eBay Stumbles

As people try to determine a definition of Web 2.0 there is already mention of Web 3.0. Meanwhile, organizations such as the McKinsey Quarterly and the Pew Internet & American Life project report that technologies, with the exception of blogs and some collaboration tools, associated with these ‘versions’ of the Web are not moving into the corporate environment. However, the Web, in any version, is not all about work, and new interactive tools that depend on user input and harness community, are popular with the masses. More and more frequently such popularity is leading to lucrative deals. The recent acquisition of StumbleUpon by a pioneer of an earlier Internet era, eBay, is demonstrative of this.

StumbleUpon, for which eBay paid $75 million in cash, belongs to the category of “social bookmarking” sites. However, as with trying to define a version of the Web, a specific definition of StumbleUpon is a bit elusive. The company offers a downloadable toolbar which allows users to state, with a click, if they like a given website or not. Based on a user’s responses, and those of a users peers, StumbleUpon presents sites for browsing that it thinks the user will like. By harnessing the power of the user and the community, StumbleUpon has the hallmarks of a Web 2.0 company. PC Magazine goes so far as to say, “The venture capital-funded company . . . is considered a pioneer of the so-called ‘Web 3.0’ niche.” The press release from eBay says, “StumbleUpon gives people a new way to discover relevant and entertaining content based on personal preferences and community recommendations.” The Wall Street Journal simply describes it as, “an Internet company that helps people discover Web pages that match their interests.” A simple visit to the site clarifies what it offers, but still leaves open the question, “What are eBay’s intentions in buying it?” This question is not being answered by eBay at the moment.

The Wall Street Journal says that, “eBay’s interest in the closely held San Francisco company is the latest sign of its efforts to expand beyond its maturing online-auction business through acquisitions.” While some may read “moving beyond” as meaning moving beyond the eBay.com site, “insisting that everyone visit your solitary site seems so ’90s,” says BusinessWeek, others seem to hint that the company is moving into new territory. Reuters is one that sees possibilities, “StumbleUpon combines peer recommendations with search features and as such presents an alternative to Web search leader Google Inc.” Two prominent bloggers do not seem to think that Reuters’ is a strange suggestion. Om Malik points out an interesting scenario for the new acquisiton: “By marrying the toolbar to Skype client, eBay can do an end run around Google’s dominance of the search business. A simple search box inside Skype client is all it would take.” Adario Strange, blogging at Wired says that this is, “A great observation, because we all know, no matter how many denials we all hear, the number game in Silicon Valley now is: Find a way to do significant business online ‘without’ Google’s involvement, and you’ll have found the goose that lays the golden eggs.”

Of eBay’s possible move outside the relative safety of its auction kingdom BusinessWeek says “Grabbing buyers, as well as business, outside of eBay’s core shopping platform will be a significant challenge. Competition on the Web is fierce, and eBay must contend not just with other e-commerce companies looking for buyers’ and sellers’ business but also with myriad Web entertainment and social sites seeking to grab their time.” BusinessWeek goes on to quote Derek Brown, an analyst with Cantor Fitzgerald, “The off-eBay world is far more competitive . . . Success there is no certainty.”

While eBay may indeed be stepping outside of its box and into other ventures, there are reasons more close to home why it may have made this move. According to the StumbleUpon website the company helps members, “discover relevant and entertaining content based on personal preferences and community recommendations.” Albeit it of a different type, eBay sees itself as a community as well, and Michael Buhr, senior director, eBay says, “it is the similarities in our approaches to the concept of community that make it such a compelling addition to eBay.” One of the StumbleUpon founders, Garrett Camp, also mentions this, “We’re excited about joining eBay, as we share the same values around community and we look forward to working with them to accelerate our growth.” The company’s growth is something that eBay would like to harness as well. StumbleUpon has grown 150 percent year-over-year since being founded in 2001, at this point there are about 2.3 million registered users. Finally, eBay is quite likely interested in StumbleUpon’s recommendation engine. eWeek suggests, “eBay is likely to integrate StumbleUpon’s recommendation service into its auctions and sales as a way to surface less-trafficked items that may be of interest to shoppers with esoteric tastes.” Similarly Reuters says, “The recommendation features built into the service could serve as a referral system for eBay users to locate Web auctions that interest them, analysts say.”

While most are still puzzling out the move some are already suggesting it may not have been for the better. In a recent article on the company, BusinessWeek states, “some analysts complain there aren’t enough synergies in these tech purchases to justify the billions spent. Much of the San Jose company’s buying spree has been an expensive diversion away from what’s ailing its core shopping sites, they argue. Shopping still accounted for nearly 70 percent of eBay’s $6 billion in revenues last year. Yet sales growth in that business has slowed, from a 40 percent annual pace through 2004 to 23 percent last quarter.”

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the eCommerce section of Northern Light’s Internet & Information Services Market Intelligence Center.

And in the following articles:

Going, Going Everywhere

BusinessWeek, June 18, 2007
When Pierre M. Omidyar founded eBay in 1995, the key to e-commerce success was relatively simple: Establish a Web site where Web surfers go to spend time and shop. By that measure, eBay.com became one of the Web’s most successful sites, with 233 million registered users looking to auction off items or find bargains. Indeed, the average eBay user today spends nearly two hours a month on the site–still more than five times what people spend on Amazon.com.

eBay Acquires Social Search Engine StumbleUpon

eWeek, May 31, 2007
eBay announced May 31 that it has completed its purchase of social search Engine StumbleUpon for a total price of $75 million. StumbleUpon, an early stage company that boasts about 2.3 million users, is a social recommendation search engine that offers new content based upon users’ preferences and how they’ve rated pages they’ve previously seen through the engine.

Bay Snatches Up StumbleUpon
Wired, May 31, 2007
It’s acquisition week in Silicon Valley. Yesterday CBS acquired Last.fm and now eBay has announced it will acquire StumbleUpon, the social bookmarking/search engine service, for $75 million. The deal will give eBay access to almost 2.5 million registered users, though it remains somewhat unclear as to what eBay plans to do with the site.

eBay Acquires StumbleUpon
Forbes, May 30, 2007
eBay Inc. announced Wednesday that it acquired StumbleUpon Inc., a software startup that suggests Web sites based on reader reviews and personal preferences of its members. The $75 million cash acquisition gives eBay access to about 2.3 million people who have filled out profiles at StumbleUpon, founded in 2001 by three Canadian software engineers in Calgary.

eBay Buys Search Site StumbleUpon
Reuters, May 30, 2007
Web auction leader eBay Inc. has acquired Web surfing recommendation site StumbleUpon for $75 million in cash, matching the highest value reported as under discussion weeks ago. StumbleUpon Inc. is an online review site that recommends Web pages within sites such as Flickr, MySpace or YouTube, based on “thumbs up” or “thumbs down” votes from other Web users with shared interests.

eBay Seeks to Add StumbleUpon to Portfolio
Wall Street Journal, May 9, 2007
eBay Inc. is in advanced talks to acquire StumbleUpon Inc., an Internet company that helps people discover Web pages that match their interests, according to people familiar with the matter. The potential price for a deal is in the range of $75 million, these people say. One of the people said that no final agreement has been reached and the talks could fall apart.

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