6/02/14

eBay plays the field

The e-commerce giant invests heavily in local, mobile and global commerce technology as it seeks to step out of Amazon's long shadow.

Katie Evans , Managing Editor, International Research

Local, mobile and global. If online marketplace eBay Inc.'s business over the past few years could be whittled down to three words, those might be the most apt.

If it sounds like a lot of spinning plates, it is, says Christopher Payne, senior vice president of North America for eBay. But eBay has one common thread tying those spinning plates together: Technology.

"The next few years are going to hold more change than the last," Payne says. "Consumer expectations will only rise. Technology will only move faster. We want to be the company that brings the technology that helps you shop."

It's part of a strategy for making up ground lost over the past decade to archrival Amazon.com Inc., the largest online retailer in both the Internet Retailer 2014 Top 500 Guide and 2014 Europe 500. For years, eBay was the top destination for U.S. online shoppers in monthly rankings by Nielsen Online. But Amazon shot ahead during the 2008 holiday season and never looked back. In February 2014, Amazon ranked sixth among all U.S. web sites with 98.5 million unique monthly visitors while eBay stood at No. 15 with 61.5 million, according to web measurement firm comScore Inc. Amazon's strong growth has made it Wall Street's darling, with a market value of $153 billion in April 2014, which is more than double eBay's $70 billion.

Like a judo master, eBay is trying to use Amazon's strength against it, mainly by cozying up to retail chains that view Amazon as a threat. The more big brands and retailers that sell on eBay, the more attractive it's likely to be to consumers.

And ultimately consumers will determine eBay's success. They've been coming back and buying more, though eBay's sales volume hasn't quite kept up with e-commerce's growth rate. If eBay's many technology investments, global forays and new partnerships pay off, its global marketplaces will become increasingly attractive as selling platforms for brands and retailers, large and small. And that should, in turn, make eBay's sites even more attractive to shoppers.

In one respect, eBay towers over Amazon: profits. Between 2009 and 2013 eBay's total net profit was $12.9 billion, more than four times Amazon's $2.9 billion. That reflects its marketplace model—eBay does not buy merchandise, nor does it warehouse any goods. Amazon, which was the seller of record for more than $67 billion worth of goods in 2013, has to tie up capital in merchandise, and in the nearly 100 warehouses it operates around the world.

And while eBay hasn't touched Amazon's growth rate, which has been as high as 40% in recent years, it's made a marked comeback. The value of merchandise sold on eBay's marketplaces, excluding vehicles, increased nearly 13% year over year in the fourth quarter of 2013 to $21.518 billion, up from $19.105 billion in Q4 2012. Sales on eBay's marketplaces also grew roughly 13% for the full year, to $76.495 billion compared to $67.763 billion a year earlier. That's still below the 16.9% growth for U.S. online retail sales in 2013, according to the U.S. Commerce Department. But it's progress compared to 2011 when eBay sales grew only 5.6% in the all-important fourth quarter and 10.7% for the year.

Still, eBay has an image problem with consumers, as many of them don't realize that eBay's marketplaces are no longer mainly places where consumers auction off junk from their attics. In fact, auctions only make up around 30% of eBay sales, and only around 27% of goods sold on eBay are used.

But many consumers still think of the old eBay. A September 2013 survey of 500 consumers found 51.9% buy on eBay no more than two times annually. Of those respondents, 52.4% say they shop there infrequently because they don't have patience for auctions and one-third because they prefer to buy new versus used items, according to a report by Wells Fargo Securities LLC, which commissioned the survey. "Ultimately, we think communicating these changes to consumers will help drive further active user growth, which has already started to accelerate over the past seven quarters," the report's authors write.

In addition to letting consumers know this is not the eBay of old, the company is investing heavily in technology to offer shoppers features they can't find elsewhere. And appealing to smartphone and tablet shoppers is a key initiative.

EBay acquired technology companies RedLaser and Milo in 2010. EBay integrated the companies' technologies into mobile apps that let shoppers scan bar codes with their smartphones to check online prices while also checking availability in nearby stores. Today 40% of North American shoppers on eBay interact with the brand via a mobile device at some point during their shopping journey and 25% of North American sales on the marketplace come from a mobile device, Payne says.

The online marketplace's acquisition spree continued in 2013 when eBay bought StackMob, a mobile app developer, and paid $800 million for mobile-focused payments processor Braintree. Braintree's clients are mobile commerce heavyweights like web-only fashion retailer Fab.com, and Uber, an online service that matches ride-seeking people with taxis and other car services. Braintree said at the time of the acquisition it processed more than $10 billion in payments annually for 4,000 merchant clients in 40 countries, including $2 billion of payments made on mobile devices.

