Analysis: EBay lures big retailers in Amazon battle

By Alistair Barr and Dhanya Skariachan

Tue Aug 7, 2012 5:46pm EDT

n">(Reuters) - EBay Inc, once a scrappy auction site for mom and pop sellers, is enticing some of the world's largest retailers by arguing it can help them compete better against e-commerce leader Amazon.com Inc.

EBay Chief Executive John Donahoe and other executives have been telling retailers that Amazon is their enemy, while eBay is a friend because, unlike Amazon, it holds no inventory.

Amazon buys products wholesale, stores them in inventory and sells them to consumers at higher prices - like all retailers. EBay says it just matches buyers and sellers.

That message is sinking in, especially among brick and mortar retailers that are losing market share to Amazon.

"As retailers look for new vehicles for growth eBay becomes a natural partner - a better partner than Amazon," said Sucharita Mulpuru, an e-commerce analyst at Forrester Research.

When RadioShack Corp reported a surprise quarterly loss last month, Chief Executive Jim Gooch told analysts that the electronics retailer had set up an eBay storefront to help the company reach new customers online.

Barnes & Noble, Toys "R" Us, GNC Holdings, Aeropostale and Neiman Marcus are among other big retailers that now have storefronts on eBay. Best Buy Co Inc sells mobile phones and wireless plans on eBay.

On Monday, eBay said it was testing a same-day delivery service called eBay Now with Target Corp, the second-largest U.S. retailer, and other big retailers including Macy's Inc, Nordstrom Inc and Walgreen Co. Amazon offers same-day delivery in some areas already.

The foundations of eBay Now rest on Milo, a start-up eBay acquired in late 2010 which lets merchants upload in-store inventory onto eBay's online marketplace. When shoppers search on eBay now, they see what online sellers are offering, but also which nearby physical stores carry the product.

More than 50,000 stores in the United States have uploaded inventory to eBay, via Milo, including major retailers Home Depot Inc, Ikea, Lowe's Companies Inc, Sears Holdings Corp and J.C. Penney Company Inc.

"It's simple: location, location, location," said Ben Schachter, an analyst at Macquarie. "Sellers have to go to where the buyers are."

EBay has more than 100 million active shoppers on its online marketplace, he noted.

"Retailers don't have those kinds of numbers coming to their sites and buying," Schachter said. "They would love to only sell through their own site, but they have to go where the buyers are, and many are on eBay."

'WORST-KEPT SECRET'

Amazon has a lot more active customers - about 180 million - but some retailers steer clear still.

Barnes & Noble, which has been hammered by Amazon, has had an eBay storefront since late 2010 and mostly uses it to sell refurbished Nook gadgets. Toys and books were added in May 2011.

"EBay has been an exceptional partner, working with Barnes & Noble to effectively promote Nook to its massive user base," said Barnes & Noble spokeswoman Mary Ellen Keating. "Amazon is a competitor. We don't sell on Amazon and have no plans to do so."

Toys "R" Us does not sell on Amazon either. More than a decade ago, the largest toy retailer had exclusive rights to supply some toys on Amazon's website. That partnership ended in litigation and Amazon is now a leading toy retailer in its own right.

"It's the worst-kept secret in the retail industry," said Mulpuru. "When you partner with Amazon, they are looking at your data, learning your business and have ambition to get into every category."

Among the 100 largest retailers in the United States, most are choosing eBay over Amazon, according to Scot Wingo, chief executive of ChannelAdvisor, which helps merchants sell on both online marketplaces.

An Amazon spokesman declined to comment.

Amazon's marketplace for third-party sellers is growing rapidly and Wingo said that would not be happening if all retailers thought Amazon was the enemy.

The lure of Amazon's massive customer base is still powerful for many.

"We take any chance of getting new eyeballs and Amazon is just so large in the world of e-commerce," said Jerry Deboer, senior vice president of marketing at Jos. A. Bank, which has Amazon and eBay stores.

RadioShack also has both, and big retailers including Office Max and Sephora run Amazon stores.

Adding large sellers to eBay's marketplace helps the company in several ways.

EBay takes a cut of sales, so higher-volume sellers may help the company generate more revenue and profit.

EBay and retailers declined to discuss fees. However, eBay charges less for top sellers and negotiates individual deals with the biggest and best, according to Wingo.

