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E-Commerce's Growing Pains

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Grousing from eBay sellers -- and fact that eBay rival Overstock.com brazenly set up in a hotel here and lobbied eBay merchants to use its year-old auction service -- reflects the growing pains and intensifying competition throughout the online shopping industry.

Most of Web commerce turns 10 this year, including eBay, Yahoo and Amazon.com. Both eBay and Amazon launched their first services on the Web in 1995, the same year Yahoo incorporated to make a business out of the directory two college students started in their dorm room the year before. Netscape also held its initial public stock offering in 1995, igniting a frenzy among entrepreneurs eager to commercialize what had long been an academic medium.

The next decade produced a boom and bust that left EBay, Yahoo and Amazon, along with younger rival Google, as the Internet's top survivors. All four have been on a tear over the past year as they rushed to copy one another, roll out new services and buy a string of start-ups. Each is positioning itself to catch the next wave of Web commerce. But first they have to figure out what that will be.

"The exciting thing to me is that while we are 10 years into Internet commerce, it is still hard to predict what the next 10 years will bring," said Scot Wingo, chief executive of ChannelAdvisor Corp., a firm that sells automation software to help Internet merchants sell from eBay, Yahoo, Amazon and elsewhere. "After hardly being known a few years ago, Google is on the scene today, changing the rules on a lot of things."

Today's top players thrived by serving the many online retailers that attracted people to the Internet to browse, buy and research goods. In 2004, online retailing accounted for 4.6 percent of total retail sales in the United States, according to data released by the National Retail Federation's Shop.org subsidiary last month. Typing credit card numbers into remote Web stores has become commonplace, with 69 percent of American households now using the Internet to make purchases, Forrester Research reported last month.

Of the big survivors, eBay's success was the most surprising because programmer Pierre Omidyar started it to test of his ideas about pricing goods online and reviving centuries-old notions about community. Folks scoffed at the AuctionWeb program he put on his Web site on Labor Day 1995, offering just three basic functions -- list, view or bid on items. Although it was profitable almost right away, venture capitalists belittled it as an electronic flea market, and even Jeffrey Skoll, the man who partnered with Omidyar to turn it into a business, initially failed to grasp Omidyar's vision.

"I said, 'Pierre, that's a really dumb idea,' " Skoll said at the convention on Friday.

Since then, eBay has exploded into a worldwide economic and cultural force, with about 60 million active users expected to swap more than $40 billion in goods and services this year. While its revenue is less than half of Amazon's, far more merchandise is traded through eBay's person-to-person trading model; it just isn't booked as revenue because eBay doesn't handle merchandise.

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.

"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 electronic money offering, PayPal.

Full Story.

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