eBay takes on Amazon

30 March 2011

NEW YORK: Online auction giant eBay is seeking to enhance its ecommerce credentials by moving into territory occupied by established players like Amazon.

The company has offered $2.4bn (€1.7bn; £1.5bn) to purchase internet retail specialist GSI Commerce, which offers services covering website hosting and design, inventory management, customer support and marketing.

"Technology is changing how consumers shop, and retailers and brands are changing how they compete," said John Donahoe, eBay's chief executive.

"Commerce is at an inflection point where the lines between online and offline commerce are blurring."

GSI's roster includes adidas, Levi's, the National Football League, RadioShack, Ralph Lauren and Toys R Us, adding a different shape to eBay's client base.

"It wasn't until 18 months ago that eBay even contemplated calling on larger companies or big brands," Donahoe told Bloomberg.

"We are focused on delivering new ways for retailers and brands of all sizes … to drive innovation, engage customers and help people shop anytime, anywhere and on any device."

Brian Walker, an analyst at Forrester, suggested this tactic made strategic sense, as it broadened eBay's target audience.

"It makes them a solution for large, regular-price retailers and consumer brands who would not see eBay or PayPal as solutions," he said.

However, Jordan Rohan, an analyst at Stifel Nicolaus & Co, warned eBay was now a rival to expert technology providers such as Oracle and retailers like Amazon.

"This is a business of great complexity," Rohan said."It's one eBay may or may not have their arms around in terms of understanding the competitive dynamics."

The agreement with GSI means there is a 40-day window - or "go-shop" period - when the smaller firm is allowed to solicit bids from alternative sources, that eBay can match if it chooses.

"That 'go-shop' basically says, 'OK, private equity, come and get me,'" Rohan said.

If completed, the takeover will enable eBay to supplement the revenues drawn from transaction system PayPal and its Marketplace auctions.

"We see considerable potential related to moving larger Marketplaces customers to the [GSI] platform, and having [GSI] customers use Ebay.com as an additional channel and PayPal/Bill Me Later for payments," said Scott Kessler, an IT analyst at Standard & Poor's.

Gene Alvarez, a Gartner analyst, similarly argued the expansion of eBay's stable might create a clearer structure for partners to progress through.

"For every eBay seller that gets successful and leaves, eBay has to get another one to replace it," said Alvarez.

"Hopefully, they'll be able to move them to GSI and keep them as customers, as new ones come in at the lower end."

A further key strength of GSI is that it does not compete with suppliers, unlike Amazon, which has lost allies including Target, Borders and Circuit City after extending its product range.

"eBay is extremely interested in developing a portfolio of capabilities to compete against Amazon.com," Leslie Hand, an IDC analyst, said.

Hand also outlined a countervailing trend currently at work, as brand owners and retailers develop their in-house capacity.

"As their e-commerce performance improves, there's a general trend for retailers to build more internal capabilities to support those operations," she said.

Data sourced from Bloomberg, Associated Press, Los Angeles Times; additional content by Warc staff