eBay (NASDAQ:EBAY) the original online marketplace, has a problem. Some of its top merchants are abandoning the platform and taking their business to another online juggernaut, Amazon!
Over the past twelve months Amazon has doubled the number of merchants selling on the platform to over 2 million. While that is still way behind eBay which boasts over 25 million. The worry is that most of those moving are some of eBay’s biggest and most profitable merchants.
Larger merchants claim they get more value for money selling products via Amazon (NASDAQ:AMZN). The online retail giant can not only offer them a bigger user base, but more shipping options and even warehousing and logistic services.
This is forcing some of eBays largest merchants to reevaluate the platform. But moving isn’t as simple as it sounds, many of of these merchants started as eBay merchants and built their businesses there.
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They won’t abandon eBay easily, the decision to move is often both difficult and emotional. But at the end of the day it has to be driven by numbers, and it just makes more sense for many of them to be on Amazon.
It’s not that Amazon is cheaper, in fact quite the opposite. Amazon typically takes 15% of the sale price while eBay takes around 10%, depending on the category. But the added services and larger customer base offered by Amazon makes the move worthwhile.
In some cases Amazon becomes a logistics partner, offering warehousing and shipping options at more favourable prices than many merchants could achieve on their own.
Of course there is nothing to stop merchants selling on both platforms, but you can’t use Amazon’s warehousing and fulfilment services for products bought via eBay. So this option is really only open to those companies who operate warehousing and order fulfilment services on a scale large enough to offset the savings achieved by using Amazon. Otherwise merchants would have to maintain separate inventory for both sites.
Why the sudden shift from Ebay to Amazon?
Amazon is nothing new, they have offered third party merchant sales since 2000 and fulfillment services since 2007. So why the sudden shift away from eBay? Slowing sales growth is the primary reason, according to Scott Wingo of ChannelAdvisor Corp. a Morrisville, North Carolina company that helps merchants sell on Amazon.
Wingo says that once merchants make the switch they are often surprised just how quickly sales take off. The primary reason for this is the amount of traffic Amazon generates. According to ComScore, Amazon.com attracted 174.9 million unique visitors during February 2015, 46% more than eBay.
But the number of customers isn’t the only thing that makes Amazon a more compelling opportunity. Merchants also benefit from Amazon “Prime” their premium service option which offers on-demand music and movies as well as free express delivery to tens of millions of customers.
Fulfilment services play a deciding role in merchants decision to quit eBay. According to a recent Amazon survey, three out of four merchants using “Fulfilment by Amazon” reported annual sales growth of 20% last year.
Amazon’s investment in fulfilment services has another benefit, extended holiday shopping. Many merchants report the holiday shopping season lasts around a week longer on Amazon than eBay because customers are confident gifts will still be delivered in time.
When you put all these things together, its easy to see why larger merchants would want to list on Amazon. The increase in transaction costs are more than made up by increased sales and they could end up reducing costs by using Amazon’s fulfilment services.
Life after PayPal
So it’s clear that eBay’s new CEO Devin Wenig, who takes over from John Donahoe once the split from PayPal is complete in the second half of 2015, has a challenge on his hands turning the veteran online marketplace around.
eBay has finally decided to spin off its PayPal division after much publicised pressure from activist investor Carl Icahn. Icahn had become frustrated with sluggish gains in the marketplace division offsetting strong growth at PayPal. While the online marketplace did report growth of 6.4% in 2014, that is well below the industry’s average growth rate of 22%, according to data from eMarketer.
Ironically the divorce from PayPal could work in its favor. eBay will be leaner and able to concentrate solely on its marketplace business without being distracted by PayPal.
Where should eBay focus?
While eBay may be losing some of its top merchants, it is not losing all of them. eBay still has over 25 million active sellers on its marketplace. The key is that these are typically smaller merchants, selling just a few items each week.
These types of merchants don’t have a requirement for Amazon fulfilment services and their products are typically more specialized. Oftentimes not available elsewhere. They could be antique clothing stores or bric-a-brac shops, either way, their businesses are not suitable to run on Amazon’s platform. While customers of these types of items are willing to wait just that little bit longer to receive them.
This is where eBay should focus its energies. Forget about trying to compete with Amazon. Build a service for niche providers, a bit like etsy but with a broader scope than handmade crafts.
And the signs are good, eBay is set to trial a new click and drop service in the UK, which should enable merchants to cut the cost of delivering items to customers.
The scheme is to be trialled at a handful of Argos stores next month, and allows merchants to drop items at their nearest store to be packed and shipped by eBay. If the trial proves successful it will be rolled out to over 650 Argos stores across the UK.
Tanya Lawler, vice president of eBay marketplaces said “We’ve created a service that makes it quick for sellers to drop off items so they can focus on growing their businesses and targeting domestic and international buyers, rather than waiting in a line”.
The “click and drop” project follows on from eBay’s successful launch of “click and collect” which allows sellers to ship orders to a local Argos store for easy collection. The scheme which was launched last September has been used by over 1 million people so far.
eBay reports that nearly 90% of the 160,000 “click and collect” customers are small to medium sized enterprises. Which represents 64% of the 250,000 British SME’s currently selling on eBay.
If these services can be replicated in other key markets, and there’s no reason why they couldn’t, eBay can fend off the growing threat of Amazon. They will also be supporting many millions of small businesses around the world, supplying products that cannot be replicated by larger merchants elsewhere. This is not the end for eBay, its just a new beginning.