June 6, 2011, 12:28 PM

eBay to buy Magento

The online marketplace powerhouse continues its acquisition tear.

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In another move to upgrade its e-commerce technology offerings and increase revenue, eBay Inc. said today it plans to buy Magento Inc., the developer of the widely deployed Magento open-source e-commerce platform used by more than 60,000 merchants and brands including Nokia, Lenovo, OfficeMax and The North Face. The deal follows eBay’s announcement in March that it intends to pay $2.4 billion for GSI Commerce, a provider of e-commerce technology and services for hundreds of retailers.

EBay president and CEO John Donohoe says the move to acquire Magento supports eBay’s recent efforts to build an open commerce technology platform, which eBay calls X Commerce and which is designed to integrate many of the functions required to operate an e-commerce organization.

“The feedback we’ve heard from external developers has been clear—they don't just want payments or an e-commerce site,” Donohoe says. “They want access to a full set of commerce capabilities to build complete shopping experiences for merchants. We believe the acquisition of Magento and creation of our X Commerce group will enable us to meet developers’ needs and drive global commerce innovation for retailers and consumers.”

But industry analysts say the move will also generate significant new revenue streams for eBay while also proving much-needed capital for Magento to continue building out its technology as it continues to service existing clients. “EBay has a unique opportunity to monetize merchant services by incorporating into the Magento platform PayPal payment services and eBay marketplace offerings,” says Brian Walker, an e-commerce technology analyst at Forrester Research Inc.

Combined with the range of merchandising, marketing and fulfillment services offered by GSI Commerce, eBay is becoming a stronger competitor in e-commerce technology and services platforms, Walker adds.

Today’s announcement caught some eBay and Magento users by surprise. “We're just finding out about this news, and we’re excited about it,” says Ben Skigen, e-commerce director at ToolKing.com, which uses Magento technology to operate its e-commerce site and also maintains a storefront on eBay.com. “We've been using Magento for about 20 months and the platform has allowed us to grow our business significantly, so we are looking forward to seeing how eBay helps it grow.” Tool King is No. 337 in the Internet Retailer Top 500 Guide.

Several industry consultants say the acquisition bodes well for both eBay and Magento and their users. "EBay is clearly making a play to provide e-commerce capabilities to the full gamut of online retailers,” says Bernardine Wu, CEO of FitForCommerce, a consulting firm that helps retailers plan e-commerce technology projects and choose vendors. "With the planned acquisition of GSI, eBay would now have a complete turnkey offering with the product and services of GSI, which is targeted more towards the mid-size and large retailers.” And with Magento, she adds, eBay can now offer a development platform for retailers that want more control over customizing their e-commerce sites.

Alex Schmelkin, president of web site design and development firm Alexander Interactive, which works with Magento technology, agrees. “This is a very smart move for eBay,” he says in a blog posting today. EBay, he says, can look forward to serving large e-commerce operations with GSI while more effectively serving small and midsized retailers with Magento.

Nikki Baird, managing partner at research and advisory firm Retail Systems Research LLC, says eBay appears to be adopting the Amazon.com Inc. strategy of offering retailers e-commerce tools, in Amazon’s case through its Amazon Services unit. “That's a picture that makes sense—enabling sellers with more tools, and moving high-volume sellers into more of a traditional e-commerce storefront,” Baird says. “Then eBay can be both technology enabler and marketplace all in one.”

A diversification into merchant services may be just what eBay needs at a time when it faces several challenges, Walker adds. “Large retailers and well-established brands have never flocked to eBay for many reasons, including the user experience, lack of control over their brands and products, and the perception that eBay was the web’s garage sale,” he says. Moreover, eBay continues to face rising competition as the dominant e-marketplace not only from Amazon but from an increasing number of daily-deal sites that are pushing into eBay’s turf by selling excess merchandise, he adds. “For eBay, diversification into a broader set of merchant services—including the commerce platforms merchants are using—is necessary to protect the threats to their core business,” Walker says.

At the same time, he adds, Magento finds itself at a turning point, and could benefit from the deep pockets of eBay. “It is time for Magento to mature as a solution and as a business,” he says.

Walker says retailers that deployed Magento’s Enterprise Edition, licensed software for larger companies that Magento introduced in 2009, have struggled to get the support they need. In addition, Magento has recently launching its MagentoGo software-as-as-a-service platform that Magento hosts and retailers link to through the web. “This was too much for Magento to take on at once, and Magento may have outgrown its ability to deliver on the expectations of users,” Walker says. Having eBay as a parent should give Magento the resources it needs to continue developing its technology while also maintaining strong customer support, he says.

EBay, which already owns 49% of Magento, did not say how much will pay for the remaining shares of Magento, but said it expects to close the deal in the third quarter, when it also expects to complete the acquisition of GSI.

 

 

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