eBay's RedLaser Purchase: A Risky E-Commerce Move

eBay's purchase last week of RedLaser, a small but extremely popular mobile app that scans barcodes and then displays how much various retailers are charging for the items, reflects a calculated risk for the auction giant.

That's mostly because the chief goal of many acquisitions is to deny the product/service/technology to key rivals. With RedLaser, though, eBay chose to go out of its way to make the app much more available to competitors and to do it for free. Making such a move at this stage of Mobile Commerce is a decision that could ultimately prove brilliant or insane.

The application used to cost $1.99, but the first thing eBay did was change it to a free app.

Let's first examine this from the "eBay's move is brilliant" perspective. RedLaser is nothing if not a price-comparison tool. Therefore, it's reasonable to assume that the consumers who use RedLaser are unusually price-sensitive (or, in the vernacular of marketing circles, cheap).

With that assumption, it's realistic to assume a retailer that sells used merchandise (along with products purchased solely to be sold) would have a serious edge with such an audience.

But that analysis sidesteps some of the practical ways consumers are using these apps, which would explain the RedLaser interest from so many brick-and-mortar chains. And this is "eBay's move is insane" part. The fact is that RedLaser is a physical-store tool.

A consumer scanning a bottle of detergent at a local Wal-Mart isn't usually looking for the lowest price. That's a Web site function. No, such consumers are probably looking to just get an assurance that they aren't being ripped off in a big way. If the price is within 5 to 10 percent (and perhaps even 15 percent, depending on the item's price), the consumer is more than likely to walk up to the POS and buy it, taking it home within minutes.

If that's the case, the inclusion of low-price leaders like eBay may actually help close the deal for Best Buy and Target. "Look at this, Martha. If I got a used item with all of the hassle from eBay, it would barely be 20 percent less than this. This here, with the warranty of Sears, is suddenly looking much more attractive."

With the app now suddenly being free, retailers are likely to encourage their customers to use RedLaser much more. It's a nice device to keep chain pricing honest. And eBay knows that the more purchases are done in a lowest price world, the better it will perform.