Monday, December 04, 2006
A recent article on SeekingAlpha.com discussed the current trend in Revenue vs. GMV growth on eBay. This chart shows the comparison. As you can see Revenue is growing faster than GMV and it appears the Shopping.com purchase has a great deal to do with this (notice the separation between the 2 trend lines). This should be good news for investors because as eBay's marketplace business matures and GMV flattens out (or even declines) they can still see Revenue growth through other initiatives. Investors should be concerned though that slower GMV growth puts pressure on PayPal revenue and if eBay cannot get PayPal adoption across the web (see Google Checkout here) they will see a slowing of revenue growth from eBay’s star performer. EBay marketplaces are maturing, PayPal may not be far behind and Skype may never generate much. Where is the Power in “The Power of Three”.
As I said there are two perspectives on this data. Investors are happy in the short-term because they can see continued growth outside of eBay's CORE marketplace but Sellers should be very concerned as they see GMV growth slowing and in some cases declining on eBay's Core business. GMV (Gross Merchandise Value) is a key indicator regarding the health of the marketplace, as eBay's GMV growth flattens out sellers should be concerned.
As the eBay marketplace reaches its capacity to move product, sellers must reconfigure their business plans. In order to grow your eBay business you will need to grow your share of the eBay business rather than rely on marketplace growth. The problem with this approach on eBay is in order to increase share you will need to increase your listings/fees. Conversion rates will decrease putting even greater pressure on margins. Take it from me eBay market share comes strictly from having more listings than other sellers. This is not a strong business plan. I can attest to that.
My suggestion is that sellers seriously look at growing their businesses outside of eBay. This approach gives you greater control of your marketing dollars and makes you less dependant on a maturing marketplace. EBay is growing slower than ecommerce as a whole so if you want to grow look outside of eBay.