Has eBay set Craigslist in its sights?

SAN FRANCISCO (MarketWatch) -- It is ironic that a company whose core business has been caught in a perpetual slowdown has seemingly set its sights on another business -- one where the established leader gives away the bulk of its services for free.
But that appears to be the case for the online auction pioneer, eBay Inc. (EBAY:
ebay inc com

Once the darling of the dot-com era, eBay is under the gun. The company's core auction business has seen its growth stagnate as the law of large numbers has taken effect, plus competition from rivals such as Amazon.com (AMZN:

AMZN, , ) , where a fixed-price format has proven popular with auction-weary customers.
Now it faces a souring economy and predictions for slower consumer spending. Some analysts are even wondering aloud if the company should perhaps spin off some units, such as Internet telephony provider Skype.

So eBay had to try something bold. That came on Monday, when the San Jose, Calif.-based company simultaneously announced it was firing 1,000 workers AND dropping more than $1.3 billion on acquiring new businesses.

One of these acquisitions -- online payment processor Bill Me Later -- was clearly meant to build out eBay's PayPal unit, its strongest business at the moment. But the other is eye-catching as well, for different reasons. EBay said it has spent about $390 million to buy up two Denmark-based classified ads businesses.

This latest move by eBay seems to draw a circle around San Francisco-based Craigslist, the community selling site that practically created the online classified ad business and -- according to some -- has helped fuel the newspaper industry's woes by stealing a key source of income in classified advertising. See full story.

EBay has been driven to become a player in the business since launching a free, classified business under the name Kijiji.com, which means village in Swahili. It was first launched outside of the U.S. in 2005, and then in the U.S. in 2007.

The push seems to be paying off and is adding to eBay's top line, where other efforts have failed. According to Morgan Stanley analyst David Joseph, eBay's non-merchandising business (including advertising, classified and shopping.com) grew 38% and was 11% of total revenues in the most recent quarter.

But eBay still has to contend with Craigslist, which leads the online classified sector in key U.S. markets. And Craigslist will be difficult to dislodge, as the company provides most of its listings free of charge and as the valuable brand and mindshare in the business. In San Francisco and now in many cities beyond, most people think of Craigslist first as the place to go in looking for cheap items for sale.

EBay's traditional business -- by contrast -- is best suited to more expensive, collectible items that are less affected by the additional transaction fees.

But eBay clearly has Craigslist in its sights. In its conference call to discuss Monday's news, eBay Chief Executive John Donahoe pointed out that eBay has classified Web sites in 20 countries and over 1,000 cities around the world. He said that if you take eBay's global classified sites together, "we have more traffic globally and three to four times more revenue than Craigslist."
Add to that the fact that the two companies are now locked in a legal battle over eBay's 25% ownership stake in Craigslist and its efforts to build up a competing business.

Craigslist officials would not talk to me for this column, citing the ongoing lawsuit with eBay. Although the company is still sitting pretty as a leader, it may not want to get too comfortable in that spot. History in the tech sector shows that first movers don't always maintain their advantage -- especially when under assault by a deep-pocketed rival looking to muscle onto its turf.
But I'm not really sure that the oddly-named Kijiji will ever become a household name. I have yet to hear of anyone deciding to place an ad on Kijiji, with Craigslist so engrained in the Bay Area culture. EBay faces some serious work in the months ahead. End of Story

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