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eBay

eBay Inc

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Few businesses demonstrate the unique benefits of the internet to newcomers as thoroughly as eBay, a highly profitable combination of peer-to-peer shopping network and traditional auction house which matches buyers and sellers in more than 40 countries around the globe. Anything legal can be bought and sold on eBay, from low-priced mainstream consumer products to the most obscure collectors' items or even the totally bizarre. Gross value of goods sold during 2016 was $84bn, and the community includes more than 167m active users worldwide. Its impressive profit margins have made eBay one of the world's most valuable internet businesses. One of the company's comparatively few missteps was its high-priced acquisition of VoIP pioneer Skype. Having failed to establish any meaningful synergies with its online auction business, eBay sold on a controlling stake in Skype that was later snapped up by Microsoft. Online payments service Paypal proved a more lucrative venture, contributing close to half of group revenues by the time it was spun off as a separate company in 2015. The biggest challenge facing eBay now is how to reignite growth in the face of multiple rival shopping services and a slowdown in traditional classified selling.

Advertising

Who handles advertising? Click here for Agency Account Assignments. The group declared advertising expense of $1.2bn in 2016, mostly on search advertising.

Competitors

See Media Sector and Retail Sector for other companies.

Brands & Activities

EBay has shrugged off competition from rival online auctioneers to dominate its sector in virtually every country in which it operates. The question now is how it will continue to deliver growth. International expansion is key. EBay has an unrivalled global profile, although it has been forced to concede key markets such as China and Japan to local competitors. The company has also made several key acquisitions designed to allow it to move aggressively into consumer finance (through Paypal) and traditional online retail (through Shopping.com). A move into personal communications, through the acquisition of Skype, proved less successful.

On any given day, eBay contains listings for several hundred million items covering more than 30 main categories, each of which contains numerous sub-categories. Items range from mundane products such as clothing, appliances or entertainment products to large ticket items such as cars and homes. A Gulfstream II jet was sold in 2004 for $4.9m, but the standing record is the $85m deposit paid via eBay in 2006 for a 405-foot "Gigayacht", supposedly by Russian billionaire Roman Abramovich. Arguably eBay's most celebrated auctions have been the oddities, such as the toasted cheese sandwich said to resemble the Virgin Mary (sold for $28,000 to online casino GoldenPalace.com) or the man who auctioned his forehead as advertising space (sold for $37,375). Actor William Shatner sold his kidney stone for $25,000 in 2006 to raise money for a housing charity.

Although the majority of these sales have traditionally been auction-based, with lots offered for sale to the highest bidder, eBay has increasingly become the host for numerous private retailers selling goods on a fixed price, first come first served basis, rather like an online shopping mall. In a survey conducted mid 2005, more than 724,000 Americans reported that eBay was their primary or secondary source of income, and the company now hosts well over 510,000 individual storefronts for professional or semi-professional sellers.

EBay has one of the largest global footprints of any online brand, with local sites in 24 countries in North America, Europe and Asia. Its most important businesses are in Germany and the UK, both with revenues in excess of $1bn, as well as South Korea. In 2004, it took control of Korean site Auction.co.kr, and consolidated its position as the local #1 by also agreeing the acquisition of main competitor Gmarket in 2009, for $1.2bn. However other Asian markets have proved more difficult. EBay first entered China in 2001 and acquired local site EachNet in 2003, becoming what was then the country's biggest e-commerce business. Five years later, however, as a result of intense competition from local rivals including Alibaba's TaoBao service (part-owned by Yahoo) it withdrew from China in favour of a joint venture with Hutchison Whampoa's Tom Group. It had already pulled out of Japan as well after failing to break the stranglehold of local champion Yahoo. In 2007, it agreed an alliance with Yahoo to offer Japanese consumers access to the main eBay service via its subsidiary Seikamon. The group has been more successful in South Korea. It also has a minority holding in GittiGidiyor.com of Turkey. The company has no direct presence in Latin America, but held a minority shareholding in regional business MercadoLibre.com for several years. That stake was sold in 2016.

