SAN FRANCISCO (Reuters) - Amazon.com and eBay Inc are investing in local Internet services, jumping aboard the increasingly popular and lucrative business of catering to local shoppers and stores.
Amazon, the world’s largest online retailer, plans to invest $175 million in online coupon company LivingSocial, while e-commerce giant eBay is buying Milo.com, which lets users see if items they seek are available on local store shelves.
The Internet’s biggest players are now setting their signs on the booming business of local services, whether through daily deals — the fastest-growing segment on Web commerce by some estimates — or a neighborhood-shopping search engine.
Google Inc is reportedly eager to buy local coupon site Groupon for as much as $6 billion, eyeing a local advertising market estimated to exceed $90 billion this year.
Shares of eBay gained 2.2 percent, while those of smaller local-services site Local.com rose 27 percent.
“It’s local mania,” said BGC Partners analyst Colin Gillis. “People are taking strategic positions in this marketplace. That’s what’s happening.”
LivingSocial also secured an $8 million investment from Lightspeed Venture Partners. It said it is now booking revenue of more than $1 million a day on average and expects well over $500 million in 2011.
Local deals are “the most exciting, fastest-growing category of e-commerce right now,” said Jeremy Liew, a managing director at Lightspeed.
“They are not afraid to place big bets on where they see the future of the Internet going,” he added of Amazon.
Gillis cautioned that increased competition could take its toll on the appeal of coupon sites like Groupon, LivingSocial and Scout Mob, which share the face value of offers with local partners. Groupon usually shares that 50-50, but competition could bring down that percentage for the coupon sites.
“We’ll have to see over time whether the mania is warranted,” he said. “Competition has not shrunk margins yet.”
Groupon — called the fastest-growing Internet start-up in history — does not disclose financial figures, although analyst estimates for the two-year old company’s annual revenue run rate range from $400 million to $600 million.
The company, which was founded by Andrew Mason, a music graduate who lives in Chicago with his girlfriend and 20 cats, sends daily emails about discounts for goods and services. Its subscriber base is expected to grow to 25 million in 2011 from 13 million this year.
Meanwhile, eBay, the pioneer of Web auctions, is looking locally to blend the online and offline worlds through Milo.com. Terms of that deal were not disclosed.
EBay’s chief technology officer, Mark Carges, called Milo a “complementary platform” to eBay’s core business of twinning online buyers with online sellers. Increasingly, however, the company has struck deals with established retail brands to offer their wares on its site.
“The whole goal is to have the world’s best selection, because that’s what gives the buyer the most choice,” said Carges.
The deal with Milo, which sends shoppers to brick-and-mortar stores, could be a strong selling point for retailers eyeing a partnership with eBay, Gillis said.
“If you’re trying to woo Best Buy and get them to ramp up their presence on eBay, this is a nice extension you can be offering them,” he said.
As for Amazon’s stake in LivingSocial, analysts questioned whether an outright purchase might be down the line, or whether LivingSocial could go public.
“There is speculation of Google acquiring Groupon and so I think Amazon’s investment could be a defensive move to make sure Amazon has a stake in this fast growing Internet-based local business,” said Aaron Kessler, an analyst with ThinkEquity.
The deal “gives (Amazon) the pulse of what’s happening in the space,” said BGC’s Gillis.
“Typically if you put in $175 million you want an option to own this thing. Without that it doesn’t make a lot of sense,” he said. “And for $175 million, you better get a board seat.”
A spokeswoman for Amazon would not comment on its future plans, nor whether it had a seat at LivingSocial’s board.
Additional reporting by Alex Dobuzinski in Los Angeles and Ritsuko Ando in New York; Editing by Edwin Chan and Steve Orlofsky