In the late '90s when the dot-com craze was still fresh, dominance of the online shopping world was up for grabs. But there was little doubt Amazon.com (AMZN 3.58%) and eBay (EBAY 6.28%) were the respected contenders to watch.
Since the early 2000s, Amazon has continued to widen its lead on the popular online auction site. By and large though -- at least in the U.S. -- it's remained a two-horse race. Alibaba has shaken things up pretty well on the other side of the world, though the standoff between the two titans of the Western Hemisphere still seemed like a permanent fixture.
As it turns out, eBay can't hold on to its No. 2 spot. For that matter, it's not even the third-biggest online marketplace in the United States any longer.
Something's got to change sooner rather than later if the company wants to remain investment-worthy.
Coming on strong
Shopify (SHOP 5.88%) is the culprit. One data nugget was largely obscured by the coronavirus and protest headlines. Indeed, this number was arguably skewed by the swell of online shopping prodded by stay-at-home mandates. But during the quarter ending in June, Shopify's merchants sold $30.1 billion worth of goods, up 119% year over year. eBay's total gross merchandise volume came in at $27.1 billion, up 26%.
It's the first time Shopify outpaced eBay in terms of total volume of goods sold, but given what we know about both companies, it somehow doesn't seem like the last time it will happen.
It should be noted that Shopify's superiority in facilitated sales doesn't necessarily translate into greater revenue or earnings. Shopify's top line only reached $714 million, versus eBay's revenue of $2.9 billion. eBay earned $770 million in operating income Shopify's operation barely broke even.
Given eBay's 10-year head start, though, the pace at which Shopify is catching up with eBay is concerning to say the least.
A better option
Shopify's pace of progress points directly to a long-standing reality Amazon has been able to ignore that eBay couldn't afford to shrug off. That is, Amazon is big enough to dictate to its sellers how they're going to utilize its marketplace platform -- it's worth the stringent rules and lack of options. eBay's sellers must also use eBay's selling platform as it stands. But, given eMarketer's estimate that eBay enjoys less than 5% of the United States' online shopping market share versus Amazon's 39%, eBay isn't in a strong position to dictate how its vendors operate.
It was started in 2004 as an online selling alternative to eBay AND Amazon, empowering users to custom-build their own online storefronts.
It was a slow start. As recently as 2015, its full-year revenue was only $205 million, driven by gross merchandise volume of $7.7 billion. As tensions between (too) many of Amazon's sellers and the company grew, though, Shopify was found as a compelling alternative. Its tools allow customers to manage an e-commerce operation at their own websites rather than rely on Amazon's marketplace.
Accelerating the adoption of self-managed online shops was and is the growing acceptance of direct-to-consumer. More consumers are increasingly comfortable with buying products directly from a brand rather than an intermediary such as Amazon.com. eMarketer predicated in April that direct-to-consumer sales in the U.S. alone would reach $17.8 billion this year, almost tripling 2017's figure of $6.9 billion. Similar growth is expected going forward.
eBay has mostly sidestepped alienating most of the sellers, but in an era where merchants have enough of the tools they need to reach customers directly, eBay has less and less to offer.
That's not to suggest eBay can't adapt. Current CEO Jamie Iannone only took the helm in April. He's a smart and experienced e-commerce chief, but he took over in the midst of an incredibly disruptive pandemic. It's too soon to say he's not driven whatever changes need to be made.
In light of Shopify's rapid growth in an environment where eBay should have been able to grow much faster, though, there's reason for concern. More and more merchants are now choosing Shopify over eBay. The Amazon threat just became secondary.
Oh, and as for how eBay was demoted to the country's fourth-biggest online marketplace, Walmart (WMT 0.08%) did that. Although the world's biggest brick-and-mortar retailer is somewhat secretive about its e-commerce numbers, eMarketer's estimate pegs Walmart's market share at a bit above 5%. If nothing else, it's a bit embarrassing that Walmart was able to catch up to and then surpass eBay in terms of revenue. Walmart only recently turned up the heat on its online sales effort, and it remains a bit clunky in that regard. Even more alarming is the fact that Walmart and Shopify have also recently teamed up to improve the retailer's online shopping venue.