Wednesday, July 25, 2007

Amazon Eats eBay's Lunch!

Amazon, has turned their 3P (third-party seller) business into a company saver, in fact 3P sales now represent 30% of Amazon's business, with a much more desirable profit margin. Their stock is going through the roof and they are raising estimates for the rest of 08'. Meanwhile, eBay's share price is stuck in the mud.

What is the big difference here? eBay management concentrates on milking the "cash cow" while Amazon grows profit by growing the top line as well (which is all GMV related). eBay's GMV business is stagnant or falling and Amazon's just keeps moving upwards.

Amazon understands retail, eBay doesn't. Current eBay management is more concerned with managing the bottom line than fixing the problem or even worse, they don't know how to fix the problem and should bring in someone who does.

There is absolutely no reason for eBay's Marketplace businesses to be stagnant while Amazon's grows leaps and bounds. Amazon continues to grow at a rate close to ecommerce while eBay doesn't grow at all. No wonder investors like Amazon over eBay.

eBay sellers, that I have spoken with, are seeing their Amazon sales grow, while their eBay sales are flat-line. This is not a problem with the seller! Let me repeat that, this is not a problem with the seller, since the same seller sells on both marketplaces.

Amazon, invests heavily in marketing because they realize traffic generates sales. eBay manages their marketing spend like Mr. Scrooge with a Christmas bonus. Amazon makes $78 million in profit for the quarter and the stock jumps 20% from an already lofty stock price, while eBay generates $375.8 million and their stock drops. What's wrong with this picture?

eBay continues to diversify away from their marketplace business while making half-hearted attempts at fixing it. Would the stock price really take such a huge hit if eBay announced they were increasing their marketing spend to reinvigorate the marketplace? Let me clue you in - Sellers will stop complaining about high fees when eBay starts delivering buyers - its all about value for their dollar. Sellers will start listing in core again, when there is a reason to.

Its time to stoke the fires and go get the buyers! Use some of that $3.8 billion war chest to split the marketplace up -- eBay Classic (auctions) and Express (fixed price). Take BIN and FP out of auctions and add 7 day FP listings to Express. Use Stores to feed both marketplaces and give sellers the tools for multi-channel sales. Sure each marketplace might not generate your beloved 18% take rate but you know what? They would start to grow again. Oh yeah invest in marketing!

Hard choices need to be made or Amazon will continue to eat eBay's lunch.

One additional thought I came up while taking my morning constitutional (sorry for that). With Amazon, you have three majors groups pleased with their performance: buyers, sellers and investors. With eBay, not one of those same groups is happy. So tell me, which strategy is working?

Update: I guess someone else thinks the way I do. Wouldn't you know Scot Wingo would be involved in the story.