EBay has struggled in the past because some of the products on its site were listed poorly or of questionable quality, and customer service from small sellers is not always what it could be. Big retailers are more likely to sell higher-quality products, categorize them more and provide better service.

DIFFERENT SHOPPERS

Retailers say eBay storefronts attract different shoppers than the ones who come to their own websites and physical stores.

EBay shoppers often search for deals, so some retailers use eBay to sell end-of-season or outlet products at lower prices.

Neiman Marcus' eBay storefront sells apparel, shoes and accessories under the Last Call brand, its outlet business.

EBay provides data to retailers to help them check if the shoppers who come to their eBay storefronts overlap with their existing customer base, according to Michael Jones, vice president of merchant development at eBay.

"By and large, people see this as a very significant incremental channel for them," Jones said.

In early 2010, eBay started including storefront inventory in results when shoppers searched on the website's front page. That has helped retailers place their products in front of more consumers, according to Jones.

(Reporting by Alistair Barr and Dhanya Skariachan; Editing by Jonathan Weber, Edwin Chan and Matthew Lewis)

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Analysis: Tech Inc's invincible aura fades

By Jim Finkle

Wed Jul 11, 2012 12:48am EDT

n">(Reuters) - Hopes are evaporating that leading technology companies will offer a safe harbor this year from the economic storms swirling across Europe, Asia and the United States.

Investors should brace for some of the biggest names in U.S. software and hardware -- from Microsoft Corp and IBM to Intel Corp -- to disappoint when Big Tech begins reporting quarterly earnings next week, analysts said.

The trio's shares are all in the red for July, in the wake of earnings warnings over the past week from smaller peers, including Advanced Micro Devices Inc, Applied Materials Inc and Informatica Corp.

Corporate IT budgets have historically proved more resilient to worsening macroeconomic conditions than other kinds of spending, because businesses invest on the assumption that technology boosts productivity and helps save them costs over the long term.

But investors may have misjudged the depth of the European crisis, and with once-reliable-as-clockwork Chinese growth waning, demand in other emerging markets has not picked up enough of the slack.

The profit warnings could signal a broader pullback in orders, which means that Wall Street's earnings projections now appear over-optimistic to some outside experts.

"I don't think the companies or the market anticipated the kind of slowdown like the one we are going to see in the second half," said Fred Hickey, editor of the High-Tech Strategist Newsletter for investors. "Companies haven't had a chance to adjust estimates yet and they will. That's coming," said Hickey, who has been following the tech industry since the 1980s.

ASIA BEATEN DOWN, TOO

The sense of impending gloom is not confined to the United States.

Samsung Electronics, Asia's top-earning tech company and the world's leading maker of smartphones, TVs and memory chips, has predicted record quarterly profit of $5.9 billion for April-June -- but its stock has slumped more than a fifth since May on concerns about the broader outlook for chip demand and the impact of the euro zone crisis on sales of its TVs and home appliances.

Since mid-June, analysts have cut by more than a quarter their earnings forecasts for LG Electronics, South Korea's other tech heavyweight, according to Thomson Reuters Starmine SmartEstimates, which accords higher weight to the timeliest forecasts from historically more accurate analysts.

Shares of China's Lenovo, the world's No.2 PC maker behind Hewlett Packard, have retreated to 5-month lows with brokers downgrading their outlooks for the company as global economic weakness damps demand for personal computers.

In Japan, a fast fading powerhouse in consumer electronics and technological innovation, shares in Sony Corp and Panasonic Corp are mired near more than three-decade lows as investors fret over their ability to regain profitability in today's hostile macro environment and against tough competition from nimbler rivals in South Korea and Taiwan.

SHINY APPLE

The one bright spot is Apple Inc, which still has many fans on Wall Street. The iPhone and iPad maker is one of the few major tech stocks to have gained in July, up 4 percent.

Apple has beaten analysts' earnings forecasts in seven of the past eight quarters by at least 12 percent. Last quarter, it reported earnings 22.5 percent above Wall Street estimates. Its performance has propped up the entire sector and analysts expect a new iPhone this year to keep that up.

Apple is likely to report earnings of more than 1 percent above the Street's average forecast, according to StarMine SmartEstimates. In contrast, Microsoft, which is preparing to launch the Windows 8 operating system and its first tablet computers, may report earnings 0.7 percent below the average.

