Amazon.com's Next Target: eBay Inc.

Most headlines regarding Amazon.com (NASDAQ: AMZN  ) focus on the retailer's latest innovations or direct competition with bricks-and-mortar giants such as Wal-Mart (NYSE: WMT  ) . While these are certainly critical elements of Amazon.com's growth and the investment thesis for investors trying to make sense of the company's valuation, Amazon.com is waging a number of other competitive battles. One of the more significant and often under-appreciated aspects of Amazon.com's evolution is its increasingly direct competition with eBay (NASDAQ: EBAY  ) .

Third-party seller growth
eBay's core marketplace business is relatively simple: the company has created a dynamic environment in which small businesses and individuals can get easy access to millions of potential buyers online. Within this business, eBay's auction-format sales declined over 14% in April compared to the prior year, while sales of fixed-price goods grew 18%. While some may consider 18% growth in fixed-price goods sales a highlight, it is dwarfed by the 27% growth in third-party merchant sales at Amazon.com.

In fact, Amazon.com has reported higher "same store sales" than eBay for every month of the past year according to Channel Advisor. There are plenty of anecdotal stories about higher average selling prices on Amazon.com and more efficient user interfaces, but Amazon.com's fulfillment services differentiate the companies. The ability to outsource fulfillment logistics is a significant competitive advantage that attracts small businesses to sell on Amazon.com.

One-of-a-kind items
While most consumers continue to think of Amazon.com as a place to search for the lowest price on commodities such as books or DVDs that are sold by any number of retailers, Amazon.com is also inching into eBay's territory by expanding its website to feature one-of-a-kind items such as fine art.

Source: Amazon.com

Just two weeks ago, Amazon.com announced its most recent expansion into collectibles: its collectible coin store. With this most recent expansion, Amazon.com is hoping to gain a foothold in the collectibles market. This is significant for two reasons. First, collectible coins are a surprisingly large business, with estimated sales that exceed $3 billion in the United States last year. Second, the collectibles market is highly fragmented and has not faced significant disruption or new competition since eBay first exploded onto the e-commerce scene; this provides Amazon.com with the opportunity to capture significant market share.


Coins from the Saddle Ridge Hoard
Source: Amazon.com 

Additionally, the new collectible coin store is yet another example of how Amazon.com finds new ways to attract customers to its growing ecosystem. A collector may come to Amazon.com in search of a rare coin from the recently discovered Saddle Ridge Hoard, the largest discovery of buried treasure in the history of the United States, and also add a DVD player or box of golf balls to the cart before checkout.

As with many of Amazon.com's initiatives, significant cross-selling opportunities exist whenever a customer visits Amazon.com with one goal in mind and ultimately finds other items to purchase as either part of the same transaction or through a subsequent purchase.

Amazon Payments will rival PayPal
The heart of the investment thesis for eBay is often PayPal, which accounted for 43% of eBay's revenue last quarter. Amazon.com has been slowly expanding its payment infrastructure to collect payments on behalf of other companies. Reports that Amazon.com will begin to serve as a payment-processing intermediary for subscription businesses highlight the latest encroachment on PayPal's leadership position. The effects of Amazon.com's challenge to PayPal will take years to measure, but this very well could be the beginning of the end for PayPal.  

It is certainly premature to declare Amazon Payments the long-term winner over PayPal. However, given Amazon.com's history of highly aggressive pricing for services such as its cloud-computing platform Amazon Web Services and the rumors that a new Amazon smartphone is just days from launch and could feature mobile payment features, certainly a number of reasons exist to believe that Amazon.com could launch a strong competitor to PayPal.

Amazon.com strengthens its ecosystem
Amazon.com's focus on third-party sellers and one-of-a-kind collectibles could turn into yet another competitive advantage. With integrated fulfillment services and access to millions of items available for rapid shipping, both buyers and sellers will have plenty of reasons to select Amazon.com as the default destination for buying and selling items that were previously only available on eBay and smaller collector websites. 

Meanwhile, third-party inventory and collectibles are not something that traditional bricks-and-mortar retailers like Wal-Mart have ever considered as part of their business models. As a result, Amazon.com has found yet another way to offer products to consumers that most retailers cannot match and are not equipped to add. Each time Amazon.com can accomplish this, the company will continue to drive more traffic to its website and divert potential customers from competitors such as Wal-Mart.

By grabbing market share from eBay and offering more products that cannot be found at Wal-Mart, Amazon.com continues to differentiate itself from the competition and expands its lead as the most innovative retailer in the world. Investors who believe in Amazon.com's ability to maintain this trend over the long term will be well served by owning shares in the company over the next five years.