And eBay earlier this year bought 3-D computer graphics company PhiSix. The technology from PhiSix will enable eBay merchants to virtually demonstrate how clothing fits a shopper's body as she moves around, eBay says. That technology will also be available to the growing number of retailers that use e-commerce technology from companies such as the former GSI Commerce—which eBay renamed eBay Enterprise after its $2.4 billion 2011 acquisition—which hosts e-retail sites for such major retail chains as Toys 'R' Us Inc., PetSmart and Sports Authority. EBay also can bring that technology to more than 200,000 merchants around the world that use Magento, the open-source e-commerce software platform it also acquired in 2011.

EBay's purchases of Magento and GSI helped the company tap in to its second type of customer: merchants. EBay has made it clear over the years it is not a retailer and doesn't compete with its marketplace sellers as Amazon.com does. That's attractive to both smaller and larger merchants, which eBay needs to thrive.

Even so, eBay still needs shoppers and to make eBay more attractive to shoppers, eBay has, like Amazon, been holding sellers to increasingly higher customer service standards. EBay earlier this year said it will change the way it measures seller performance on its online marketplace, a move that promises to influence which online merchants achieve "Top Seller" status, and how high those retailers appear in eBay search results. Sellers are already seeing evidence of the changes though the changes won't be reflected in monthly seller evaluations until late August, eBay says.

Among the new rules is a stipulation that sellers must accept holiday returns through Jan. 31 to qualify for the "Top Rated Plus" seal that is displayed alongside their listings and a 20% discount on eBay's commission, which it calls a "final value fee," for sales made between Nov. 1 and Dec. 31.

In attempt to generate celebrity buzz and attract higher-income shoppers—and more exclusive brands to sell on its site—eBay in late 2013 added a number of Pinterest-like features designed to help customers discover products. It tapped 200 "expert" curators such as rapper-designer Pharrell Williams to create web collections of their favorite items among the 500 million available for sale on eBay, Payne says.

Customers and retailers can also create their own collections and follow one another on eBay. That way, if a shopper follows Target Corp. on eBay, for instance, her eBay home page will feature the latest items Target adds to its collection. Curated collections and the ability to shop as a community will "entice people to come in and explore the new eBay," Payne says.

As it seeks to grow its business, eBay increasingly is working with store-based retailers to drive shoppers to their physical stores. Last year it signed a deal with the nationwide chains Best Buy Co. Inc. and AutoZone Inc. to allow shoppers to order online via its eBay Local program and pick up items in stores. Toys 'R' Us is also testing the program, Payne says. Consumers can see available inventory at their local store and pick up items without waiting in lines, he says.

In the United Kingdom, eBay took the order online, pick up in store concept even further last year via a deal with U.K. general merchandise chain Argos. U.K. eBay buyers who buy from select eBay sellers can choose to pick up their orders from around 150 Argos stores across the country.

"We see this type of click-and-collect offering expanding throughout most of Europe and perhaps in major metropolitan areas of the U.S.," Payne says.

EBay says there is growing demand for order online, pick up in store in the United Kingdom. 40% of U.K. shoppers during the 2012 holiday shopping season used some form of the service, coined click and collect in the United Kingdom, according to an online shopping survey from market research firm Econsultancy.com Ltd.

As part of the announcement, eBay also said all U.K. eBay sellers that operate physical stores and offer click and collect through their own e-commerce sites will be able to offer that option through their eBay stores by the end of 2013.

And Payne says nothing pairs with local shopping quite like mobile technology. "Local and mobile go together like peas and carrots," he says. As such, eBay has invested significant resources to combine mobile and local.

Take eBay Now, eBay's delivery service which enables shoppers to order goods from local stores via a computer or mobile app and get items delivered to their doors by eBay couriers in about an hour. Participating chain stores include Best Buy, Macy's Inc. and Target. The service is available in dense urban areas, such as the San Francisco Bay area, New York, Chicago and Dallas. EBay says it plans to expand eBay Now to 25 U.S. cities by the end of the year. To bolster eBay Now, in October 2013 eBay purchased Shutl, a provider of same-day delivery services of online orders in the United Kingdom.

EBay is even entering the local mall. In November eBay tested shoppable store windows for three retailers in the downtown Westfield San Francisco Centre mall, part of the Westfield Group of shopping centers. That meant a shopper could walk up to the windows at the Sony, Toms and Rebecca Minkoff stores, touch her finger to the glass to browse through items as she would on a touchscreen and make a purchase by sending the order to her mobile phone.

