E-Commerce's Growing Pains

EBay and Google remain the most profitable of the group, but the two companies are regarded differently on Wall Street. At more than $80 billion, Google's market valuation is nearly 80 percent higher than eBay's, more than 50 percent higher than Yahoo's and more than five times Amazon's.

As each company has become recognized as a brand name, it has also come to stand for a particular approach to Internet commerce. EBay is auctions. Amazon is like an electronic mail-order company. Yahoo and Google's search engines link shoppers with retailers.

Sellers who started on eBay have watched the other types of commerce evolve and are finding them increasingly attractive.

Lisa Monse, a collectibles dealer in Houston, said she launched her own Web site two years and has aggressively marketed it by buying keywords on Yahoo and Google. Now she sells nearly twice as much from her personal site, TheVelveteenRabbitAntiques.com, as she does on eBay. "I spend a lot of money on search advertising because it's paying off," she said.

At the convention, eBay directly confronted the reality that its veteran sellers are increasingly selling their wares elsewhere as they grow more Internet-savvy. On Thursday, eBay launched a Web storefront service that lets merchants set up independent Web sites off eBay and pay lower commissions than they would selling on eBay.

"The Internet is changing. It's becoming even more mainstream, and we want to evolve with you however you see fit," eBay chief executive Meg Whitman told nearly 10,000 users packed into an arena.

That need to evolve is causing a flurry of activity among the big Internet commerce competitors, as they cross into each others' territories to add services to woo more consumers.

Amazon not only invites merchants to sell on its site and charges a commission, but it also recently rolled out a trial local Yellow Pages service and a Web search service that people can customize.

Google bought blogging software, photo-organizing software and a satellite-mapping firm -- and moved into shopping by creating a product-comparison service called Froogle. Just this week, Google confirmed it is developing an online payment service that could compete with eBay's PayPal.

Yahoo's original Web shopping area offered links to the sites of established retailers and small merchants, many of whom paid Yahoo to host their sites. But Yahoo has since emphasized a search box as a key way for shoppers to find products, a focus it developed after spending billions of dollars to acquire search technology similar to Google's. Now, Yahoo is the most diversified Internet company, reaping revenue from banner and display ads, search advertising, subscription services for music and e-mail and renting Web storefronts.

For its part, eBay has been on a buying spree to diversify beyond the auction format that accounts for nearly three-quarters of its sales. Last year, it bought e-commerce sites in India, Germany and the Netherlands. In the United States, it bought Rent.com, an apartment-listing site, and took a 25 percent stake in the Craigslist.org local classifieds service. EBay also rolled out a classified network overseas this year called Kijiji. And eBay jumped into search-engine marketing last month, announcing it would fork over $620 million to buy the top comparison-shopping service, Shopping.com.

Search-engine marketing became the wild card of Web commerce after online advertising crashed in 2000. Google and Yahoo pioneered the technique, in which merchants buy keywords such as "diamond ring" or "MP3 player" and have links to their Web sites show up in ads alongside the regular results when people search for those terms.

Merchants pay only when people click on their ads.

Keyword searches quickly became the biggest driver of Internet ad revenue and a source of worry to eBay and Amazon. Both have been big buyers of keywords to attract buyers to their shopping destinations, but individual merchants can use the same approach to bypass eBay and Amazon and reach customers directly.

Moreover, as merchants learned how to use search-engine marketing to bring shoppers to their Web stores, they have been driving up keyword prices at Google and Yahoo -- making it more expensive for eBay and Amazon to acquire traffic that way.

Gary Neubert, a Tampa resident who has sold shipping supplies on eBay since 1999, said he has been steadily building traffic to his own Web site to bypass eBay's commissions whenever possible. Half his sales today come through his own site, he said. Neubert said he and others are increasingly exploring options outside eBay.

"EBay has been a wonderful place to start and incubate a business,'' Neubert said. "Where it has been weak is helping you once you are growing and thriving. The whole Internet commerce evolution has been a fantastic opportunity that only comes along once in a generation, but now we are ready to take it to the next level."