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  • Report this Comment On June 15, 2014, at 10:15 AM, PhilipCohen wrote:

    eBay Launches Full-Price Major Designer Shops …

    http://www.ebay.com/rpp/designer-collective

    “Buy direct from brands you love [on eBay]”

    What on Earth gave eBay’s Johnny Ho the idea that any woman who was prepared to pay the full retail price for any expensive, branded, “designer” item, would pass up the opportunity to “be seen” buying that item in a fashionable designer B&M retail outlet, and instead, would choose to anonymously buy the item (at the full retail price) on his clunky, atrophying marketplace? Maybe it was another delusional idea from another of his “thinking days” …

    The likes of Kim Kardashian may “sell” (to put it figuratively) on eBay but I doubt she would ever buy on eBay, for you cannot “be seen” buying, on eBay …

    Dream on Johnny Ho …

  • Report this Comment On June 15, 2014, at 10:17 AM, PhilipCohen wrote:

    In the meantime, the cretinous Johnny Ho is still driving the eBay lift and it is "Going Down!" ($48.06 on June 10—Ouch!); still, when the hot air generators in the eBay Dept of Spin finally grind to a halt, and this ugly, unscrupulous corporation finally implodes, it may well be safer to be in the basement than on one of the top floors ...

    Notwithstanding that the eBay Dept of Spin likes to claim a “400% increase” in eBay’s stock price since the 2008–2012 global recession, the fact is, in August 2007, immediately prior to the start of the GFC, when the "Pain From Bain", Johnny Ho, was already effectively in control of eBay, the share prices of eBay and Amazon were both ~$40; with eBay recently <$50 and Amazon >$300, clearly, the “smart money” on Wall Street recognises eBay to be a "dog", and Johnny Ho to be a very poor dog handler ...

    One also has to wonder if eBay founder Omidyar has ever thought about just how much more fabulously wealthy he might now have been had he not ok'd the handing over of the control of eBay to the delusional, unscrupulous, destructive, incompetent, narcissistic, sociopathic Johnny Ho? Indeed, had he, in August 2007, traded in just the ~108 million eBay shares that he still holds today for shares in Amazon, instead of ~$6 billion, his worth would now have been ~$32 billion! Now that, surely, is something for all of eBay's long-suffering "long" investors to think about, is it not? ...

    So, just how much longer can eBay’s Johnny Ho last? Or does Bain & Co not accept returns on the basis of SNAD? Now in the seventh year of his “three-year turnaround” of eBay, surely, any other CEO would have been shown the door long ago on the performance of eBay under the direction of Johnny Ho. What then is it about eBay's BoD? Are they all asleep, or simply as equally stupid as is obviously the Ho?

    eBay Inc, where the incompetent mingle with the malevolent and the outright criminal, and the just plain stupid ...

    http://www.ecommercebytes.com/forums/vbulletin/showthread.ph...

  • Report this Comment On June 15, 2014, at 10:19 AM, PhilipCohen wrote:

    Amazon / Apple / Braintree / Dwolla / Facebook / Google / ISIS / Square / Stripe / Telcos / Whoever Payments—the reality …

    “My theory, which I stick by today, is that AAPL’s end game is to develop a broad-reaching e-commerce engine that will compete not only with PayPal, but also [with] traditional credit card companies. More recently, some of the pundits that cover AAPL have arrived at similar conclusions.”—Paul McWilliams, supposed “technology stock expert”. …

    “Back in 2012, I wrote that Apple would eventually kill off Visa and MasterCard on thestreet.com.”—Forbes Contributor, Richard Saintvilus.

    http://www.forbes.com/sites/schifrin/2014/06/04/are-masterca...

    “Apple, or any future competitor that has already built a base of trust, could begin tomorrow and charge half the commission of eBay, Visa, or MasterCard, … and the concept of real competition [for eBay’s “PreyPal”] in the space is farfetched for the next few years.”—John Ford, SeekingAlpha Contributor [either an eBay shill or, more likely, simply a fool] …

    http://seekingalpha.com/article/2256903-ebay-quality-at-a-ve...

    What nonsense! Do any of these commentators have any understanding of how the retail banks’ payments system actually works, or how eBay’s clunky “PreyPal” actually works (or, too often for the merchant, does not work)?

    The safe way: Payer’s Bank > Credit/Debit Card > Merchant’s Bank.

    The other way: Payer’s Bank > “PreyPal” > Credit Card/ACH > Merchant’s Bank?

    The professional payments networks, ie the "bankcards", Discover (~2%), MasterCard (~33%) and Visa (~52%), plus Amex (~12%), still process ~99% of the world's retail payments between them, and the "bankcards" already offer an "instant loan" model—for what otherwise is a "credit" card? And, Amex will have difficulty growing its market share any further because it has little chance of ever matching the vast merchant coverage of MasterCard/Visa until it matches the lower merchant discount fees charged by MasterCard/Visa …

    So, notwithstanding the constant talk of “disruption”, it appears that nothing has yet “disrupted” the two major bankcards; and I have no doubt that absolutely nothing in Apple’s “mobile” plans (short of buying their own bank, which still will not give them unfettered, interactive access to depositors’ funds in other banks, except via MasterCard/Visa) will disrupt the existing bankcards. The fact is, Apple does not now have interactive access to depositors’ funds in retail banking accounts, nor is Apple, or anyone else, ever likely to get that access—except via MasterCard/Visa; any other way is at the ultimate merchant’s peril, as the great many negative stories all over the internet about “PreyPal” attest.

