Zhu Zhu Pets, the battery-powered hamsters that became a huge kiddie craze this holiday season.
(Credit: Cepia LLC)With toy store shelves and television commercials chock full of eye-popping video games and fancy tech playthings, it came as a surprise to many that some of the hottest toys this holiday season were inexpensive, relatively low-tech battery-powered hamsters imported from China called Zhu Zhu Pets. The fuzzy toy rodents manufactured by Cepia LLC, which came in models with names like "Num Nums" and "Mr. Squiggles," could barely stay on shelves for most of the end of 2009, and nobody really saw it coming.
For avid eBay sellers, it was the perfect recipe for profits--if they managed to jump on the trend early enough.
Jorge, a field inspector for a Southern California insurance company, had no idea what Zhu Zhu Pets were when his daughter asked for one for her seventh birthday late in the summer. "She saw the commercial on TV and asked me for a Zhu Zhu Pet," Jorge, who asked that his last name be withheld, told CNET via phone. "I went to my local Toys-R-Us, where I have friends who work there. I asked for the Zhu Zhu Pets. They didn't even know what it was. They had four of them, but they'd promised them to some lady in LA."
This is what piqued Jorge's interest: He, and his local Toys-R-Us, are hundreds of miles away from Los Angeles. Someone far away was looking for these toys, which signaled to him that they must have been, for one reason or another, difficult to obtain. This was relevant to Jorge because, as a side project, he'd been selling toys on eBay for about a year.
The story began, as so many do these days, with unfortunate circumstances induced by the recent recession. "The reason why I got into eBay was that I was laid off from work. I was off work for about 10 months," he related to CNET. As the parent of a young child, he had an in-house market research indicator. And when he found a new full-time job, he had to accept a significant salary cut, so he kept selling toys. "Going through eBay has afforded me to survive."
He ended up buying seven Zhu Zhu Pets, all for the market price of about $8. He kept one for his daughter's birthday. The rest, he put on eBay. They were sold the same day. For the next few months, Jorge's e-commerce hobby turned into a combination of an intense strategy game and the low-grade '90s comedy "Jingle All The Way," about the hyper-competition over a hard-to-get holiday toy (which starred, somewhat ironically, the actor who is now governor of the state where Jorge was undertaking his Zhu Zhu Pets retail operation).
"That week, I started picking them up, buying them anywhere I could--Wal-Mart and Toys-R-Us were the only two that were carrying them at the time," Jorge said. "I never held any of them for more than a day. I would find out when Toys-R-Us was getting their next shipment. Wal-Mart would get their trucks later at night, so I'd go at 10, 11, 12 o'clock at night to Wal-Mart, go home, and put them on eBay. By the time I woke up in the morning, they were sold."
This is right about when the trend began to take off. eBay says that from August to September, sales of Zhu Zhu Pets and related items (that is, "accessories" for the little furballs) escalated 1,500 percent. Between October 15 and November 15, four times as many Zhu Zhu Pets were sold as had been sold in the entire year to date. At the beginning of Thanksgiving week, they became the top searched term on the site. Over 100,000 were sold in the first week of December. A scare over potential recalls and toxic materials in "Mr. Squiggles" didn't do a thing to slow down the momentum.
Gambling on boom times
Jorge, for one, began to focus his eBay operations almost exclusively on Zhu Zhu Pets, though he said he did keep selling a few other surefire holiday hits, like the Mattel brain-game system MindFlex. Other products were relegated to the back burner as the average price for a Zhu Zhu Pet on eBay started to skyrocket from somewhere around $20 to a peak between $40 and $50. This is the reality of being a certain breed of e-commerce seller: You have to be ready for the rush, and equally ready for the day when a retail fad will suddenly fall back down to earth.
Remember back in high school or college biology class, when the curriculum turned to evolution and explained the competing theories of gradualism versus punctuated equilibrium? It's not all that different from the disparate strategies that eBay merchants can pursue. E-commerce sellers can opt to maintain a steady, fairly traditional electronic storefront with a wide selection of goods. Plenty of them make a very stable living this way, though it can take snails-pace growth to get there.
For someone like Jorge, capitalizing on the hottest trend of the moment, profits can come quick if you're lucky. But it's a far riskier gamble, and boom times can be interspersed with long periods of stagnation before the seller in question manages to seize the proper timing and supply-chain structure again.
