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Amazon, eBay enter holiday fray

It looks like a major online battle could be shaping up between the biggest of the online retail sites as we head into holiday season. — By CNBC’s Garrett Glaser
/ Source: CNBC

It looks like a major online battle could be shaping up between the biggest of the online retail sites as we head into the holiday season. Millions of dollars are being spent to lure consumers — especially those who’ve never considered shopping online before.

Online retail sales are already up 40 percent this year over last — some $25 billion in sales as of September. Still, that’s less than 2 percent of total retail spending. But watch out: The brick-and-mortar side will grow just 5 percent this year — if it’s lucky. And a funny thing is happening as critical mass is approached for the online players. The Internet is changing from a one-time, grass roots tool of the people, to a home for the super sellers, the retailing masters.

Some examples: Auction power site eBay is taking out full page newspaper ads touting its new “Buy it now” program for the holidays, in which there’s no bidding, brand new items are sold at a set price and customers are covered by a $500 buyer protection plan.

And online retail king has launched its “Holiday A-list” celebrity promotion. Mary J. Blige is on the site today, along with 60 others including Bruce Springsteen, Michael J. Fox and REM. All of them are promoting entertainment products like DVDs, music and games, with exclusive content. This is stuff you can only get on, such as an extra song on a new album.

But how expensive is all this marketing? We asked Amazon executive Bill Carr if the company’s “Holiday A-list” promotion will cut into profit margins when all is counted.

“One of the best parts of this promotion is that the cost is almost zero,” he said. “We are not paying the celebrities to participate in this promotion. From their point of view, this is a great opportunity for them to provide an exclusive piece of content that allows them to reach out to the more than 37 million customers.”

Nielsen//NetRatings says the big winners in online retail this year will have mastered brand recognition and customer loyalty. At Forrester Research, analyst Carrie Johnson told us all the heavy promotions this time are aimed at a new online consumer.

“Amazon and eBay have been so good on getting the early adopters people, who are very comfortable online shopping, to come and use their sites,” she said. “And they have also been very loyal to those companies. Now you have a whole mass of online people that are more like Target and Wal-Mart shoppers, and they really don’t know that much about Amazon and eBay — they might even be skeptical of those companies ”

Consider this: Some 23 percent of U.S. households now have high speed Internet connections. That’s up 35 percent from last year. During first half of this year, the U.S. Commerce Department said online sales were up 27 percent — from $20 billion to $25 billion.