    Like all the other pretenders, “Apple Payments” will always be riding on the back of the same retail banking networks that they currently do, via their own retail banker, as simply one more, albeit very large, "Credit Card Merchant Account" operator. And, any credit that Apple might offer to supply will still have to be provided via an agreement with a licensed and regulated credit provider (ie, a real bank), as is already the case with that clunky other "payments pretender", eBay's infamous "PreyPal" …

    Even if these payments middlemen make use of direct debits via the ACH system (as “PreyPal” prefers to do to more cheaply access payers’ funds), such access is not interactive—there is no immediate acceptance of the debit by the bank nor any guarantee that, the following day, the bank won’t reverse the debit due to an insufficiency of funds. The simple fact is, direct debit via ACH is not a suitable mechanism for physical point-of-sale transaction payments where the goods involved are going to immediately walk out the door (nor was the relatively primitive bank-to-bank ACH system ever intended to be used as a mechanism for non-bank middlemen to access funds for such transactions); the only safe route for a merchant for such transactions (credit or debit) is via a retail bank Credit Card Merchant Account with its interactive linking to the retail banking system …

  • Report this Comment On June 15, 2014, at 10:19 AM, PhilipCohen wrote:

    The choice of the payment vehicle, from those offered by the merchant, is driven by the payer who directly bears none of the cost of such choice. Sensible payers have their funds stored in a licensed, prudentially regulated, financial institution; world-wide these institutions issue MasterCard/Visa credit/debit cards—and now the “digital wallet” extensions thereof—to enable depositors to easily access such funds on- and off-line. And, unlike the “pretenders”, the retail banks offer an effective and balanced transaction dispute resolution process for MasterCard/Visa transactions.

    People should therefore stop kidding themselves; not Apple nor any of the other "payments pretenders" (including Bitcoin) are ever going to have a noticeable effect on the “bankcards”, MasterCard/Visa and their new “digital wallet” extensions—other than to make MasterCard and Visa even better long-term investments ...

    What then about Bitcoins? Obviously, I’m missing something, but why would any buyer choose to complicate any retail transaction by paying with Bitcoins, which are effectively a volatile “foreign” currency requiring a ~2% FX conversion fee (~1% at each end)—even for a local transaction—and has no transaction dispute resolution process?—Dream on Bitcoin fanboys …

    And what about eBay’s “PreyPal? Well, next time you visit The Home Depot, ask a cashier how the eBay-subsidized "Pay Here With PayPal" experiment is going—LOL ...

    But, back to Apple. “… with the company being privy to payment card details of hundreds of millions of iTunes users”

    With the advent of the new, professional, all-purpose “digital wallets” from both MasterCard (“MasterPass”) and Visa (“V.me”), I suspect that it is only a matter of time before such “credit card details” (ie, card numbers) will not be manually useable for making a payment (or will come with a higher discount fee, as is currently the case sometimes with “card not present” transactions), for it is the possible fraudulent use of these card details that is the real, and costly, ongoing weakness of the card system. From a security point of view, I see such card details becoming nominal only and the likes of the “MasterPass” and “V.me” digital wallets (accessed via mobile or plastic card, or online) becoming the dominant vehicle for all retail transactions—on- and off-line—with much improved efficacy and security for all stakeholders …

    Regardless, finger print reading or an NFC chip only makes a smart phone a little smarter; a “payments system” it does not make. But, an NFC chip should facilitate the use of the new “MasterPass” and “V.me” digital wallet apps …

    Methinks there are no long term “spoils” in retail payments for Apple or any of the other payments middleman—only for those that otherwise keep safe our surplus funds—the licensed, prudentially regulated, retail banks …

    Yes, there are presently some anachronistic features of the credit card system; the operational card details imprinted on the card and recorded on the card’s primitive mag strip are serious, fraud enabling, anachronisms and, undoubtedly, those anachronism will be phased out following the implementation of the approaching mandated EMV Chip+PIN regime (where the PIN may not be required for nominal value POS transactions), and the new MasterCard/Visa digital wallet extensions thereof.

    And, finally, how can anyone have a discussion about retail payments, without mentioning the two elephants that have recently entered the room, the new, professional, infinitely more secure and smooth working “digital wallets” from MasterCard (“MasterPass”) and Visa (“V.me”)? …

  • Report this Comment On July 18, 2014, at 5:33 AM, NinaSerentsia wrote:

    Oh, serious decision - well, what's the amazon thinks on that term

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