A story in BusinessWeek talking about the problems with eBay’s auction system as fixed-priced sales start to become more prominent attracted a lot of attention with perhaps the most intriguing being a paragraph buried in a ReadWriteWeb post.
eBay’s real future may lie with PayPal, though. PayPal accounted for just $559.7 million of eBay’s total revenue last quarter (approximately a quarter), but year-over-year revenue has increased 34% — the best year-over-year growth rate of any division at the company except Skype (which makes up just a tiny fraction of the overall business).
This raises an interesting strategic scenario: what if eBay sold or spun off its e-commerce business, while keeping Paypal, the world’s largest online payment service, and Skype, the world’s largest VoIP service provider?
It would be a radical move but think about it: eBay’s e-commerce business is a mature operation starting to struggle for growth, while Paypal and Skype are high-growth businesses with huge prospects.
Last year, eBay’s e-commerce sales climbed a modest 24% to $5.3-billion, while PayPal revenue jumped 34% to $1.92-billion (57 million active registered users) and Skype sales soared 96% to $381.8-million (276 million registered users).
While that’s impressive, think about how much better Paypal and Skype could perform if they received some more strategic love and attention as opposed to being supporting actors to the e-commerce business.
So, let’s assume eBay decides to completely re-invent itself by selling the e-commerce business to someone such as Amazon, the most logical buyer. This would leave eBay as a $2.3-billion business growing at about 35% a year.
Assuming this new business continues to expand by 35%, you’re looking at a $9-billion business within five years – which would make it bigger than eBay is today.
Based on back-of-the-napkin calculations, it’s a tempting strategic option. Unfortunately, it’s unlikely to happen. Given e-commerce is where eBay got its start, the idea of abandoning it for online payments and telecom would be an enormous strategic shift. For one, it would be hard to imagine that founder and eBay chairman Pierre Omidyar would support it. Still, it’s a fascinating idea.
So, what do you think?
2 Comments
an interesting idea Mark and while I don’t claim to be a business genius it would seem to make sense.
I believe eBay will never change its own core business.