Perhaps the biggest threat to eBay is the attractiveness of its trading and payment platform to fraudsters, who either attempt to trick bona fide sellers into divulging account or credit card details via "phishing" emails, or who deliberately offer fake or faulty merchandise for sale. The company has itself been the subject of several lawsuits from trademark owners, including Tiffany and Rolex, for carrying listings for counterfeit items offered for sale. In 2006, LVMH launched a civil suit against eBay's French subsidiary for selling fake items under the Christian Dior and Louis Vuitton brands. In 2008, a judge found in favour of the luxury group, and ordered eBay to pay a fine of almost €40m in compensation. It also instructed eBay to block sales of certain genuine products, because their sale via the auction site breached selective distribution agreements made by LVMH. (A further €1.7m fine was made against eBay in November 2009, for failing to comply with the previous ruling).

However just two weeks after the original French ruling, a similar suit brought before a US court by Tiffany was defeated, greatly reducing the threat of further US lawsuits. The judge in that case ruled that the systems employed by eBay to prevent sales of fakes, such as the prompt removal of listings after it had been informed that items were counterfeit, were adequate. Instead, said the judge, it was up to companies like Tiffany to police their trademarks themselves. In 2009, a French court also sided with eBay in a case brought by L'Oreal over the sale of counterfeit beauty products.

The group has also repeatedly had to deal with unlawful traffic in restricted items. In the late 1990s it banned the sale of Nazi memorabilia in the US following protests from users, and has encountered similar problems in other territories. In 1999, an American user attempted to sell one of his kidneys on the site. The auction was pulled as soon as eBay became aware of it. In 2004, an executive from Indian subsidiary Baazee.com was briefly arrested after the site inadvertently hosted an auction of home-made pornographic videos. A more worrying threat began to emerge in 2006 as some of eBay's core group of merchants began to complain of a noticeable downturn in both transaction numbers and sale prices.

Indeed, despite its size and international footprint, eBay's core marketplace operations appear to have reached a plateau in the mid-2010s. The gross value of all items traded on the main eBay service during 2016 totaled $79.4bn, slightly below the $79.6bn traded two years earlier in 2014 (though higher than 2015's $78.1bn). Over the same period, net trading revenues from marketplace operations have actually declined from $6.35bn in 2014 to $6.10bn for 2015 and then a modest uptick to $6.11bn in 2016.

Such growth as the core operations have generated have been from ancillary services, which the group accounts for as marketing services and other revenue. This comes primarily from on-site advertising, marketing services assistance and fees and revenue sharing arrangements. This figure came in $1.94bn for 2016, up on both previous years.

Another key growth contributor is ticket exchange Stubhub, bought in 2007. This allows users to buy and sell sports or entertainment tickets direct, and also operates social networking and recommendations exchange StumbleUpon. StubHub was named as the exclusive ticketing service on ESPN online. It now operates in some 40 countries worldwide. Gross merchandise volume has increased steadily since acquisition, reaching $4.31bn for 2016, up 21% on the year before. Net transaction revenues rose 29% in 2016 to $937m.

There are several other standalone brands under the eBay umbrella. Shopping.com, acquired for $634m, is the third largest shopping destination on the web, offering price comparisons between online sellers in the US, UK and France. Another area of expansion has been classified advertising services, closer in similarity to the original eBay than the general marketplace it has evolved into. Rent.com, for which eBay paid $415m, extended the group into the property sector. with transaction-based listings of houses and apartments for rent in the US. Kijiji is a network of local sites in 23 countries offering classified jobs and wants ads. The network was extended during 2005 with the acquisition of regional companies GumTree.com, operating in the UK, Australia and South Africa, and LoQUo.com of Spain. The group also has a 25% stake in local classified service Craigslist. In 2008, the group acquired two Danish classified ads websites, Den Bla Avis and BilBasen, for $390m. German shopping club Brands4Friends was acquired for $200m in 2010.

