In online shopping, local is the new turquoise — but can the fad last?

As the industry waited Thursday to see if Google Inc. would buy local deal site Groupon, eBay Inc. revealed it has snapped up local shopping engine Milo.com. Terms of the deal were not disclosed, but eBay paid $75 million in cash, according to sources cited by Business Insider. EBay said it plans to include Milo’s search results in its listings — a major strategy change that, on the face of it, would seem to put the auction site in competition with a wide variety of shopping search engines and virtual marketplaces, including Google, Amazon.com and TheFind. But that is not eBay’s focus.

This story first appeared in the December 3, 2010 issue of WWD.  Subscribe Today.

“We think this is the future of shopping: blending local, mobile and e-commerce together, and we think eBay is at the forefront of that,” said Mark Carges, chief technology officer and senior vice president of global products at eBay Marketplaces.

The Internet company plans to integrate Milo into its RedLaser iPhone app for comparison shopping via barcode scanning in the next few days. So a shopper will be able to stand in a store and price compare with other local merchants, complete the transaction through eBay’s shopping cart or PayPal, get an electronic receipt and then pick up the item in the local store.

Other integrations will start rolling out in the next three to six months, Carges said. Milo.com will continue as a stand-alone site and all the Milo employees will join Carges’ team. Milo will also be integrated into eBay. Milo has more than 140 retail partners, including nearly 90 small and medium-size businesses.

Although many of the items on Milo are listed as available for sale at online stores only, such as nordstrom.com and macys.com, and not in local stores, eBay “will focus on using the local inventory only,” Carges said. Smaller merchants without e-commerce would appreciate the sales and foot traffic, he said. EBay could also do coupon deals like Groupon that might bring in foot traffic to the local store, he said.

Local is hot, “but local inventory is a bear,” said Forrester retail analyst Sucharita Mulpuru, because few retailers have the ability to track local inventory in real time.

That problem may have dogged local search company NearbyNow, which was acquired for an undisclosed sum last week by mobile advertising company JiWire. NearbyNow started out by directing online shoppers to local stores and taking a small fee if they reserved an item and went to the local store to try it on. It has since shifted its business model to creating mobile phone applications for magazines, brands and retailers, such as Lucky and Cosmo.

Local daily deal site Groupon has grown very quickly and has spawned many imitators. Estimates put the site’s yearly revenue at anywhere from $350 million to $1 billion. It sells coupons worth, say, $100 of services for $50 and takes half the price ($25). If an agreed upon number of people don’t buy the deal, the deal is off. There is no inventory and no returns.

Competitors include LivingSocial and Gilt’s GiltCity. In the last month, Refinery29 introduced a similar service. Its first deal, which sold out within hours, was $100 worth of goods at the Steven Alan sample sale for $50, plus a 20 percent discount at Steven Alan stores for one year.

Groupon has run deals with the Gap, American Apparel and Nordstrom Rack.

The model certainly applies to midtier apparel companies such as Gap and Off Fifth, said Mulpuru, but Groupon’s margins are not sustainable and Google’s reported offer of more than $5 billion for the deal is overvalued, she said. Both private sale sites and local group buying sites have problems finding inventory, she said.

“It’s foolish and overvalued,” she said. “It comes down to a defensive play at this price. It’s not that hard to sell something really compelling at 50 percent off — but it’s really hard to get something that’s compelling at 50 percent off that’s profitable.”

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