EBay makes a bid for daily-deal market

By Martha C. White

The daily deal arena just got a little more crowded with the entrance of eBay.

Analysts say the e-commerce heavyweight could inadvertently give a boost to beleaguered category leader Groupon.

?I think it kinds of validates the daily deal space since so many other players are trying to get into it,? said Jeffrey Houston, senior investment analyst at Barrington Research.

Along with a new Pinterest-esque look and same-day delivery in some markets, the auction site launched Lifestyle Deals, a platform that aims at the heart of Groupon?s business model. Early offerings on Lifestyle Deals were standard daily-deal fare: teeth whitening, yoga classes, half-off dining.

Groupon has struggled against a tide of skeptical investor sentiment since going public last November with an IPO price of $20. The stock now hovers around the $5 mark despite Groupon?s turning a profit and taking steps to rein in its high operating costs.

?Longer-term, it could... take a little bit of share, but I think at this point more than anything else it validates their business model,? Houston said.

?I can see where eBay may give them a run on the goods side of their business,? Ken Sena, analyst at Evercore Partners LLC, said via email. ?However, on the daily deals side, there is plenty of competition to worry about even without eBay.?

EBay still faces challenges ahead, analysts say. ?I think it?s going be tough to replicate the global sales force Groupon has put together,? Houston said. Currently, eBay is using local-advertising startup Signpost for deal sourcing. Google is also a customer as well as an investor in Signpost, which provides the search engine company with Google Offers deals.

Arvind Bhatia, managing director in equity research at Sterne, Agee & Leach, said eBay would have to invest a lot to grow big enough to be a serious threat to Groupon. ?This isn?t the first attempt by a deep-pocketed company? to move into the daily deal space, with mixed results. ?It?s a business that?s easy to get into but very difficult to scale and very difficult to make money in,? he said.

Facebook threw in the towel on its deals initiative after only a four-month test. AmazonLocal and Google Offers still compete with Groupon, but both are a fraction of the size. According to daily deal aggregator Yipit.com, Groupon had 53 percent of North American daily deal market share in the second quarter, while Amazon had less than 2 percent. (Amazon has another toehold in the daily deal market through its stake in runner-up LivingSocial.) Yipit estimated Google Offers to comprise less than 5 percent of the total.

Groupon?s stock was up nearly 5 percent midday Thursday after dropping following eBay?s announcement on Wednesday. EBay shares were up about 1 percent.

?We?ve seen hundreds of daily deal companies come and go,? Bhatia said. ?Ultimately, there will be just two or three left, and Groupon?s going to be one of them.?

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