Going, Going…Everywhere

eBay has been buying furiously to move beyond its auction-house identity, and a new raft of services will spread its reach even further

When Pierre M. Omidyar founded eBay (EBAY ) in 1995, the key to e-commerce success was relatively simple: Establish a Web site where Web surfers go to spend time and shop. By that measure, eBay.com became one of the Web's most successful sites, with 233 million registered users looking to auction off items or find bargains. Indeed, the average eBay user today spends nearly two hours a month on the site--still more than five times what people spend on Amazon.com.

Today, though, insisting that everyone visit your solitary site seems so '90s. The action is wherever users make it--on a MySpace (NWS ) page, in a YouTube (GOOG ) video, in their very own blog. So where does that leave eBay? Everywhere, if eBay has its way. The company is stepping up efforts to break out beyond its own walls. It's a big reason why it has spent more than $6 billion over the past five years to buy up such tech assets as Internet-phone operation Skype, (EBAY ) online payments service PayPal, ticket reseller StubHub, a host of classified sites around the world, including a 25% interest in Craigslist, and Kurant, whose technology is used to set up online "storefronts" separate from eBay.

How all those seemingly disparate businesses fit together may not be obvious. Indeed, investor and analyst uncertainty about them explains why eBay's stock has languished in the past year. But in essence, eBay Chief Executive Margaret C. "Meg" Whitman is taking a page from Visa International: She wants eBay to be everywhere you want to be. The new thrust will become clearer beginning on June 11, when eBay kicks off back-to-back three-day conferences for software developers, eBay sellers, and shoppers in Boston. At the developer conference, the company plans to unveil new services that let buyers shop for and purchase eBay items outside of the core eBay.com site.

Just one example: EBay will release San Dimas, a product developed with Adobe Systems Inc. (ADBE ) technology, that lets buyers and sellers download software so they can monitor their auctions and make purchases while working on a separate desktop application. It's a fully functional eBay that you can have running on the same computer screen where you are crunching numbers on a spreadsheet. "It puts eBay's presence in front of users in a more ubiquitous way," says John Donahoe, president of eBay Marketplaces and the person charged with expanding the brand globally.

It's an ambitious strategy for a company that's become so clearly identified with its core Web site--and which has built up such a loyal following among its customers and merchants. But eBay executives believe future growth depends on evolving beyond a destination site and into a provider of tools and services that power e-commerce across the Web.

Whitman calls that strategy "the power of three," referring to eBay's shopping, payments, and Skype calling services. PayPal, with revenues last quarter of $439 million, is a leader in the online payments market, second only to credit- card companies. EBay sees a future where PayPal is the standard payment processor for online transactions everywhere. Already, roughly 40% of the $11.4 billion in payments processed by PayPal are from non-eBay sites; that part of the business grew 51% last quarter from a year earlier. Likewise, Skype, which had quarterly revenues of $79 million, is used to connect eBay sellers and buyers, however it is more of a global Web-calling service.

But some analysts complain there aren't enough synergies in these tech purchases to justify the billions spent. Much of the San Jose (Calif.) company's buying spree has been an expensive diversion away from what's ailing its core shopping sites, they argue. Shopping still accounted for nearly 70% of eBay's $6 billion in revenues last year. Yet sales growth in that business has slowed, from a 40% annual pace through 2004 to 23% last quarter.

As a result, eBay's stock has fallen 16% over the past two years, vs. a 107% rise for the shares of Amazon.com Inc (AMZN ). "They continue to be distracted by very far-from-core things like Skype," says Scot Wingo, CEO of Channel-Advisor Corp., a provider of software and other services for e-retailers.


That's why the company's latest effort to create storefronts which aren't on eBay.com is so critical. To cultivate new customers and generate new transaction fees, the company feels it has to make it easy for folks who never would have bought or sold on eBay to set up little versions of its e-commerce engine on their own sites.

Technology acquired by eBay through Kurant (renamed ProStores) is helping new users set up online stores. Take Devin Hibbard, the co-founder of a nonprofit jewelry store, BeadforLife.org, who works with women in Uganda's most impoverished neighborhoods to help them make jewelry and sell it abroad. She discovered ProStores through a developer who built her Web site. Today, the 250 women who sell through the online storefront Hibbard has set up with ProStores' help have raised their income from less than $1 a day to, on average, more than $3. EBay charges the storefronts monthly subscription fees ranging from $29.95 to $249.95, depending on the size of the store and volume of goods sold. "It's an unlikely partnership," says Hibbard. "But I think you find more and more nonprofits in the fair trade movement are looking at how do you bring in earned income."

In April, eBay began testing a tool dubbed To Go that enables buyers and sellers to embed software, known as a widget, in a site. That lets anyone on the site keep an eye on eBay auctions they care about--and monitor how bids are progressing--without actually having to switch over to eBay.com. It may not seem like a big deal, but consider how much time people spend today on social networks such as MySpace and Facebook, where they can read their friends' blogs, write their own entries, and share photos, videos, and other images. Why not shop there as well?

Terapeak, a Web outfit that sells market research, created an eBay store site within Facebook last month. Facebook members could click to a "find it" page that lets them search for eBay items while never leaving Facebook. Items show up in a special eBay/ Facebook window, along with prices and ratings of a seller's reputation. "I think that eBay has a great site and a lot of people use it, but ultimately you can never be everything for everyone," says Anthony E.R. Sukow, Terapeak's CEO.


eBay needs to move beyond its own site not just because that's where shoppers are. So are its merchants. Some of its most successful sellers have moved on to sell items through their own storefronts, using Google's search advertising platform to drive traffic to those sites. They don't stop selling on eBay, but they begin giving the site less of their premium merchandise and more of the kinds of items they're willing to sell at a bargain. "As sellers mature, eBay goes from their channel of first resort to their channel of last resort," says Wingo.

To avoid becoming a bargain basement, eBay has to encourage sellers to keep listing more of their higher-end inventory on the site while attracting more young businesses. Better merchandise brings in more buyers which, in turn, attracts more sellers. EBay can also kick-start the cycle by attracting more buyers through efforts such as eBay To Go and the Facebook integration. "They should be aggressively going after the people who don't have online businesses yet," says Tim Boyd, an analyst at American Technology Research Inc.

Grabbing buyers, as well as business, outside of eBay's core shopping platform will be a significant challenge. Competition on the Web is fierce, and eBay must contend not just with other e-commerce companies looking for buyers' and sellers' business but also with myriad Web entertainment and social sites seeking to grab their time. "The off-eBay world is far more competitive," says Derek Brown, an analyst with Cantor Fitzgerald. "Success there is no certainty."

By Catherine Holahan

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