Is eBay the Wal-Mart of Online Retail?

eBay (NASDAQ: EBAY  ) could be poised to become the Wal-Mart (NYSE: WMT  )  of online retail. Like Wal-Mart, eBay is building its business by concentrating on neglected markets, emphasizing low prices, and developing new technical capabilities along the way.

If you remember your retail history, you know that Wal-Mart grew to be a dominant force in American retail by taking a roundabout route. Founder Sam Walton concentrated on markets ignored by other retailers in the South: small towns and rural areas. Along the way, old Sam built a retailer with tremendous capabilities in technology, distribution, and merchandising that transformed American retail.

Walton was able to do this because he had discovered untapped markets with little or no competition. Wal-Mart didn't have to worry about lots of competitors, unlike K-Mart, now owned by Sears, which concentrated on urban and suburban markets. It had huge amounts of revenues and the room to experiment.

Growth on the fringes
eBay is now in a very similar position. The auction site works on the fringes of the online retail world; it doesn't try to compete head on with Amazon.com. Instead, eBay goes after markets Amazon.com (NASDAQ: AMZN  ) ignores or pays less attention to: small business, start-ups, individual sellers, used items, and thrift stores.

eBay also concentrates on one area that Amazon has so far neglected: finance. It has built PayPal into a sort of bank of choice for the net savvy. There's one other thing that eBay has in common with Wal-Mart: it is constantly experimenting and trying new strategies while improving old ones. Finance in the form of PayPal gives eBay a massive revenue stream to play around with and steady constant cash flow, something that we chart watchers know Amazon lacks.

eBay just spent $800 million to purchase Braintree, a rival electronic payment platform to PayPal. Buying Braintree gave PayPal control of Venmo, an app that allows users to transfer money on mobile devices for free. Braintree now processes around $12 billion in payments a year.

eBay is developing some other interesting capabilities. The company is rapidly expanding its global shipping program, which allows small business and sellers to ship items all over the world at little or no additional cost. eBay sellers like myself can ship to such places as Russia and South Africa for the same rate as Brooklyn or Peoria.

The company is also experimenting with same day delivery services in some cities. Basically, it lets the lazy American order stuff from his favorite store and have it delivered to his or her home within an hour—something that will appeal to busy soccer moms and work-at-home types. This is a concept that could give eBay a vast edge over Amazon.com and eventually threaten delivery services like UPS and FedEx if it works.

These strategies have paid off for eBay; its revenue has grown by nearly $6 billion in a decidedly dismal economy over the past five years. The growth has been steady, and it is accelerating. Investor's will note that eBay's growth bears a spooky resemblance to Amazon's.

Both companies are growing at similar rates; eBay is a lot smaller than Amazon at $66.85 billion, so it has more room to grow. Online retail is exploding, and eBay is poised to take advantage of it.

So is eBay really a threat to Amazon?
My answer to that question is no; I think there's enough room in the world of online retail for eBay, Amazon, and several other giants. Online retail today is where Big Box retail stores were in the late 1970's or early 1980's—just breaking out into the mainstream.

Wal-Mart came out of the South at the moment when average Americans were switching their shopping habits from the neighborhood store to the regional big box. Walton had pioneered the concept in the South, a region where retail choices were limited and people were used to driving miles to shop. When the same shopping patterns emerged all over the country, Wal-Mart was ready to pounce.

Now that Americans are shifting to online shopping, eBay is there with a low-priced alternative to Amazon.com that is more accessible to lower income individuals. Many of them are already familiar with eBay. Amazon.com has introduced Americans to buying online--now eBay is there to profit it from it.

Online retail is about to explode because it is cheap and convenient, much like Big Box retailers did in the 1980's and 1990's. I think there will be enough room for both Amazon.com and eBay, but if Amazon stumbles, eBay could overtake it. Remember that back in the 1980's most observers predicted that K-Mart and not Wal-Mart would be the retailer of the future.

History could repeat itself. Even if it doesn't, eBay has a very bright future in a growing industry. It's also a very cheap stock compared to Amazon.com, although it won't stay that way for very long.

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  • Report this Comment On November 13, 2013, at 11:34 AM, motleyLiam wrote:

    Until eBay actually starts selling physical goods, there is no way to compare them to any other retail giant.