"Guidance could turn out to be very conservative given momentum with new Macs, a potential iPad mini and ongoing success with the new iPad," Barclays analyst Ben Reitzes said in a research note. Apple said the latest iPad will hit Chinese store shelves on July 20.

Apple aside, market watchers expect the economic malaise will broadly hit technology companies in the second half of the year, even at firms that managed to squeak by in the second quarter and avoid issuing preliminary earnings warnings.

Over the past three months, analysts have largely held on to their second-quarter earnings forecasts for technology and telecommunications companies, while cutting estimates in other sectors. Now many may have to make up for that oversight.

An IDC survey of chief information officers (CIOs) at about 250 U.S. companies conducted two weeks ago found, on average, that they expected their budgets to decrease for the first time since early 2009.

"There is this sense among CIOs that things have slowed down and they are going to have to think about ways of cutting back," said IDC analyst Stephen Minton.

Analysts currently forecast companies in the S&P 500 Index will report profit growth of 5.8 percent in the second quarter, with technology earnings growing at 7.9 percent, according to Thomson Reuters data.

They are more optimistic about prospects for the second half and that's where some expect cuts to come.

Analysts forecast third-quarter earnings growth of 12.9 percent for the S&P 500's technology index and fourth-quarter growth of 14.9 percent.

SHIFTING SENTIMENT

Companies at risk in the second half include services giant IBM, No. 1 chipmaker Intel, as well as software makers including Microsoft and VMware Inc, analysts said.

It's not a surprise to some that sentiment has shifted so quickly.

Historically when businesses have frozen or cut technology budgets, they have sometimes done so suddenly, taking tech companies and Wall Street by surprise. That process appears to have begun.

"Sentiment is turning into reality," said Cliff Waldman, senior economist with the Manufacturers Alliance for Productivity and Innovation. "Negative sentiment is truly starting to affect investment spending."

When it issued its warning last week, Informatica said business conditions "dramatically" worsened in June with customers scrutinizing deals more closely.. Applied Materials warned on Tuesday that it expected weak demand from chipmakers to put a damper on sales through at least the third quarter.

"Demand is weaker than expected in Europe and China, and this makes chipmakers delay or cancel equipment orders," said James Song, analyst at KDB Daewoo Securities in Seoul. "They are slowing investment in capacity expansion or technology migration."

Mark Luschini, chief investment strategist at Janney Montgomery Scott, which manages about $54 billion, blames the tech turmoil on Europe, a strengthening U.S. dollar, which reduces the revenue contribution from overseas sales, and concerns about a U.S. tax increase.

"If there is no improvement on domestic data points, or news from Europe that the saga has ended, why should there be a change?" Luschini said.

(Additional reporting by Poornima Gupta, Editing by Edwin Chan, Tiffany Wu and Ian Geoghegan)

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Analysis: Search for rare earth substitutes gathers pace

By Braden Reddall and Julie Gordon

Fri Jun 22, 2012 1:45pm EDT

n">(Reuters) - The hunt for substitutes for rare earth minerals is gaining momentum as auto makers, lighting companies and clean tech developers seek to reduce their reliance on thin and unreliable supplies of the raw material.

Rare earths, found in everything from Apple Inc's iPhones to energy-efficient lighting and wind turbines, gained global attention last year as China, which produces more than 90 percent of global supply, repeatedly clamped down on exports. Prices of the individual oxides, alloys and metals soared.

The emergent battery-powered vehicle industry, with its world-scale ambitions, is leading efforts to find alternatives to rare earths, or at least curb reliance on the minerals, even as prices have fallen from last year's record levels.

General Motors Co, maker of the Chevy Volt, says it is close to a breakthrough that would reduce its need for dysprosium, a rare earth in especially high demand.

Magnets are what make electric motors spin, and the strong and durable permanent magnets used in many electric and hybrid vehicles are made from the rare earth neodymium, with dysprosium added to ensure performance at high temperatures.

While dysprosium may be the ideal option in terms of performance, carmakers must plan several years out, and do not want to depend almost exclusively on China for supplies of a key raw material.

"The problem for them is not necessarily price," said Jon Hykawy, a clean technologies and materials analyst at Byron Capital Markets. "The problem for them is the availability and security of that supply."

