eBay's new friendly neighborhood

SAN FRANCISCO (Fortune) -- A week before eBay's earnings announcement, the Internet auction giant rolled out its latest feature designed to bring users back to the old neighborhood. Think of it as eBay meets Facebook.

The new service, eBay Neighborhoods, is the company's latest attempt to draw potential shoppers to the site by allowing them to socialize with a community of users. Launched Tuesday, Neighborhoods is a social network that lets members post photos, write reviews and discuss nearly any topic like Apple, pets, and "Star Wars" with other users.

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"They're really trying to get shopping to become a much more social experience," says Brian Bolan, an analyst with Jackson Securities. "Users aren't spending the majority of their time on eBay anymore. You have to be in the space where people are, which is why you'll see more tools that will wrap around social networks."

The company's move into the social networking space is part of a larger effort that started in late 2006 to make shopping on eBay (Charts, Fortune 500) easier. Analysts expect Neighborhoods, which features member profiles and lets users invite friends to the site, to be one of the most promising new tools the company is offering.

"Imagine you're going hiking and need to get some outdoor gear and you want to locate a discontinued item. eBay will have an advantage by bringing social networking to commerce," Bolan says.

This year eBay has aggressively worked to reverse two major trends: stagnant growth in active members and a decline in the number of items listed for sale. The company believes adding 15 new buyer-friendly features by the end of the year will help improve the overall shopping experience on its site.

"The No. 1 issue for eBay is buyer activity," says Bear Stearns analyst Robert Peck. "Whether it's taking advantage of the whole social angle, making buyers more comfortable through trust and safety or its Playground feature that lets you buy stuff more easily, eBay needs to keep growing."

In June, the San Jose-based company introduced an auction-listings button that can be embedded on a blog or a Web page on a social networking site. In the third quarter, eBay launched nine key products, including a Facebook widget and a smart search tool called Finding 2.0.

EBay says it's just trying to keep up with users' expectations. Before the end of the year, eBay plans to offer a new tool that automatically counts down an auction and a feature to make one-click bids in the final 15 minutes of a sale. Says Jamie Iannone, eBay's VP of Buyer Experience, "All these tools are really centered around giving folks what they want to do."

So far, the strategy seems to be working. Wall Street analysts estimate that the rate of items sold fueled by more active bidding increased slightly in the third quarter, thanks in part to new buyer features.

But not everyone is convinced that Neighborhoods will translate to more sales. Evan Prytherch, an eBay PowerSeller - or seller with a high feedback rating - doesn't think the Neighborhoods idea will catch on.

"A few years back when MySpace started getting big, all the PowerSellers set up MySpace pages and pointed it back to their page. I don't know anyone who's said, 'Man, that MySpace traffic really helped my business.'"

"I think this effort is extremely incremental and I'm not sure eBay will get a lot of traction for this," Prytherch said. "Do people really want to get involved in another social network?"

But despite his apprehension about Neighborhoods, Prytherch has high hopes for eBay's other ideas to appeal to buyers. He believes the new countdown clock that will launch later this year to be a welcome edition to a healthier consumer ecosystem.

Prytherch says sellers like him would list more items if eBay creates a better experience for buyers. That's certainly one thing both he and eBay can agree on.