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Exclusive: EBay tests deals on services, takes on Groupon

By Alistair Barr and Phil Wahba

(Reuters) - EBay Inc has been quietly testing an online marketplace for deals on local services, expanding into a multibillion- dollar market currently led by Groupon Inc.

EBay is also re-designing its website, adding Facebook-like features it hopes will spur more sales.

Called eBay Lifestyle Deals, the offers are being run in a limited number of urban areas, including the San Francisco Bay area, Los Angeles and Washington D.C., according to the company.

Recent deals included $12 for a one-hour dog-walking service worth $25; $50 for a month of Yoga classes worth $110; and $180 for six private gym sessions worth $360.

"This is more competition for Groupon, but also more validation for Groupon's business," said Arvind Bhatia, an analyst at Sterne, Agree & Leach. "The market opportunity is big - that's why you have Google, Amazon and now eBay committing themselves."

Groupon shares were down nearly 4 percent to $5.07 in afternoon trading.

The move is potentially a big step for eBay, which has traditionally focused on products rather than services. EBay has run daily deals on physical products for about two years, but this is its first foray into discounted local services in the United States.

"We have a big marketplace and a lot of people who come to eBay don't just come for one thing - they stay and buy across categories," Devin Wenig, president of eBay Marketplaces, told Reuters in an interview.

"It makes perfect sense to experiment with new categories, and services is one of these things. We're seeing whether deals and services are attractive to our customers."

EBay has teamed up with start-up Signpost, which arranges the deals with local merchants and posts them on a new section of eBay's online marketplace, http://www.ebay.com/exp/lifestyle-deals .

Signpost, backed by Google Ventures, already provides deals for Google Offers, a rival to Groupon.

EBay plans to add more deal providers if the effort goes well.

"Signpost is a merchant, just like merchants selling physical goods on eBay," Wenig said. "A merchant may sell local or even global services on eBay in the future."

BIA/Kelsey, which tracks the local media industry, expects U.S. consumer spending for online deals to reach $5.5 billion by 2016, up from $1.8 billion last year. That includes daily deals, and other discounted online sales channels, such as product deals and flash sales.

Groupon Chief Executive Andrew Mason has estimated that the total local-commerce market world wide is worth $3 trillion.

DIFFICULT TO GROW PROFITABLY

Groupon started the daily deal craze in late 2008 and quickly grew into a company with thousands of employees and well over $1 billion in annual revenue.

That growth attracted a lot of deep-pocketed rivals, such as Google Inc, Amazon.com Inc and Facebook Inc. However, growth has slowed recently as consumers tired of endless deals from multiple providers. Facebook shelved its first effort in the market last year.

Groupon shares have lost about three-quarters of their value since the company went public last year.

However, Google and Amazon have stuck with their daily deal businesses.

Groupon's business is easy to enter, but difficult to grow profitably, Bhatia said.

Groupon employs thousands of sales people who negotiate discounted offers every day, a costly operation. In contrast, Google Offers and AmazonLocal use other deal providers to do that leg-work, and eBay is taking the same approach with its test.

"For eBay, local commerce is very important; they already run "daily deals" on their Marketplace website, so extending this to local merchants and adding services to the mix is not a stretch," said Colin Sebastian, an analyst at R.W. Baird.

"They can leverage their existing user base and provide a new distribution channel for merchants," he added. "It would be another thing if they added a significant number of salespeople, similar to Groupon, but I don't believe that is the case here."

EBay shares rose 0.8 percent to $46.61 on Nasdaq in afternoon trading.

CHANNELING FACEBOOK

Wenig and other eBay executives unveiled a big website re-design on Wednesday that includes a new "Feed" service which makes product suggestions on a consumer's eBay home page, based on their shopping history.

Feed also lets consumers tailor their eBay pages. For example, a user can have the feed automatically add a hard-to-find record by a favorite band, or the latest item available from an eBay seller by a favorite designer.

The feed has a "follow" feature reminiscent of Facebook Inc's "like" function, which sends related updates to users' News Feeds.

EBay's Feed service, which is optional for users, launched on Wednesday on eBay's U.S. site, with sites in other countries to follow.

"E-commerce is either utilitarian, where you can do a lot of business quickly, or engaging. We think the future is doing both," Wenig said. "Today is our opening move in this direction."

The site changes will be introduced in coming weeks in the United States and in coming months overseas.

Facebook's early efforts to expand in e-commerce, known as f-commerce, have had mixed results. However, the social network is sticking with the initiative, because it is such a big opportunity.

Facebook users share a lot of information about themselves and this can be useful for retailers and merchants because they may be able to get a sense of what consumers are planning to buy.

EBay also introduced other changes to its site on Wednesday, such as linking a customer's eBay and PayPal accounts to speed up and simplify checkouts. The site will also have bigger photos.

"Over time, we expect the improvements in website aesthetics, navigation, product listings, and check-out to drive user engagement, and ultimately higher conversion rates," said R.W. Baird's Sebastian.

"However, in the near term, with eBay rolling out changes during the key holiday shopping period, we note there could be a modest short-term impact as users calibrate to the changes."

(Reporting by Alistair Barr; Additional reporting by Phil Wahba in New York; Editing by Jeffrey Benkoe and Tim Dobbyn and Carol Bishopric)

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