But wait, there's more! Power sellers of Zhu Zhu Pets also profited from selling accessories for the little robotic hamsters, like this 'adventure ball.'
(Credit: Cepia LLC)Though he's been involved in eBay sales for over a year now, Jorge said he hasn't become actively involved in the e-commerce site's "power seller" community. He did, however, say that competitors started to encroach upon him quickly. "At first, I was the only one buying [Zhu Zhu Pets], so that was nice, and no one was paying attention to them, but there were other collectors in the area who saw what these things were going for, and it became kind of hectic," he told CNET.
It got ugly. "I had at least 5 to 10 collectors that I had to compete with just in my city," Jorge said. "It got to the point that they knew who I worked for and started complaining. (My employer said) that whatever I do on my lunch time and my break time is my business." He even encountered a local Wal-Mart employee who would buy up Zhu Zhu Pets with an employee discount and then put them on eBay--they're allowed to do this, he said, as long as they aren't on the clock; Toys-R-Us, on the other hand, doesn't permit employees to purchase inventory and then resell it online.
Jorge said that he never purchased Zhu Zhu Pets online to resell, saying it simply wasn't profitable. The only way that he could make money off the sales was by purchasing the hamsters in brick-and-mortar stores, but that was growing increasingly difficult as toy stores started to impose limits on how many hamsters a single customer could buy in a day.
So Jorge got even more strategic. "I recruited some friends. I had, any week, between 5 and 10 friends. I'd give them the money and they'd get what I needed," he said, adding that in return he offered them compensation but that most turned it down. "I think they enjoyed the rush. They're very competitive individuals." He added that another friend works as a truck driver who regularly makes cross-country trips, and that he would check for Zhu Zhu Pets in the cities where he stopped., bringing them back to Jorge.
Ruthless? Maybe. Jorge's tactics proved controversial to some.
"I got hate mail from moms who bad-mouthed me for picking up Zhu Zhu Pets when they weren't able to pick them up for their children during Christmas," he said. "I e-mailed them back and let them know to find out when their stores were receiving the shipments. I told them Toys-R-Us is pretty good about telling you when they receive their shipment and that they know 24 hours ahead of time what's going to be on the truck. You just need to show up early."
He said that Zhu Zhu Pets must have been more difficult to obtain on the East Coast, particularly New York, as that's where he shipped the vast majority of the toy hamsters. His top buyer was actually the owner of a store in Brooklyn who wanted to be able to restock his shelves. But eBay says that the Zhu Zhu Pets trend was nationwide: The region that bought the most Zhu Zhu Pets off the site was actually the Bay Area city of Alameda, Calif. In second place was Stillwater, Minn., followed by Shelton, Conn.; St. Paul, Minn; and Bethlehem, Penn.
When CNET spoke to Jorge late in December, he'd sold as many as 500 Zhu Zhu Pets and pocketed as much as $6,000 in profits from the hamsters and accessories. But now that the holidays are over, the demand has more or less vaporized. "It's kind of died down right now, so I'm not selling them," he said. "I have my eye on them to see if they'll come back up."
The cutthroat competition didn't faze him, either; in fact, Jorge said, he'd love to do it again. He's hoping to be ready for the next big retail fad. "I constantly try to monitor through newspapers or through the Internet to see what's hot and what's not," he explained. "Then I go to my local stores to see if they're selling. I have friends who work at Toys-R-Us and Wal-Mart, and I always ask them what people are asking for."
It's not clear whether someone like Jorge, who experienced big-time success with a hot holiday gift trend, will immediately be able to seize another hit before it happens--the numbers of factors that have to be in a seller's favor is more or less on a par with total planetary alignment. That said, because being an eBay merchant isn't his full-time job, Jorge is able to operate on the fast, anticipate-the-demand principles that could prove too risky for someone whose e-commerce storefront is a primary source of income. But regardless of the uncertainty, he's looking forward to keeping it up.
"It pays the bills," Jorge said.
eBay on Sunday confirmed that a "technical issue" had caused search queries on the auction site to be messed up over the weekend, resulting in limited or no search results. The company says that it's being cautious, though, and is holding back on some advanced search features until the issue is fully solved.
"We are happy to report that critical search functionality was restored overnight on Saturday and we are seeing normal activity levels today," a post on the company's eBay Ink blog read Sunday. "As part of our effort to restore critical search functionality as quickly as possible for sellers and for buyers, we have kept some secondary search features temporarily offline. This includes refining search by certain item specifics, such as color or clothing size, and having Store Inventory Format results included in the main search results."
