Ebay Can't Win Mobile Shopping With Apps Alone

Last Updated Jun 24, 2010 4:50 PM EDT

Ebay (EBAY) has five fast-evolving apps in Apple's (AAPL) iTunes store, with another one -- specially geared towards fashion -- on the way. BusinessWeek has taken eBay's aggressive app strategy to be a sign that it will be "an early winner" in mobile commerce. But apps may not be enough.

EBay has reason to be proud of its apps. In public-facing comments in BusinessWeek and elsewhere, the company has touted its agile, iterative app development, saying that it monitors sales while tweaking its apps to try out new features by trial and error. On June 23, the company took another smart step by acquiring a license to use RedLaser, an iPhone technology that lets the phone's camera scan barcodes and find those products online. Soon, users will be able to scan anything with a SKU and find it on eBay.

The strategy seems to be working. EBay says it plans to make $1.5 billion this year from mobile commerce, up from $600 million in 2009. But the mobile commerce market is projected to grow by a factor of five by 2015, to $119 billion, which means that some of that growth is just "rising tide." Those numbers are also not adjusted for attrition from the desktop site.

In the long-term, however, the trends in mobility may ill serve eBay's purposes. Like arch-competitor Amazon (AMZN), the auction site boomed in the 90s when the purpose of the Web was to connect far-flung parties and initiate trusted transactions. But the purpose of the mobile Web these days is much different: it's more about exploiting relationships that you have in real life -- especially those with people and markets nearby. If there were to be one word to summarize the Web's greatest utility in the next decade, it would probably be "hyperlocal." And hyperlocal is something that eBay -- perhaps with the exception of eBay Motors -- doesn't have much use for.

Not that the auction giant isn't trying. Among other things, the company is trying out an augmented reality feature in its Classifieds app, and is also working to list items by location. As I've argued before, most people would rather use Craigslist for local buying for a constellation of reasons: no PayPal fees, and the opportunity to inspect goods in person before buying.

But a bigger problem may be that PayPal's position as industry leader is under threat. The payment system has been greasing the wheels of eBay's wheels with tremendous success since at least 2002, when it was acquired, and it has grown to 120 million accounts. But PayPal is facing some new and aggressive competitors, and it seems ill-equipped to grow any further. Zong, the only other payment system allowed in the Facebook Credits ecosystem, is one such competitor, and has the benefit of billions of dollars of social gaming commerce at its feet. And MasterCard (MC) has just built out an incredible API for developers that has the potential to dominate not just in-app commerce, but also CRMs, online games, merchant e-commerce web sites, and payroll systems.

That said, the company has been tenaciously pursuing Craigslist, and should it keep up the effort it may only be a matter of time before it finds a winning formula. (Free listings might be a good start.) With the hijacking of Craigslist's market, eBay could pull in a draft of new users and build adjacent products. Without that market, however, its mobile "growth" may only be cannibalization of its existing user pool.