Is eBay's Shutl Acquisition Enought to Dethrone Amazon Prime?

With its acquisition of London-based Shutl, eBay (NASDAQ: EBAY  ) is taking the battle to e-commerce leader Amazon.com (NASDAQ: AMZN  ) . No longer just a consumer-to-consumer auction site, eBay angles for today's buyers with personalized shopping from large collections, low-as-anybody-goes pricing — and now, the final confrontation: same-day, and sometimes same-hour, delivery.

Both sites have grown beyond their original objectives — and wildest dreams — to offer a huge selection of high-trending, off-price merchandise to a massive number of unique visitors (149 million for Amazon and 91 million for eBay during the average month, according to the Statistics Portal). The competitive factor that could still be a game-changer is speed of service to the customer's front door. 

It's a contest that brick retailers and click vendors are watching closely, because (no hyperbole intended) it could determine the future of retail. Today, storefronts still have some special cachet: They appeal to customers who prefer to gauge the "feel and fit" of items in person; and who enjoy getting their purchases bagged to go on the spot. If the "cash and carry" retail advantage were to become obsolete, would the stores be far behind?  

The starting line

A year ago, with the launch of the eBay Now service, Pierre Omidyar's San Jose, Calif.-based company offered shoppers a way to pick up their iPhones, Androids, or open their laptops, and get almost instant gratification — deliveries of their eBay purchases in as little as one hour, based on the site's agreements with local merchants. The service was tested in San Francisco, where consumers could order from partnering retailers such as Macy's, Target, and Best Buy, and receive purchases the same day. Deliveries cost $5 each, and the service applied only to purchases over $25; but beta testers got a $15 credit on their first order, and free shipping on their first three purchases.

The service was meant to rival AmazonPrime, which offers customers unlimited expedited shipping with no minimum purchase amount for a flat annual fee. The service also offers discounted priority shipping rates. Amazon launched the program in the continental United States in 2005, in Japan in June 2007, in the United Kingdom and Germany in November 2007, and in France (as "Amazon Premium") in October 2008.

Upping the ante

This week, as holiday shopping season approaches, eBay upped the ante with its announced intent to acquire London-based shopping phenom, Shutl, for an undisclosed price. Shutl currently helps local retailers deliver purchases within minutes via a network of express courier services throughout the United Kingdom — and the start-up announced plans last March to expand to the States and offer its same-day delivery services in Chicago, New York City, and San Francisco. The company said that shoppers would be able to purchase goods online from three as-yet-unnamed major U.S. retailers, and receive delivery within 90 minutes of the order at a price around $10.

After the initial rollout, Shutl had plans to expand to a total of 20 North American cities, including Atlanta, Boston, Dallas, Denver, Detroit, Houston, Los Angeles, Miami, Minneapolis, Philadelphia, Phoenix, San Diego, Seattle, Tampa, Washington, Montreal, and Toronto, in addition to the first three.

Indeed, using Shutl's business plan, eBay Now has started offering express service in Chicago this week. The company plans to expand the eBay Now service to 25 markets by the end of 2014, including Dallas later this year, and select international markets in early 2014.

On his company's blog, Shutl's Founder and CEO Tom Allason commented, "eBay is a global commerce and payments leader. Its Marketplaces business is one of the world's largest, connecting millions of active users globally. Beyond eBay Marketplaces, the eBay portfolio spans to include PayPal, eBay Enterprise, Magento and StubHub. Together, with the eBay portfolio, we have the ability to help define the future of shopping. Bottom line: This is very far from the end of the road for Shutl. Rather, this is a doorway to a much greater opportunity; one that we at Shutl can't wait to start executing on."

Taking notice

Meanwhile, other downstream vendors are taking notice. United Parcel Service (NYSE: UPS  ) and FedEx (NYSE: FDX  ) both have begun strategizing for a piece of what they believe will be a $12 billion pie — just from daily intra-city delivery of small packages nationwide.

Partnerships are sure to be a component of their deals. For example, Seattle-based UPS has partnered already with Wal-Mart Stores (NYSE: WMT  ) for a holiday season pilot program this year that will charge customers in northern Virginia, Philadelphia, and Minneapolis a flat fee of $10 to deliver popular items such as toys, electronics and sporting goods.

FedEx is testing FedEx SameDay in 20 U.S. cities, Manish Kapoor, the managing director for SameDay City, told Bloomberg. The service's list price for standard deliveries under 5 miles is as low as $13, down from the $25 fee that initial market research had suggested, Kapoor said.

And not to be left out, the U.S. Postal Service is investigating same-day service as well, with a one-year pilot test conducted on the well-worn streets of San Francisco that began during the 2012 holiday season. The delivery program, called Metro Post, seeks to build on the post office's double-digit growth in package volume to help offset steady declines in first-class and standard mail. Although the program has not concluded yet, it is projected to generate between $10 million and $50 million in new revenue from deliveries in San Francisco alone, according to postal regulatory filings — or up to $500 million, if expanded to 10 cities.

Cutting to the chase

It's really all about convenience. Just as booksellers are bowing to the inevitable (think Borders), so, too, will other retailers that lack a gonzo online presence and supporting  partnerships — if not this shopping season, then several down the road.

The transition already has started. As store traffic tapers off and online transactions take off, the smart money will be on e-commerce providers. 

Investing in the changing face of retail

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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