What the EBay and PayPal Breakup Means for E-Commerce

September 30, 2014

ChannelAdvisor Scot Wingo By Scot Wingo

Earlier today, eBay announced that they are splitting the company into two companies – PayPal and the eBay marketplace.  Since the announcement, we have had an influx of customers asking for our thoughts on this big change in the world of e-commerce. In this post we look at the ‘why’ and the possible implications for online retailers from this change.  We focus on the marketplace side of the split as that’s the focus of this blog.

The split

There are tons of details on the arrangement and the management team being generated by the business press, so we won’t spend time on that.  The biggest points of interest are:

  • John Donahoe and Bob Swan – current CEO and CFO -will not run either business following the split in the back half of 2015, but will be board members.  We’ve enjoyed working with John and Bob and wish them the best in their next endeavors.

  • Devin Wenig, President of eBay global marketplace, will be CEO of the eBay marketplace company.  Devin has been a great leader for the eBay marketplace since he joined in 2011 and spoke at ChannelAdvisor’s Catalyst event earlier this year.  We’ve been impressed and look forward to his leadership of eBay.

  • A new CEO, Dan Shulman, from American Express, joins the company to run the PayPal part of the business.

Also, we’re getting questions around ‘what goes where.’  Our understanding/guess is:

  • PayPal – PayPal payments, Braintree, Bill Me Now.

  • eBay – The eBay Marketplace, eBay Enterprise (GSI, Magento, etc), Mercado Libre, Shopping.com, StubHub, etc.

There will, of course, be some kind of arrangement between the two that enables eBay sellers to continue taking PayPal.

Why split, why now?

In the last 3 months the e-commerce world has been extremely disrupted by the entrance of new ‘titans.’ Previously we had 3 titans in the world of e-commerce fighting for consumer’s mindshare (and dollars): Amazon, eBay and Google.  In the last three months, Facebook, Apple, Twitter and Alibaba have all unveiled new efforts in e-commerce (Facebook marketplace, Apple Pay, Twitter marketplace) or dramatically revealed their scale and global ambitions). Now, we have 7 titans of e-commerce!

As these new titans have entered the space, we see they are not working with PayPal or the eBay marketplace.  Why?  Because they are married together.

If I’m Facebook/Twitter and building a marketplace, I don’t want eBay to see/know everything I am doing by working with PayPal for payments.  So I build my own and/or work with Stripe.  The natural reaction is PayPal buys Stripe, but that doesn’t solve the problem because Facebook/Twitter would turn their Stripe integrations off because they compete with the eBay marketplace.

Another example from the other side of the fence: If I’m running the eBay mobile app business, I want to be a launch partner with Apple Pay for my iPhone app.   I propose this, it works up the food chain and is quashed by the PayPal side of the business that doesn’t want me working with a competing mobile technology.

Thus by being under one roof, each company is losing out on very big opportunities caused by these new entrants in both marketplaces and payments.

Conclusion: This is the right time to split, the reason is the tectonic shifts in our industry from Mobile, Cloud, Global, CBT and the entrance of four big, new players.

What does this mean for eBay MP?

In the short term, I think there may naturally be a period of distraction.  eBay and PayPal share financial teams, hosting, customer service, IR/PR teams, etc.  The list is big and will take a lot of work to successfully ‘cleave.’

In the middle term (2015), once the eBay team is through the distraction, I think this will be a net positive for eBay:

  • The management team can focus on their key initiatives.  These have previously been Mobile, CBT, BRIC – with the overarching goal of growing faster than e-commerce.

  • By having a separate, focused company, they will be under a bright spotlight and have to execute on their plans without PayPal impacting or benefiting growth or margins.

  • The spotlight will mean  a tight focus on adapting eBay for the fast-changing e-commerce landscape and will mean things are likely to dramatically accelerate from here.

In the long-term, I think,  this will be good for the eBay MP.  With a laser-focused team and the assets it needs to be successful, I think we’ll see some bold moves that try to re-establish eBay’s leadership position.  This is a >$60b in GMV business that, while is only growing ~10%, has a lot of assets to bring to bear with an impressive new leader, so don’t count them out yet.

What does this mean for online sellers/retailers?

I think this is the first of many major moves we are going to be seeing from the new ‘7 titans of e-commerce’ and it is fun to think through possible next steps:

  • What if eBay took AliPay as a payment option to appeal to Chinese consumers and partnered with Tmall?

  • What if Google introduces a marketplace to help with their mobile problem and takes PayPal?

  • Wall St. firms are speculating that Google/Facebook/Apple buys PayPal now and Alibaba buys eBay

  • Would Amazon take PayPal as a payment option now?

  • Will Apple allow PayPal as a ‘source’ in Apple Pay?

  • Should eBay buy Mercado Libre for access to Brazil/LATAM?

  • If PayPal acquires Stripe after the split, does that cause Facebook/Twitter concern?

  • What if Apple introduces a marketplace of products that are all Apple Pay enabled?

As you can see, the possibilities are virtually limitless and that’s what makes this change plus the entrance of the new 4 titans into e-commerce a positive for sellers/retailers, not to mention consumers.  We now have many more companies and options available to us, which is a good thing.

What do you think?

It’s like Game of Thrones in the real world – 7 kings fighting over a rapidly growing market.  What do you think the possible next mix-ups are? Sound off in comments.

This blog post was written by Scot Wingo, CEO, ChannelAdvisor