In a statement, eBay also said the technical issue was caused by "a surge in live listings as sellers ramp up for the holiday season. eBay currently has more than 200 million live listings, 33 percent more than at this time a year ago."
Some eBay members still weren't satisfied with the explanation. "I had a one day auction ending today, (and) no one was obviously able to bid on it because they couldn't search for it," one commenter said on the eBay Ink blog. "Will I get a credit for this?"
"eBay should credit all sellers with active listings during this time," another said. "These issues have cost sellers many bids and sales. Once again eBay is screwing sellers."
Much like Twitter's today, outages at eBay were rather prominent in the company's early days. They're not too frequent anymore. But this one came at a time when there are some sentiments of malaise among eBay sellers, some of whom use the auction site to make a living, and when it also faces increased competition in the e-commerce sector.
An analyst release from JP Morgan Chase said that it did not anticipate the outage would have an effect on eBay's fourth-quarter earnings. But, it contained a warning: "Although we recognize it is virtually impossible for a site of this complexity to not encounter occasional issues," the report from analyst Imran Khan read, "we continue to believe that eBay needs to make greater investments in the robustness and functionality of its site in order to remain competitive within the e-commerce space."
Sold!
Auction site eBay has, as long anticipated, sold off the Skype telephony service to a group of investors that includes Marc Andreessen's new Andreessen Horowitz group, Silver Lake, and the Skype co-founders' Joltid Ltd. The investor group now holds about 70 percent of the company; eBay retains the rest in a minority stake. Joltid was brought into the investor group as part of the settlement of a copyright suit that the Skype co-founders, Janus Friis and Niklas Zennstrom, filed against eBay over Skype's technology. At one point, that dispute was looking so ugly that eBay was reportedly considering rebuilding Skype's technology altogether.
The sale amounted to approximately $1.9 billion in cash and a note from the buyer in the principal amount of $125 million, for a total of $2.025 billion.
eBay's plans to get rid of Skype, a purchase that had never fit quite well into its auction business, had been well-publicized. Last spring, the company formally announced that it planned to spin off Skype as a publicly traded company in the first half of 2010.
The final $2.75 billion valuation is only slightly higher than the $2.6 billion that eBay originally acquired Skype for in 2005.
eBay wants to spin off telephony service Skype into a separate publicly traded company, but something's standing in the way: Skype's founders are threatening to take back some of the technology amid a licensing dispute.
The auction giant's solution, according to a Bloomberg report on Thursday: build a new one.
This was revealed in a 10-Q regulatory filing with the Securities and Exchange Commission; eBay is not commenting beyond the filing. You can decide whether "Frankenskype" or "Skypenstein" is a better name for the hypothetical creation.
Here's what has happened: Skype's founders have established a company called Joltid Ltd., which still owns the rights to some of Skype's technology. Joltid has made the accusation that eBay doesn't have the right to do everything it wants with all of Skype's code as a result; eBay is suing Joltid to get that technology back. (Is this like the Silicon Valley equivalent of body-snatching?) But the catch is that the trial isn't scheduled until next June, which could put a big roadblock in the way of eBay's plans for a Skype IPO.
So that's why eBay is working on a total rebuild of Skype's software.
There is, however, this little issue. "The new software will be expensive and might not work," Bloomberg's article summarized. "The company said it might have to shut down Skype if the dispute with the founders isn't resolved."
eBay purchased Skype in 2005 for $2.6 billion, but it hasn't proven to be the best fit for the company. Rumors circulated that it was looking to sell Skype, possibly to Google, but then opted to take the company public instead.
Download Skype for Windows | Mac | iPhone | Windows Mobile from CNET Download.com.
Amid stormy economic seas, auction giant eBay has thrown overboard StumbleUpon, the recommendation and "discovery" start-up that it purchased in 2007 for approximately $75 million.
Replacing corny nautical puns with corny alcohol puns, this looks like a symptom of the hangover that followed eBay's acquisition binge during Web 2.0's heyday. Even though many speculated that eBay would use StumbleUpon's technology to power product recommendations, the two companies just didn't find a fit--or a way to make a decent return. eBay's acquisition habits have been more vocally criticized when it comes to Skype, the online telephony start-up that was acquired for $2.6 billion in 2005. It's a well-received product, but never had an obvious niche within eBay and observers have long speculated it would do better on its own.
