Internet Outsider

eBay Imports Kijiji: Good Idea, Tough Competition

First, the good news: eBay has finally decided to go into a business that makes strategic sense (instead of buying random phone companies and social-web-surfing companies).  Kijiji's classified ads are highly complementary to the company's core business, and they allow the eBay to use its core expertise of helping people buy and sell stuff.  Kijiji US also provides the company with a hedge in case Craigslist and other free listing sites begin to cannibalize its paid eBay listings.

Despite significant online classified efforts, moreover, the classified opportunity remains massive: The dying newspaper industry still rakes in tens of billions of dollars a year for printed classifieds--a less efficient, less informative, less convenient, more wasteful, and more expensive way to buy or sell products.  In another few decades, when the current (and last) generation of hard-copy newspaper readers dies out, printed classifieds will seem as archaic as whale oil.  The newspaper companies may be able to retain some classifieds business as it moves online, but given the success of Craigslist, Monster, et al (and the seriously weak newspaper efforts thus far), this percentage will likely be small.

Alas, there is also bad news about eBay/Kijiji.  First, Craigslist is about as dominant in general classifieds as eBay is in auctions, and both businesses are subject to the same network effects.  (If the potential buyers for your product or service are searching Craigslist, you'll put your ad on... Craigslist.)  Craigslist is also free, which is a hard price to compete with.  So Kijiji has some seriously tough competition.

Second, Craigslist is run by socialists who appear to have no interest in turning it into a real business.  This means Craigslist is likely to be free or near-free in perpetuity.  And this, in turn, means that if eBay ever tries to make Kijiji US a real business, the few buyers and sellers who ARE using Kijiji will probably laugh all the way to Craigslist.

Third, as ancient Internet observers will remember, "free" isn't always the best business model for an online listings business.  (eBay proved this in 1997-1998 when analysts were convinced that a free auctions service from Yahoo would put the company out of business).  The major flaw of Craigslist, one that opens the door for competition, is that it is overloaded with crap.  If eBay/Kijiji were emphasizing listing quality, seller reputations, or some element missing from Craigslist, the competitive story might make some sense, but right now Kijiji's problem is that it has NO crap (or any other listings).  And it's hard to see how "Just like Craigslist--except no listings!" is going to carry the day.

Oxygen Tries CPR on eBay's Ad Exchange

eBay's much-ridiculed online advertising exchange is not quite dead yet, according to the WSJ.  The exchange, which was dissed at release and recently rejected by the Cable Television Advertising Bureau, has recently attracted Oxygen Media as a participant, and Microsoft is apparently considering using it to buy some TV time. 

The TV ad sales model is in desperate need of restructuring and disintermediation, so the concept here is sound.  Given the initial reaction to eBay's Exchange, it seems doubtful that this particular effort can be rescuscitated, but anything's possible.

Ebay's New Feedback System Should Boost Revenue

Jason Jones: eBay's latest townhall meeting featured Brian Burke, the manager and visionary behind Ebay's recently launched Feedback 2.0 system (transcript). Burke explained how the new system improves the buying experience and increases conversion rates (at least in tests).

Feedback 2.0 enhances eBay's current rating system by adding more detail (the current system is nearly worthless because so many sellers have 98%+positive feedback).  Buyers can now rate sellers on four criteria: item description, communications, shipping time, and shipping/handling charges.  Each category gets a 1-to-5 rating, and the average score is displayed on the seller's Feedback page.  The goal is to drive traffic from bad sellers to good sellers and help all sellers improve. 

The system was tested for 2 months in 8 global markets prior to last week's U.S. launch.  In the tests, 70-75% of buyers left detailed seller ratings, and overall conversion rates increased (conversion for sellers with ratings below 3 declined). 

This new system should help eBay continue to drive higher revenue per listing--one key to revitalizing the core commerce business.  Recent RPL gains have come as a result of reduced listings after the Ebay Store pricing hike in August.  Feedback 2.0 should modestly boost RPL in the second half of 2007. 

Sprawling eBay Stumbles Upon Another Unrelated Acquisition

I like eBay, and I like Stumble Upon, but Nick Denton nails it:

The online auctions monopoly is set to make another random web acquisition... Om Malik came up with a heroic explanation of the logic of the combination, involving integration of Stumble Upon with Ebay's Skype internet telephone service. But we prefer a simpler interpretation: Ebay has more money, from its outrageous monopoly on online collectibles and other auctions, than sense.

Assuming Om isn't completely hallucinating, another explanation might be: eBay is still trying to justify/save its un-related Skype acquisition...by buying another un-related company.  It's almost as though eBay's successful PayPal acquisition (which was actually closely related to the company's core business) persuaded it that buying any fast-growing companies with high margins and network effects would be a good idea.

The frustrating part, for us becalmed eBay shareholders, is that Skype would have a wonderful future--if eBay weren't intent on turning it into a social networking site.  Perhaps one of these days the company will come to its senses and sell Skype to Yahoo, Microsoft, or another company that is actually in the online communications business--and then refocus on its hurting commerce cash cow.

Ebay is upgrading their search technology - it is about time!

Jason Jones: In this message to the Ebay community, Jeff King, Ebay's Sr. Director of Finding, announces that Ebay has upgraded its search technology (they call it 'finding technology') and will roll it out to 1% of new buyers over the next six weeks as a test.  Here is the description: 

    " As a simple example, if a buyer in the test searches for "red size 12 shoes," instead of looking just for listings with the words "red," "size," "12," and "shoes," the search engine will find all of the items in the shoe category that are size 12 in the color red. In the end, the buyer should see more relevant items. Plus they'll see a new way to narrow their listings results according to important details such as size, color, type, etc."

