Amazon And eBay: Growing Sideways

When you're a category leader in retail, you have an unavoidable problem. Someday you may run out of room to get bigger. When that happens, you may have no place to grow but sideways. That's a challenge two online giants have dealt with in recent weeks. The different ways Amazon and eBay have decided to deal with this issue are instructive--and so are the ways they're exactly the same.

In Amazon's case, it's bound to happen: Eventually there won't be any more books, DVDs, toys, gadgets, power tools, Halloween costumes or cans of organic pumpkin for the E-tailer to offer online. One possibility for Amazon is the subject of a Patent application the company recently filed. That Patent would let the company expand its own system for making customer recommendations into a gift-recommendation engine that will take data from anywhere Amazon can find it and recommend gifts for any customer--no matter who the gift giver may be.

Of course, there's no way Amazon can guarantee the givers will get their gifts at Amazon. In fact, everyone can be pretty sure that many, maybe even most, of the gifts won't ending up coming from Amazon. But by turning itself into Gift Recommendation Central, Amazon can hope to stick its brand into lots of gift-buying opportunities--and maybe pick up a few sales in cases where, in the past, it wouldn't even have been considered.

As for eBay, the auction goliath doesn't plan to grow one of its own features. Instead, eBay has bought the technology of RedLaser, which will allow customers to use their smartphones to scan product barcodes in a store and then instantly compare prices with other brick-and-mortar stores, E-tailers and, naturally, eBay's own auctions.

Some RedLaser users will never go near an eBay auction, because they want the immediate gratification of closing the deal and carrying their purchases home. But by making the RedLaser apps free, encouraging conventional retailers to help distribute the apps and establishing itself as the comparison-shopping site, eBay too is nosing its way into lots of deals where it would otherwise never get a thought. And if eBay can shift just a small fraction of those potential purchases to an auction item or eBay store, the investment may be worth it.

Well, it might. But is a little more revenue really the point of Amazon's gift recommendations and eBay's price comparisons? Probably not. In practice, neither of these sideways moves is likely to represent a significant boost in sales.

That probably doesn't matter, though. The place Amazon and eBay can really grow is in their branding. These sideways-growth initiatives aren't just about moving merchandise. They're about relentlessly pushing Amazon's and eBay's brands in front of non-customers who otherwise just don't think of them. That's still a gigantic chunk of retail customers, people whose buying habits simply don't include E-tailers. They know the names Amazon and eBay, but there's no real familiarity. Online is outside their comfort zone.

But give those old-school customers a Web site that offers free suggestions for gifts they can buy at conventional retailers--or a free smartphone app they can use in the familiar brick-and-mortar world--and those once-alien E-tailers will start to feel a lot more comfortable.

And once Amazon and eBay have spread sideways to pull in a new cadre of potential online customers, they'll have more room to start growing all over again.