Financial terms of the StumbleUpon spinoff were not disclosed, but it appears that the company was sold back to the two founders, Garrett Camp (who will serve as CEO) and Geoff Smith, and investors Accel Partners, August Capital, and Ram Shriram of Sherpalo Ventures.
"We are grateful to eBay for its guidance. However, we realized there were few long-term synergies between the two businesses. It is best for us to part ways and focus on our respective strengths," Camp said in a statement. "This change makes it possible for StumbleUpon to continue to innovate and focus on becoming the Web's largest recommendation service."
Last fall, a rumor spread that eBay had hired investment bank Deutsche Bank to help find a buyer for StumbleUpon.
The big question now: Will it do the same with Skype?
Tokoni, a community site for "sharing stories," has formally launched after nearly a year of public beta. It has taken investment backing from eBay as well as the auction giant's founder, Pierre Omidyar, and was founded by former eBay executive Mary Lou Song and Alex Kazim, former president of the eBay-owned Skype. Kazim serves as Tokoni's CEO.
"We created Tokoni to fill the distinct need for an online community where individual stories of life's experiences have a voice and are valued, and where the collective wisdom of the community is celebrated," Kazim said in a release. "The growth of social media has enabled people to control how they create, consume, and share content and personal experiences online; however, participation in the social Web is still daunting to the mainstream. Tokoni makes sharing your own story easy."
Indeed, as an adult-focused "community" site rather than a social network, Tokoni's target audience is one that hasn't caught on to the blogging and Twittering craze, and offers a more Luddite-friendly forum for conversation by encouraging the posting, reading, and discussing of personal stories and experiences. Another site with a similar slant is Gather.
With the U.S. presidential election approaching, Tokoni (which means "help" in Tongan) has partnered with WomenCount.org to provide a forum for women to discuss political issues.
You'd think the parent company of $1,500 Louis Vuitton handbags would be able to tolerate a few fakes on eBay. Not so.
And a French court agreed on Monday, ordering the online auction giant to pay $61 million (38.6 million euros) to luxury goods powerhouse LVMH, according to Reuters. LVMH, along with other luxury-brand groups like Tiffany & Co. and Hermes, has claimed that eBay isn't strict enough about policing the sale of counterfeit goods on its site.
eBay promptly appealed the court decision, saying that LVMH was simply trying to crack down on competition; eBay makes money off any LVMH goods sold on its site, real or fake, whereas LVMH itself does not.
LVMH has an impressive portfolio containing a whole lot of brands that Kanye West has probably name-dropped in multiple songs, like Louis Vuitton, Acqua di Parma, Thomas Pink, Dior, Givenchy, Moet & Chandon, De Beers, and Marc Jacobs.
Monday's ruling encompassed a number of individual cases brought by LVMH brands like Dior Couture, Guerlain, Givenchy, and Kenzo. The 38.6 million euros awarded fell short of the 50 million euros that the luxury goods house had claimed in damages.
This post was updated at 10:34 a.m. PDT.
News Corp.-owned social-networking site MySpace has announced a new initiative called Data Availability, a way for members to share profile data with other social and community sites across the Web.
Co-founder and CEO Chris DeWolfe, Chief Operating Officer Amit Kapur, and vice president of technology Jim Benedetto announced the new development in a press call Thursday. DeWolfe called it "an innovative offering to empower the global MySpace community to share their public profile content and data to Web sites of choice throughout the Internet."
Inaugural partners in the project are Yahoo, eBay, Photobucket (also owned by News Corp.'s Fox Interactive Media), and Twitter. The program, available to MySpace's users worldwide, will be rolling out to a full version in the coming weeks.
"Historically, social destinations on the Internet have operated as independent, autonomous islands," DeWolfe said. "Today, MySpace no longer operates as an autonomous island on the Internet...We're hoping to create a significantly more social experience across the Web."
This is a huge deal.
When rival Facebook, then far smaller than MySpace, opened its platform to developers last year, the bigger social network started to fall from favor among the tech-savvy set. But Facebook has been reluctant to partner with other sites outside of allowing them to create developer applications, only recently allowing RSS feeds from partners like Digg and Yelp into its members' "news feeds." When popular blogger Robert Scoble tested a script that exported his Facebook contact information to a Plaxo address book, Facebook temporarily banned his account.