  • Report this Comment On November 13, 2013, at 12:46 PM, foolsmate wrote:

    Is this article for real?

    If nothing else it’s just an insult to those of us who attempt to use eBay to make a living.

    Firstly, as almost every small seller on eBay knows only too well, since John Donahoe took over he's done his absolute utmost to rid eBay of the USP which is its auction business by downplaying its significance at every possible opportunity and hiking fees to ludicrous levels to further his ultimate goal.

    Donahoe has also desperately tried to turn eBay into a hideous Amazon clone by getting rid of as many of the small time Mom & Pop sellers as he can, dismissing them as just ‘noise’. These were the people that made eBay. Without them it will just die. If they aren’t able to sell any more then they sure ain’t going to buy. Ebay is now only interested in the big box shifters and the rest of the sellers can just go jump. Ebay seems to forget that most of these sellers are (or at least were) buyers too.

    Ebay must be the only company on the planet to regularly actively rid itself of whole tranches of its customers. The only reason it can do this is because it’s a virtual monopoly which if it had any realistic competition would cease to exist at all. If you want the real viewpoint from eBay buyers’ and sellers’ points of view don't take my word for it, just read the eBay discussion boards for a few days.

    Anyway let’s take PayPal first. PayPal only survives because its acceptance as a form of payment on eBay is forced on almost all sellers worldwide. PayPal’s very existence relies on eBay and once the take-up of virtual currencies like BitCoin reaches the critical level they are already rocketing towards then PayPal will become completely redundant. Ebay’s ‘investment’ in Braintree will become yet another Skype.

    Next, the Global Shipping Program may provide US sellers with an international shipping option that costs them less but it doesn’t cost the buyer – the person actually paying for the shipping – less. The GSP has hiked international delivery rates so that for most countries on the planet it’s no longer realistic to buy anything at all from a US eBay supplier that uses the GSP. The costs of shipping are just completely prohibitive as they are now loaded with excessive charges, often unnecessary customs duties, and third party profit margins. Exactly how is that providing a better service for customers?

    Ebay’s revenue. The ONLY reason eBay's revenue stream has increased is as a direct result of it hiking the fees it charges sellers to such an extent that in some cases eBay and PayPal fees on a sale can now amount to the completely unsustainable level of 50-60% of the selling price of an item. Yes, you read that right, that’s FIFTY to SIXTY percent - not the 5-8% that eBay is so fond of bandying about to gullible commentators.

    Same day delivery service. You have to be joking here. These aren’t Pizzas that eBay is selling! Like you’re really going to waste your day sitting around at home, assuming of course that you’re not at work, (or that if you are that your boss will be only too delighted to just let you take a few minutes out to deal with the eBay delivery) waiting desperately for that new dress from the eBay delivery man. This fantasy and madness just exemplifies EVERYTHING that is wrong with eBay.

    Let’s move on to look at eBay's value. Although it has rallied under Donahoe's tenure, and indeed has shown quite a reasonable increase over the last five years, that growth is totally unsustainable as there is only so far that eBay can increase fees. Ebay stock still languishes at around $52 while Amazon is now around $350. Amazon’s recent increase alone almost eclipsed eBay’s total price.

    The major difference here is that, like Wal-Mart, Amazon was set up and is still run by a businessman who not only understands what his customers want but actually goes out of his way to listen to them and immediately act on what he hears. Ebay isn’t and to ‘understand’ its customers it conducts carefully worded ‘surveys’ to give it exactly the answers it wants to hear. Ebay does not actually EVER listen to its customers. The ONLY thing that ever concerns eBay is its bottom line.

    Most sellers on eBay would just love the company to be successful so they too could grow their own businesses. With the current management this will never happen.

    Ebay is not and never will be any threat whatsoever to Amazon.

    As you may have guessed by this point I do NOT own any position in eBay stock.

  • Report this Comment On November 13, 2013, at 3:45 PM, Sarentack wrote:

    I agree with you Foolsmate, their was competition at one point that kept Ebay in check, that competition was bidbay and yahoo auctions. Some point during that mess, Ebay must of paid off a bunch of judges to say bidbay was copyright infringing on ebay, however the hell that happened, Yahoo auctions for whatever reason ceased to exist as well, yet their is a Yahoo auctions still up in Japan. Since those places come to no longer exist, Ebay hiked up fees and bought out Paypal and then pretty much force Paypal on everyone, then they take outrageous fees out once you sell an item, and then plenty out from paypal when you receive money.

