From Craigslist to Megslist

You probably know that online-auction leader eBay (Nasdaq: EBAY  ) owns a 25% stake in niche leader Craigslist. But it's a reluctant position for eBay, which came to hold it by way of an early investor who was seeking an exit strategy three years ago.

So what's an eBay to do? The majority stake that eBay doesn't own is in no hurry to cash out or optimize the monetization of the site. So without any say in Craigslist's direction, but with three years of experience on its inner workings, eBay is sensible to strike out on its own with a competitive platform.

Truth be told, eBay has been overseeing its own kijiji for a while now. Kijiji means "village" in Swahili. And now that village, featuring free online classifieds, is quietly being launched domestically as Kijiji.com.

Self-inflicted swoon?
eBay displays third-party ads through Google (Nasdaq: GOOG  ) and Yahoo! (Nasdaq: YHOO  ) on its namesake site, so it can populate Kijiji accordingly if it wishes to. It can start charging for premium listings or even funnel potential buyers back into its eBay.com hub.

It's unlikely that Kijiji -- and, boy, that sure is a mouthful -- will ever topple Craigslist, but running 100% of Kijiji is better than holding a passive 25% chunk of Craigslist. Still, why is eBay trying to launch a potential Craigslist killer that may ultimately inflict harm on eBay.com itself? If you're scratching your head for the answer, you're missing the ominous trends.

Auction listings have been sluggish at eBay lately. That downward trend has been partly offset by healthy improvements in conversion rates and selling prices, but the company's auction business just isn't growing as quickly as it used to.

In a research report issued earlier this week, American Technology Research analyst Tim Boyd figures that total second-quarter listings fell by 3% during the second quarter. He maintains a buy rating on the company, but the trend is certainly troubling. If sellers aren't flocking to the site, buyers won't have much of a reason to stick around, either.

eBay is trying to avoid an exodus like that. The company is slashing its fees, in a rare summer promotion. Through the first week of August, the final value fees charged on successful auctions are being discounted by more than 14%. It's a surprising sight for a company that is usually bumping up its rates.

Going against the current
You're seeing some unusual things from this company at a crossroads. CEO Meg Whitman sold some of her shares last month. Sure, CEOs sell shares all the time, but you have to go back four years to find the last time that Whitman was taking profits on her significant stake in the company.

The new Windorphins ad campaign is also unusual. Unlike the "It" and showtunes ads that shouted the eBay brand proudly, the initial Windorphins marketing campaign of print ads on public transportation led the curious to Windorphins.com but didn't immediately offer them the eBay connection when they got there. This is a rare attempt by a dot-com juggernaut at viral guerrilla marketing. It's not as deceptively distant as the Information Revolution springtime campaign that IAC/InterActiveCorp's (Nasdaq: IACI  ) Ask.com unleashed in the United Kingdom, but it's still a case of a company that's trying to sneak back into people's lives. 

None of this means that the namesake marketplace is dead or even dying, but the launch of Kijiji is eBay's way to plant the flag on a medium that otherwise has the potential to disrupt eBay's lavish lifestyle. And since eBay is behind the wheel, if Kijiji ever bumps up against the more lucrative auction site, eBay can try to steer it away so it's not so cannibalistic.

That hasn't happened yet, at eBay or elsewhere. Look beyond eBay, and you will find that the proliferation of free online classified sites haven't been eating into other commercial endeavors. Companies such as IAC and Yahoo!, for example, run successful online dating sites that are growing despite the free listings on Craigslist. Nor are Monster (Nasdaq: MNST  ) and Yahoo!'s HotJobs.com suffering from a drought of recruiters at their popular job-listing websites.

eBay will never be the cheapest place to move your old loveseat or that G.I. Joe collection, but it will continue to be relevant as long as it remains the most efficient platform. A lot of that efficiency comes from paying sellers who have a financial investment in pricing their wares aggressively.

Neither Craigslist nor Kijiji is unlikely to change that situation. As it stands now, Kijiji is a slick-looking site, though mostly barren of ads once you get down to the local level. That may change in time, but it's obviously a place where eBay feels that it needs to be.

It is planting a tree. It is planting a flag. It is planting a Plan B.   

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Longtime Fool contributor Rick Munarriz is an eBay fan, with 172 positive feedback ratings to show for it. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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