under pressure to spell out its plans to counter looming competition from Web search giant Google Inc.

The Web marketplace -- dubbed "FeeBay" by some sellers frustrated with increasing eBay fees -- is looking for ways to rebuff rising challenges from companies like Google while balancing profit margin protection and sellers' desire to keep their eBay costs as low as possible.

Over its 10-year history, eBay has been largely unmatched in its ability to connect buyers and sellers and to foster a friendly e-commerce community.

But sellers have become increasingly vocal in the United States, complaining that eBay has become too corporate and profit-focused.

Earlier this year they pushed back against eBay's latest price increases, winning some concessions. Threats to abandon eBay for smaller rivals like Overstock.com , however, do not appear to have come to pass.

EBay's shares tumbled almost 20 percent in January after its quarterly profit missed Wall Street expectations and raised red flags about growth prospects. Some financial analysts downgraded the shares, cautioning that eBay's key U.S. and German markets appeared to be maturing, making future growth more expensive.

EBay's shares are down 17 percent year-over-year.

David Betts and his wife Joanna, regular sellers on eBay, are typical of the problems the site faces. While the Pennsylvania couple, who have sold crystal doorknobs, robes from an old secret society and other wares on the site, say they are happy with it, they also advertise their antique and collectible items on Google and are building their own e-commerce site.

David, a programming whiz, has figured out how to legitimately sidestep some eBay fees and the couple is always on the lookout for alternative ways to attract far-flung buyers.

Hani Durzy, eBay's spokesman, says the company's sellers have been experimenting with other channels for some time.

"We fully expect them to. Our job is to continue to provide the best value proposition," Durzy said.

Google's stock has shot up since its August debut and by some measures has allowed Google to unseat eBay as the most valuable Internet name. Both companies now are valued at around $50 billion, according to Nasdaq.com.

EBay has already made a series of moves. Earlier this month it said it would buy Shopping.com, a rival to Google's Froogle.com service, which allows buyers to compare product prices across the Web. It also has taken a stake in Craigslist.org, a popular online classified site.

Google is reportedly working on a similar Web classified service.

Analysts, who have long predicted that Google would emerge as an eBay rival, now say it could be a triple threat.

Google's Web search ads are not only a billion-dollar business, they also give buyers and sellers an easy way to meet. Froogle could be a launching point for Google e-commerce. And Google confirmed on Tuesday that it is working on an online payment system.

Google said its service would not be the same as eBay's online system PayPal. But it did not say what the differences would be or whether it was aimed at different users. Analysts caution it could chill PayPal's growth outside eBay.


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