EBay, Amazon duke it out for online shoppers
By Mary Anne Ostrom
Mercury News
12/1/02
EBay and Amazon.com, the surviving behemoths of e-commerce, are aggressively moving into each other's territory as their battle for price-conscious shoppers escalates in an unsettled economy.
Last month, the battlefield moved to consumer electronics. On the same mid-November morning Amazon's Jeff Bezos appeared on television on a Segway scooter to promote his site's electronics offerings, eBay's Meg Whitman launched her new electronics marketplace at computer trade show Comdex.
``Absolutely they are direct competitors now,'' said Kate Delhagen, a Forrester Research analyst. ``Both have gathered a critical mass of shoppers in a remarkably short period of time and have virtual national storefronts. The question is: Which is going to be the Wal-Mart of online shopping?''
Bezos and Whitman have carefully followed each other's moves over the past half-decade. Having watched most of the competition die off or become their partners, the two are expanding into each other's traditional turf and staking out new retailing territories.
Only days before the electronics public-relations showdown, Amazon formally opened an online apparel store, combining two dozen brand-name retailers under one tab, and challenging eBay in one its most promising categories.
And Whitman at Comdex announced shoppers at eBay's new electronics store could get some products shipped free, a key Amazon selling point.
Online retailers see only a fraction of overall U.S. retail sales. Nonetheless, eBay and Amazon have made impressive strides.
According to a new survey by Forrester, 10 percent of U.S. households shop at or browse Amazon's Web site at least once a month and 9 percent visit eBay. By comparison, 64 percent say they shopped at a Wal-Mart store.
Wal-Mart, the world's largest retailer, also operates its own highly trafficked Web site, and plenty of smaller online sites survive. Portals including Yahoo, AOL and MSN are tweaking their shopping sites. But eBay and Amazon, among the earliest Web shopping destinations and now with global reach, are bumping up against one another as they expand beyond their original niches.
Consider that 22 percent of gross merchandise sales at eBay, which started exclusively as an online auctioneer, are now made in the traditional fixed-price format used at Amazon. EBay's home page now even advertises: ``No bidding required.''
And at Amazon, known as the Web's consummate retailer, now 23 percent of items selling in North America are sold by third parties, turning the Seattle company into a major trading platform, like eBay.
Blurring lines
``Two years ago I'd say there was 5 percent overlap'' between Amazon and eBay on products, said Scot Wingo, president and chief executive of ChannelAdvisors, which helps large merchants sell goods on both sites. ``Now it's 30 to 40 percent overlap and it's growing larger.''
While eBay has a far broader selection of items, since anyone can list almost any legal product, some of eBay's most heavily promoted categories this holiday -- notably consumer electronics and toys -- are among Amazon's strongest categories.
At both eBay and Amazon, shoppers can find new Nikon Coolpix 4300 digital cameras and Chicken Dance Elmo toys or used copies of Arthur Levitt's ``Take on the Street'' and Bruce Springsteen's ``The Rising.''
To attract new shoppers and keep existing ones coming back, eBay and Amazon are introducing new product lines and aggressively promoting their brands, including network television ad campaigns.
Amazon keeps lowering its minimum purchase to get free shipping; eBay has just started promoting sellers who offer free shipping of electronic goods.
Both companies continue to strike deals with brand-name retailers.
Electronics battle
Underscoring their battle in the consumer electronics arena, eBay on Monday announced a new store that features Hewlett-Packard products, primarily canceled orders and returned, unopened items. Dell and IBM also sell on eBay, though eBay estimates at least 90 percent of the 1 million listings now consolidated in the new electronics marketplace are offered by small sellers. About half of the goods are new or refurbished.
In September, Office Depot began selling more than 50,000 items, including electronics items, through its online store at Amazon, joining Circuit City. Amazon also sells new electronics through its own site and individual sellers offer used electronics goods at its own marketplace.
The competition is escalating at a time when online shopping is showing resilience despite a weak economy.
Overall, U.S. online retail sales rose 34.3 percent, to $11.06 billion, in the third quarter compared with the same period a year ago, the Commerce Department reported last week. Still, those sales account for just 1.3 percent of total U.S. retail sales.
Holiday projections are also healthy. GartnerG2, an online consultancy, is predicting that the average U.S. online consumer will spend $235, or more than a quarter of their total gift budget, on the Web this holiday.
A key to growth for both Amazon and eBay is to snag more of those online consumer dollars by persuading shoppers to buy more items -- more often.
``We have tried really hard to cross-merchandise, whether it be on the home page, the category theme pages or through our direct marketing,'' Whitman said in October.
The activity per user, she reported, grew from $68.56 in gross merchandise sales compared to $62.54 a year earlier.
Amazon has concentrated on drawing consumers with low prices on books and other goods, and then enticing shoppers to buy a second or third item with the promise of free shipping when orders reach at least $25 on many products.
``We know that a very simple, clear message is that you don't have to worry about shipping prices when you come to Amazon.com,'' Amazon senior vice president Jeff Wilke told analysts in November.
Also, Amazon recently began offering shoppers who spend $50 at its new apparel store $30 off any future non-apparel purchase at Amazon.
But at least one crucial difference remains between eBay and Amazon: profitability.
EBay, which essentially provides only a Web-based trading platform, collecting listing and transaction fees but owning none of the goods, has turned a profit since its 1995 founding. Amazon, which still owns much of the merchandise it sells, has had just one profitable quarter in its seven-year history.
The profile of the shoppers at each site, while growing closer to mainstream consumers, somewhat reflects the companies' roots.
EBay is still known as a place to find hard-to-get, out-of-date or overstock items. As a result, eBay shoppers are more price- and promotion-oriented than Amazon, according to the Forrester study.
Amazon shoppers are a bit older, more affluent and better educated.
But reinforcing both the promise of the Internet for shoppers and the challenge for Web retailers seeking loyal customers, more than 70 percent of eBay and Amazon users said they like to shop around before making a purchase. Two-thirds say most products they buy are on sale.
And price, retail analysts say, is where the eBay-Amazon competition will move next.
Just as Wal-Mart has become the predominant discount merchandiser by slashing prices, they predict in many categories online shoppers will be drawn by good deals.
While convenience is also a major attraction for online shoppers, in price-sensitive categories like electronics, the decision often comes down to cost.
``The consumer doesn't really care what site it is,'' said GartnerG2 retail research director Geri Spieler, ``as long as the price is right.''
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