The group continues to hoover up rival or potentially complementary direct-selling services around the globe. In 2016 alone it acquired six such businesses: Cargigi, which offers marketing services to online sellers of autombiles; AI and machine learning developer Expertmaker; customer prediction analytics service SalesPredict; Spanish ticket seller Ticketbis and brokerage Ticket Utils (both absorbed into StubHub); and visual search engine Corrigon.

Several larger acquired businesses have been sold over the past few years. In 2011 the company announced the acquisition for $2.4bn of digital marketing company GSI Commerce, a developer and manager of online stores. Until its acquisition by eBay, the company also acquired and resold clients' excess inventory direct to customers via its own web platforms, which include Rue La La and SmartBargains. That business was bought out by departing group CEO and founder Michael Rubin, who left the company. The main part of GSI was renamed as eBay Enterprise in 2013, providing technology and design services to support online stores for retail client. However, in a change of strategy, eBay sold the eBay Enterprise division in 2015 to a consortium of private equity funds, who broke it up into separate units and sold them off to different buyers engaged in e-commerce development.

The most lucrative addition to eBay's coverage was arguably the electronic direct payment system Paypal. Originally an independent business, it was adopted widely by eBay users before being acquired by the group in 2002. Used by independent retailers as well as eBay traders, it provided a service to around 162m registered accountholders as of Dec 2014. Another step-forward for Paypal was a tie-up with major US retailers, including Home Depot, Abercrombie & Fitch, Barnes & Noble, Foot Locker and JC Penney, to allow customers to use their Paypal accounts to pay for goods in-store as well as online. This experiment was later extended to selected European retailers. The group also launched its own credit card in partnership with consumer finance lender Synchrony. However, Paypal too was divested, spun off as a separate company in summer 2015 (see Paypal capsule).

Another sizeable addition to the eBay portfolio was VoIP service Skype, acquired by eBay in the final quarter of 2005 for a whopping $2.6bn. EBay envisaged Skype as a way of making buyer-seller communications more efficient through personal voice contact. By mid 2009, it had signed up more than 481m users worldwide, but revenues per user were very low. During 2009, Skype contributed total revenues of just $620m. The group conceded in 2007 that it had overpaid significantly for the business, and wrote off more than $1.4bn of goodwill on the acquisition during that year. Subsequently, eBay agreed a partnership with mobile operator Three to launch a dedicated Skype mobile phone service in eight of 3's global markets including the UK, Italy and Australia, as well as a strategic partnership with MySpace. Yet despite these and other initiatives, Skype remained a comparatively uncomfortable part of the group's overall portfolio, not least because the expected synergies with the auction business had failed to materialise. As a result, eBay announced plans to spin off the business. In 2009, it sold a 65% stake in the company to a consortium of private equity investors for $1.9bn. The remaining shares were sold in 2011 when Skype was acquired outright by Microsoft.

Financials

After comparatively modest growth in 2009 and 2010 (by 2% and 5% respectively) eBay's group revenues gathered steam in 2011, jumping 27% to $11.7bn. Another 21% increase in 2012 pushed revenues to $14.07bn. Net income fell 19% to $2.61bn, but the previous year's figures had included a large gain on the sale of the remaining shares in Skype. Excluding that gain, operating income for 2012 rose 22% to $2.89bn. Revenues for 2013 rose 14% to $16.05bn, while earnings were up 10% to $2.86bn. For 2014, net revenues rose 12% to $17.90bn. However earnings plunged to just $46m, as a result of a $3.5bn provision for tax relating to the PayPal spin-off. Pretax earnings exclusing that charge rose 2% to $3.51bn.