All three retailers delivered the goods for free to the shopper's home, or she could pick up the items she ordered in the Sony store. Payment could be made through eBay-owned PayPal, and a shopper without a PayPal account could pay as a guest with a credit or debit card. EBay created a similar window earlier last year for a New York store of apparel and accessories retailer Kate Spade.

While eBay is actively testing working with stores, the company's management suggested in its fourth quarter earnings call that offline retailers are moving more slowly to digital than eBay expected. "Offline is taking longer to become digitized than we initially thought, and I think frankly it's happening with us and with everyone else in the digital world," CEO John Donahoe said. "But we're staying with the investment and the adjustments we're making. I would characterize [us] as focusing more in some smaller areas to prove out the model and get viral effects, and then we'll expand."

EBay is also using mobile technology as an entry point in emerging markets like Brazil, India and Russia, where many new citizens of the web use the Internet for the first time through a mobile device. Late in 2013, eBay entered the Brazilian e-commerce market with the launch of a mobile fashion shopping app for iPhones and Android smartphones. EBay Moda enables users to toggle between Portuguese, the primary language of Brazil, and English. Prices are shown in Brazilian reais as well as U.S. dollars.

Mobile commerce represents a small fraction of total web sales in Brazil, but mobile sales are growing fast. Mobile as a percentage of web sales went from zero in June 2010 to 3.6% in June 2013, finds Brazilian Internet research firm e-bit. And Wendy Jones, eBay's head of global expansion and cross border trade, says other projects are in the works in the country, including a test that will enable Brazilian shoppers to pay via PayPal without needing an international payment card. According to online payments resource site About-Payments, about 31% of Brazilian online shoppers use Brazil's Boleto Bancário, a service that invoices a consumer at checkout and enables a shopper to make a payment at her local bank, post office, ATM or lottery outlet. The new offering would enable a consumer to fund a PayPal account with her Boleto Bancário account instead of an international card, which is typically required.

EBay also owns 18.4% of Mercado Libre, a Latin American online marketplace akin to eBay, which operates in Brazil and 12 other countries. Other recent international projects include leading a $133.8 million funding round for India-based online marketplace Snapdeal.com in February 2014. The investment follows a previous $50 million investment by eBay in the e-marketplace.

Russia, however, is eBay's top global priority, Jones says. Last year the retailer announced a major push into the country with a Cyrillic-language marketplace and mobile fashion app enabling Russians to buy from eBay sellers willing to ship to Russia. EBay has 1 million active Russian buyers, Jones says.

EBay recently invested in beefing up the translation capabilities of the site to more accurately translate listings in German and English. Before it used auto-translation services, including Microsoft Corp.'s Bing, which often led to choppy translations and slim search results. It is now building an internal system to translate seller listings into Cyrillic and plans to expand that technology to other international markets.

That puts eBay in a position to market to millions more online consumers. During the next four years, as much as 91% of Internet user growth will come from Brazil, Russia, India and China and emerging markets, predicts research firm Euromonitor International Ltd. In Brazil, 36% of the country's Internet users made retail purchases online in 2013, estimates research firm eMarketer Inc.

EBay wants to help sellers reach these shoppers. 20% of eBay transactions today are cross-border transactions, Payne says, which means the seller and the buyer are not in the same country. To further ease cross-border selling, eBay continues to expand its Global Shipping Program. With this program, when a foreign shopper clicks to buy an item from a participating retailer, she's asked to enter her postal code. Based on her location, the service calculates the item's list price, estimated shipping fees and import charges. The final price is then calculated at checkout. Shoppers must purchase the goods using PayPal.

The seller pays the same fee to eBay he would for a domestic purchase and he ships the package to Pitney Bowes' warehouse in Kentucky. At the warehouse the vendor prepares the item for customs, and then ships it out. In April 2014 eBay added nine more countries to the service, which now reaches 53 countries, including Russia and China.

Making international selling easier for U.S. merchants is just another example of the common thread in eBay's strategy: using technology to facilitate all forms of commerce. If a customer wants to shop—no matter when or where—eBay is likely there or on its way to being there. But being there is not the measure of success. EBay still has work to do if it is to regain its position as the place where online shoppers buy most frequently.

katie@verticalwebmedia.com

@katieIR

Topics:

Amazon.com, eBay Inc., eBay mobile, eBay Russia, global e-commerce, international e-commerce, June 2014 Magazine, mobile commerce, online marketplaces, PayPal

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