The price of dysprosium oxide rose from an average of $229 a kilogram in 2010 to an average of $1,454 in 2011, according to Dundee Securities.

Made of an element aptly named for the phrase "hard to get" in Greek, it now goes for about $1,000 a kg.

GM is looking at reducing its overall use of rare earths by eventually replacing permanent magnet motors, but that will take time, said Yucong Wang, manager of GM's Department of Materials Technology.

"We know that permanent magnets are still the best magnets and we want to use (them)," he said. "But then how can we, from a materials standpoint, reduce the usage of the rare earths?"

GM is not alone. Japanese media reports say Toyota Motor Corp has found a way to make electric cars without rare earths, while Renault SA has started producing cars with electric motors that do not need permanent magnets.

Two months ago Hitachi unveiled an electric motor that does not require any rare earths at all, but it will not go into commercial production for two years.

Carmakers are also rethinking other design elements, like the tiny electric motors that move seats and side mirrors, to see if those can be made with fewer rare earths, or none at all. Bob Wolf, head of sales at magnet supplier Alliance LLC, counts more than 100 permanent magnet applications in a modern car.

FROM PURSE CLASPS TO LEDS

The pricing roller-coaster is a boon for rare earth substitute makers like Nanosys, which produces rare earth-free backlighting technology for monitors and handheld devices. Nanosys has a licensing deal with display maker Samsung, which is also an investor, and a commercial deal with LG.

Nanosys CEO Jason Hartlove said that even at less-inflated rare earth prices, the cost to make light-emitting diode (LED) products using yttrium, a rare earth, is twice that of Nanosys lighting -- and LEDs are expected ultimately to replace standard light bulbs once they are competitive on price.

"We have an ambition to move into general illumination, probably in the next year or so," said Hartlove, whose firm's backers also include Germany's Nanostart AG.

Among larger competitors, Philips said in April that it was developing technology to "significantly reduce" its reliance on rare earths in the production of LEDs.

A few years ago, rare earth magnets were so abundant in China that they were used in purse clasps, but that all stopped once prices soared, said Doug Jackson, senior vice president of business development at U.S. rare earth miner Molycorp Inc.

Demand from clean-energy technologies such as wind turbines may triple global demand for dysprosium by 2025, according to the U.S. Department of Energy, which has been scrutinizing the rare earths market for two years.

With an eye on the supply shortage, Molycorp last year invested in Boulder Wind, a maker of turbines that are free of dysprosium, though they use other, less-scarce rare earths.

"We think that their technology will accelerate the uptake of the permanent magnet generator," Jackson said.

(Reporting by Braden Reddall in San Francisco and Julie Gordon in Toronto; Editing by Patricia Kranz and John Wallace)

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Analysis: With Siri and new alliances, Apple takes on Google search

An Apple logo is seen at the Apple Worldwide Developers Conference 2012 in San Francisco, California June 11, 2012.

Credit: Reuters/Stephen Lam

By Poornima Gupta

SAN FRANCISCO | Thu Jun 21, 2012 12:08am EDT

SAN FRANCISCO (Reuters) - When Apple Inc sends out its coveted invitations to major events, one CEO has always been making the guest list of late: Jeremy Stoppelman.

The co-founder and chief executive officer of consumer review website Yelp Inc has never taken the stage at these gatherings, but his company has become an important weapon in Apple's arsenal as it steps up its assault on ally-turned-rival Google Inc.

Yelp and a handful of other major consumer content sites, including movie reviewer Rotten Tomatoes and restaurant reservation service OpenTable, will be helping to power Apple's Siri, the voice-activated iPhone personal assistant, in the new mobile operating system iOS6.

The relationship between Apple and Yelp illustrates the power struggle over how people find what they are looking for on the Internet. Much more than just a clever feature, Siri is emerging as a key tool for what some in the industry call "casual search" - quickly finding routine information such as a restaurant location.

This can bypass Google and other traditional search engines. That serves the interests of Apple, which sees an opportunity to muscle in on its rival's core business and build related advertising revenue.

Siri is also a potential lifeline for Yelp and other content companies, which have found themselves competing with Google.

"Google is a direct competitor to Yelp, and I am sure Yelp is aware of that," said Larry Cornett, founder of product strategy firm Brilliant Forge and former head of consumer products at Yahoo Inc. Yelp, which depends a lot on Google for traffic, will probably be "ecstatic" about the direct traffic it will get through Apple's upcoming version of Siri.