The disposal of Paypal has significantly reduced reported revenues since 2015; and at the same time, topline has remained more or less flat, bouncing up and down between $8.26bn and a high of $8.98bn for 2016. Operating income has been even flatter, coming in between $2.2bn and $2.5bn every year since 2012. The figure for 2016 was $2.33bn. However, net income for 2016 was flattered by a huge one-off tax gain as well from the sale of its shares in MercadoLibre. Net result was a profit of $7.9bn, compared to $1.95bn the year before. The US contributed 43% of gross revenues in 2016. The next biggest markets were Germany and the UK (15% apiece).

Founder Pierre Omidyar remains a non-executive director of eBay. He spends most of his time, and much of his personal fortune administering the Omidyar Network, a charitable foundation which supports individual self-empowerment.

Background

According to popular legend, eBay was created by software developer Pierre Omidyar so that his girlfriend could trade her collection of Pez candy dispensers over the internet, and a business phenomenon was born almost by accident. In fact, the truth was a little more calculated than that. Omidyar had already spent several years developing e-commerce software for the fast-expanding internet, and had been a key contributor to the development of eShop, later acquired by Microsoft. As a result he came to realise that the internet could be the perfect medium for buying and selling on a best price auction basis. In 1995, he launched the first version of what was later to become eBay under the name AuctionWeb, as a sideline to his day job as a software developer. The first lot was Omdiyar's broken laser pointer, sold (to a collector of broken laser pointers) for $15. Initially the service was free, and as a result traffic increased rapidly.

In 1996, Omidyar began charging commission on the final sale price achieved, and found that traffic continued to soar, so much so that he gave up other development work to concentrate on the auction business. He tried to register his website under the name he used for software freelancing, Echo Bay Technology, but the Echobay.com domain name was already taken, so Omidyar shortened it to eBay. At the same time he recruited entrepreneurial college buddy Jeff Skoll as his business partner. Meg Whitman, formerly general manager of Hasbro's preschool division, joined as CEO in 1997.

The company floated in 1998, and also agreed a three-year alliance with AOL to promote the site to its members. User levels continued to sky-rocket, with eBay's technology only just keeping up with the demand, so much so that in 1999, the massive demand caused eBay's servers to crash, taking the business out of service for almost 24 hours. Meanwhile, the group began to expand its presence, acquiring offline San Francisco auction house Butterfield & Butterfield (sold on in 2002 to Bonhams), and establishing its first presence in Europe with the launch of a UK site and the purchase of Germany auction site Alando.de. In 2000, eBay moved into Japan in a partnership with NEC, but the local site failed to dent the stranglehold built up by Yahoo's local auction service and was shut down two years later. The group also acquired Half.com, a would-be rival to entertainment retailer Amazon in the US.

The group has steadily expanded its global presence through the acquisition and absorption of rival services in local markets. In 2003, it consolidated its presence in China with the purchase of the country's biggest e-commerce business, EachNet. During 2004, the group acquired several other regional businesses including mobile.de of Germany, India's Baazee.com, Auction.co.kr of Korea, and Marktplaats in the Netherlands.

In 2006, the group was commissioned by a group of leading advertisers, including Lexus, Wal-Mart, HP and Microsoft to construct a prototype auction-style media exchange that could be used to trade TV advertising space in real time. The system, named eBay Media Marketplace, was set to go live in Spring 2007, but the planned launch was cancelled in April after the Cabletelevision advertising Bureau said its members, which include most of the main US cable networks, would not participate in the service unless further improvements were made. The main US broadcast networks, as well as several leading media buying networks, had already withdrawn their support, citing concerns over the commoditisation of advertising inventory. However, eBay and its partners were eventually able to secure a test trial with women's cable network Oxygen, and opened up the system to 2,300 radio stations as well through a partnership with start-up Bid4Spots. The trial proved something of a disappointment, however, and the service was shuttered in June 2008.

Meg Whitman retired as president & CEO at the end of March 2008. John Donahoe was named as her successor.

Last full revision 21st December 2017

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