Facebook still hasn't caught up in user accounts--it has about 70 million, while MySpace is over 100 million--but MySpace was in need of some tech cred regardless. Signing on to "open Web" initiatives could be what keeps MySpace relevant, and it's clear that some engineers over there are tuned in. It was one of the biggest partners when Google announced the OpenSocial developer application standard last year, and one of the "founding partners" along with Google and Yahoo when OpenSocial was spun off into its own nonprofit organization.
"Socially dynamic Web destinations should be portable," DeWolfe said, "and should allow users to import and export aspects of their platform."
Amit Kapur said that Data Availability is "founded first and foremost on allowing users to have comprehensive control over their content and data." Partnerships with Yahoo, eBay, Photobucket, and Twitter will give MySpace access to more than 150 million U.S. Internet users, he explained, with an 85 percent reach in the U.S. Web user market. Smaller sites, as well as other large social networks, are invited to join the program, too.
That public profile information consists of information like photos, videos, and profile content like favorite movies and music as well as friends' lists. Changing data on one profile automatically changes it on the partner sites as well, which users can opt into "connecting" to their MySpace profiles by clicking a button. "This is incredibly powerful and makes an entirely new social experience available to our users," Benedetto explained. MySpace will be rolling out a central control panel to handle it. "A user can update their profile on MySpace and dynamically share that information with the other sites they care about," Kapur said.
All authentication will be handled through OAuth (Open Authorization), and technology director Benedetto said the company is looking at other "open and nonproprietary standards." Currently, OpenID is not supported, but he said that MySpace is exploring the possibility.
MySpace is also officially joining the social-networking project known as the DataPortability Workgroup, which contains members from many other major social sites across the Web.
JavaScript and server-side controls will be released over the next few weeks for partner sites' administrators to have access to public MySpace data. Benedetto said that MySpace will be "aggressive" to make sure that profile data is not exploited by third parties.
The big question: Will Facebook want to be a part of it? "This project is open to any site out there that wants to work with us," DeWolfe said, "so we're happy to work with Facebook if they want to join up with us on this project."
In a tiff over its 28.4 percent share in Craigslist, auction giant eBay has filed suit against the online classifieds site in a Delaware court of chancery. According to Reuters, eBay has accused Craigslist's board of directors of diluting its share.
The court confirmed that eBay filed its complaint Tuesday afternoon but could not provide further details, because the suit was filed under seal.
In a phone conversation, Craigslist founder Craig Newmark said, "We're still trying to digest it," and recommended contacting CEO Jim Buckmaster for further comment. Buckmaster did not immediately reply to an e-mail inquiry.
Newmark, Buckmaster, and the Craigslist company are reportedly named as defendants in the suit, the Reuters article asserts.
This post was updated at 9:45am EDT with comment from Google.
Will eBay sell Skype to Google?
It's no secret that many in Silicon Valley regard eBay's 2005 acquisition of the telephony service as a $2.6 billion misstep. But new rumors, reported late Tuesday night on TechCrunch, suggest that eBay may be negotiating Skype-related partnerships with Google or even selling it outright.
"We do not comment on market rumor or speculation regarding acquisitions," a Google representative told CNET News.com in an e-mail. "Generally speaking we are constantly in discussions about potential partnerships in cases that will be mutually beneficial for users, advertisers, and publishers." Representatives from Skype were not immediately available for comment.
There was very little detail to the rumors, except that Google's "core team" for voice operations is reported to be suspiciously absent from this week's CTIA Wireless trade show in Las Vegas. So at this point, it seems to be Valley gossip at its finest.
But a Google-owned Skype would make a whole lot of sense. Google already operates a voice over Internet protocol (VoIP) service through its Google Talk messaging client and purchased communication management start-up GrandCentral last year. With its open-source initiatives like Android for mobile phones (especially considering Skype's vocal desire to make a splash in the mobile market) and OpenSocial for social networks, Google would be in a much more ideal position than eBay to turn Skype into a "hackable," developer-friendly product.
Henry Blodget of the Silicon Alley Insider figured that Skype could sell for as much as $5 billion to $6 billion.
And while Skype may have seemed like a sweet buy for eBay back in 2005, a $900 million write-down and a CEO resignation later, eBay is in a tight spot, and the Skype purchase has likely grown a little sour.