    Quite frankly, I dont see how much of this is legal on the paypal side when the money is kept in FDIC regulated bank and Paypal acts as a bank account pretty much, they even have debit cards to use with the paypal accounts.

  • Report this Comment On November 13, 2013, at 7:45 PM, maineartswriter wrote:

    Bravo Foolsmate!

    Your comments about ebay are far more insightful and accurate than the article you discuss. The article itself is so entirely off base in terms of the reality of ebay it strikes me that it may have been written verbatim from an ebay press release.

    Foolsmate is entirely correct in that ebay is choking off the essential backbone of their business, the small reputable sellers that market niche goods that are dependent on positive buyer experiences.

    Ebay fees and policies are making selling nearly prohibitive in terms of selling fees and Paypal costs. The policies and sanctions toward sellers border on unconstitutional. Sellers have virtually no recourse toward dishonest buyers which may result in lost revenue, merchandise and covert sanctions at ebay’s discretion by reducing the flow of page views up to 50%.

    The company has yet to contend with the “online retail anarchy" with a significant amount of criminal activity on the site with counterfeiters, money launders and sale of stolen merchandise commonplace. Ebay profiting from the sale of this merchandise has lead to federal lawsuits and litigation costs to future diminish their bottom line and tarnish their brand. In an ironic twist ebay publishes “authenticity guides” which are sometimes written by the sellers of counterfeit merchandise to steer buyers toward their bogus goods and away from genuine merchandise.

    The policies, fees, and lack of seller support have driven a huge number of reputable long term ebay sellers to consider other selling options. BBE or Bad Buyer Experience has no seller equivalent nor is the feedback rating on a level playing field. A buyers feedback on the purchase of a 99 cent widget is considered equal to a seller transaction of a preowned Ermenegildo Zegna suit. The degree of difficulty is dramatically different significantly favoring the buyer and diminishes the importance and efforts of the seller.

    Why is seller support key to ebay’s future success? They own no inventory and the small individual sellers bring the unique difficult to find one of a kind merchandise to the site that will allow ebay to remain a vital and interesting marketplace.

    The original ebay concept is brilliant in its ability to allow individuals to be self-employed in marketing merchandise to a global audience that would be otherwise be inaccessible to an individual seller. Ebay appears to have no real leadership capable of fixing the internal mechanism that continues to grind the gears and is heavily reliant on their other interests to grow and remain financially viable. To attempt to compare ebay's misguided management to Walmart or Amazon with the Walton family and Jeff Bezos who have remained steadfast in their company's evolution is entirely off base with ebay’s well documented waffling for the past number of years.

    Personally I wouldn’t invest five cents in this company. Given the continued mismanagement it is no surprise the stock prices are so anemic as compared to Amazon. Ebay is destined to become one of those truly innovative companies that was mismanaged out of existence. It is crumpling under the weight of its own arrogance as a result of having no real competition. The continued lack of true innovation on ebay’s part is evident with their tiresome outdated multi colored lettered logo. There is definitely a place in the retail landscape for an online “Buy It Now” individual seller format similar to the original ebay formula.

    Ebay biggest misstep was to mistreat the seller base that is the foundation of their organizations income stream, to undervalue the critical element of reputable sellers is like having a Ferrari with no wheels.

    It is beyond my comprehension that a well financed start up with committed visionary leadership has not come to provide a successful alternative.

  • Report this Comment On November 14, 2013, at 2:47 PM, PhilipCohen wrote:

    eBay is demonstrably the greatest calculated facilitator of shill bidding fraud on consumers that the world is ever likely to know ...

    Whatever, the ugly reality of eBay Inc.:

    eBay's crooked auctions marketplace ... bit(DOT)ly/11F2eas

    eBay's clunky, unscrupulous "PreyPal" ... bit(DOT)ly/UVXx53

    The ongoing joke of it all ... bit(DOT)ly/YvxFEg

    Fun quotes from the eBay executive suite ... bit(DOT)ly/12xvzyA

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