Google still reigns supreme in search, loved by consumers for its relevant results and advertisers for its reach. Deep-pocketed rivals, particularly Microsoft Corp with its Bing search engine, have tried in vain for years to reduce Google's dominance.

Rather than compete with Google on keyword search - which would mean battling algorithms refined by the millions of searches performed every day - Apple is taking a different tack by focusing on a subset of the search universe that users are mostly likely to scour while they are out and about.

That includes restaurants, movies, sports, business listings, maps and locations - where quick, digestible bite-sized results are desired, rather than the more involved research that users perform with Google. The increasing use of mobile devices for accessing the Internet only plays into this trend.

Advertisers value these searches, which are closely linked to location, time and intent, said David Tennenhouse, venture capitalist with New Venture Partners and former CEO of A9.com, the search unit of Amazon.com Inc.

"You can think of this as cream-skimming," Tennenhouse said. "Can I skim off some of the most valuable searches? There is a huge range of value here."

The stakes are high, said Oren Etzioni, a search and artificial intelligence expert at the University of Washington's computer science department.

"Google is very difficult to dislodge on the desktop," he said, "but mobile search is a very different beast, and the jury is still out on the question of who the ultimate winner in mobile (search) is."

'TRUSTED PERSONAL ASSISTANT'

Apple and Google are increasingly at odds, largely due to the rivalry between the iPhone and Google's Android smartphone software. As the rivalry escalates, Apple is systematically dialing back its reliance on Google services - most recently by announcing it is going into mapping big-time.

Siri is still in a beta or "trial" version, and users have criticized failings such as misinterpreted words, odd results and incomplete data. But Apple is betting that the fast-evolving technology will improve enough over time to spearhead its foray into Google's domain.

Google is still available on the iPhone, and users can even ask Siri specifically to search it for answers. Apple's strategy, however, is to reduce Google's relevance on its devices as it doubles down on the investment in the voice-enabled software, experts said.

The company's goal is to build Siri into a "trusted personal assistant," Tennenhouse said.

"The disintermediation of Google by Apple is really a matter of Apple putting together a front end, which happens to be Siri for now, and linking it directly to the high-frequency searches," said Roger Kay, technology analyst with EndPoint Technologies. "And in doing so, bypass the general search mode and more importantly, bypass Google's advertising pages."

LOCAL IS KING

Marketing research firm eMarketer forecast 30 percent growth in the U.S. search advertising market to $19.5 billion this year from $15 billion in 2011. Google accounts for about three-quarters of that market.

The company has a lesser, but still substantial, hold on the mobile advertising market. That generated $1.45 billion last year, with Google controlling about half, while Apple had 6.4 percent, eMarketer said. It expects the total market to be worth $2.6 billion this year.

Apple devices running the company's iOS operating system are the biggest source of Google's mobile revenue, generating roughly 40 percent of the total, according to Piper Jaffray analyst Gene Munster.

Mobile search has long been focused on local information, such as finding which local stores have discounts or which French restaurant in the area is the best-rated. But no one has yet been able to develop the content fully.

Google signaled its seriousness about the sector when it bought Zagat last year and vowed to make the popular dining ratings authority a cornerstone of its local information offerings. In late 2009, Google was in talks to acquire Yelp for at least $500 million, according to news reports at the time, but no deal resulted.

Yelp is now one of the few websites that is deeply integrated into iOS, featured not only in Siri but also in business listings for Apple's new map service.

Yelp's Stoppelman said the mapping integration was key, as searches are often location-based. He also says the Yelp app on the iPhone can readily integrate user reviews into the search functionality.

"Google just doesn't have that data," he said. "Yelp has the most word of mouth."

But Apple's success in search hinges almost entirely on the success of Siri.

Voice-recognition technology is not new, and users have so far not taken to it in great numbers. Google added this capability in its flagship Web search engine and its Android phones far earlier than Apple, but it is unclear how many people use it.

Whether Siri will be the answer also remains to be seen, New Venture Partners' Tennenhouse said. "The test always is: If you were to take this away from people, will they feel impoverished?"

(Additional reporting by Sarah McBride; Editing by Jonathan Weber, Martin Howell and Lisa Von Ahn)

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