This is a BIG deal for Ebay. They are finally improving their core search experience.  Ebay created a new search technology a few years ago codenamed Magellan and they used it as the search engine for Ebay Express. While Magellan helps to find exactly what you search for, the Ebay Auctions search technology embraces the concept of ‘finding new things’ and will often return complimentary items.

For example when I search for the “iPod Nano” on Ebay Express I receive hundreds of listings for Nanos but when I search for “iPod Nano” on Ebay Auctions I receive “NIB Wireless Stereo Headphones Ipod Nano Generation 1” as the second listing. Ebay Auctions search returns a lower quality result, which hurts their conversion rates.

It finally sounds like the auctions team is making much needed improvements. If all goes well, these improvements will continue to propel Ebay’s recent surge in revenue per listing.

Now if they could only stop calling it finding and start calling it search.

eBay: Bear Stearns Schmoozes With Happy Powersellers

After dining with a bunch of eBay powersellers, Bear Stearns analyst Bob Peck is now more optimistic about the company's ability to re-accelerate listings growth and revenue per listing.  Peck believes "changes eBay has implemented / is implementing will ultimately drive more buyer activity, which should improve seller economics, and hence a re-acceleration in listings."  He notes, however, that this will remain a faith-based opinion until at least mid-summer.

JJ: Bob says sellers get higher ASPs and ROI at AMZN and GOOG but they sell on EBAY because of the huge volume, which gives them purchasing power in their overall inventory.  I think EBAY needs to drive a better buying experience to maintain the volume.  The EBAY demo using ADBE Apollo was a much better user interface and could result in a better experience.

HB: I own the stock and would therefore be happy if Bob were right, but the above logic sounds pretty flimsy.  eBay used to have no competition.  Now it has a lot of it.  Following on Jason's "interface" comments, eBay's still feels clunky and amateurish--almost as though the company is trying to maintain the informality and fun of its Pez-dispenser days while actually selling Mercedeses.  I'd still be in favor of an eBay-Amazon merger (Amazon's strengths match up well with eBay's weaknesses), but I gather Meg and Jeff hate each other.

Updated Skype Financial Model

Keeping the model experiment alive...

Skype's growth in Q1 was solid, but nothing to crow about.  Year-over-year revenue growth slowed from 166% in Q4 to 123% in Q1.  User growth was also solid-but-decelerating, up 107% year over year.

All in, the picture looks worse than it did last quarter.  Skype now appears to be on track to do just under $400 million in revenue this year, down from about a $435 million trajectory last quarter. 

No surprise, therefore, that Skype announced two mostly unrelated and unimpressive new-product initiatives last quarter: Skype Find and Skype Prime.

Skype Financial Model

eBay's Media Exchange Flops

As SWMX's Josh Wexler suggested in this interview, eBay's attempt to revolutionize the TV ad sales business isn't getting rave reviews.  In fact, Louise Story of the NYT reports that the cable industry has just left it for dead.

Which begs the question...how's Google really doing?  According to Josh, not well.

Interview with SWMX CEO Josh Wexler: Competing Against Google In Radio/TV

A key question on many minds is how much, if at all, companies like Google will be able to penetrate offline media such as print, radio, and television.  If they grab meaningful market-share, moreover, what will this mean for the various bottom lines (both Google's and the traditional media companies')?

This issue has many sides to it, but an important one is the perspective of companies that are competing against Google.  A small public company called SoftWave Media Exchange (SWMX) that I have previously mentioned here does just this.  The CEO, Josh Wexler, spent an hour with me.

The full interview is available on Cherry Hill Research's site (here).  Here's a summary:a

JOSH WEXLER'S KEY POINTS:

a

• Despite investing heavily in its radio and TV placement efforts, Google is badly lagging SWMX, especially in radio.

• In radio, Google sells remnant inventory, but the real business is in regularly scheduled inventory.  SWMX generates more than 80% of its revenue from this.

• Google's attitude--revolutionize the way advertisers buy advertising--has offended many traditional media owners and is hampering growth.  SWMX is growing rapidly because it facilitates existing business practices.

• The current process by which radio and TV advertising is bought and sold is grossly inefficient.  This creates an opportunity for electronic marketplaces.

• eBay's media-selling initiative was considered 'dead on arrival.'

• Companies like Spot Runner, which generate a lot of buzz, focus primarily on content creation and campaign planning.  These companies are complementary to SWMX, which focuses on the back-end.

• SWMX expects to turn cash-flow positive later this year.  Wexler believes the company's current cash position will support its near-term initiatives.

• If Google were to buy a company like SWMX, this would require a change of approach to the radio and TV markets.

• The Google-Echostar announcement is more style than substance.

Read the interview here.

Source Calls Skype Post "Dumb"; Says Co "Turning Profitable"

Got a frustrated note from a source who had several interesting things to say about Skype...in response to yesterday's post (in which I questioned two new product announcements and the company's future). 

The most interesting point?  Skype is "turning profitable."  The source is in a position to know, but if anyone else can confirm this, I'd be grateful.

The source also had this to say about Skype Find, the new service that allows you to post and access local restaurant/product reviews: 

Maybe reviews haven't got so popular cause no one has done it right.  As far as I'm concerned I don't care about someone in the midwest's opinion.  I care about what my friends and personal relatives have for best places to shop and eat.   So now that skype provides this I can get rid of all the crap content and trust my friends.

I'm still skeptical of the new products, especially of the monetize-yourself expert marketplace (SkypePrime), but I'll keep an open mind.