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7 posts from October 2011

October 30, 2011

Analysis of the impact of eBay's 10/11 GMV changes on Q3 GMV

11/1/11 -> IMPORTANT NOTE: I made an inaccurate assumption in this post that eBay started including S+H (which they do for sellers, but evidently not for Wall St.) which I have detailed and corrected in this subsequent post.  I'm leaving this post intact with this note as I reference it in the correction.  Please read both as the second post clarifies the mistake and recalculates eBay's Q3 gmv growth based on the new data.

A couple of weeks ago, I covered eBay's Q3 results and pointed out that Jeetil Patel at Deutsche Bank pointed out that many of eBay's US y/y gains could be attributed to eBay's fee change and how they calculate GMV.

Since writing that, I've received a ton of questions from sellers and Wall St'ers.  Sellers have argued that they think it was a pretty material change and many point out that it was a substantial fee increase for them.  Wall St'ers have been arguing that the impact was either very small or very large.

Long-time readers will know that these types of 'inside baseball' aspects of e-commerce are where we thrive so I thought this would be an interesting topic to really roll up your sleeves and dig into. 

Background

In March 2011, eBay announced that starting July 6, 2011 (Start of Q3 2011) that they would start charging eBay FVF fees on not only the 'core' price of an item, but the 'core'+S+H.  At the same time, eBay lowered the FVFs to balance out what would have been a fee increase.   In this post, we're more interested in GMV and not fees so I'm only looking at the GMV impact.

For example, if we sold the same Item on August 1 2010 (before fee change) and August 1 2011, they would have different GMV if they charged S+H.

August 1 2010 - $75 item with $10 S+H = $75 in GMV

August 1 2011 - $75 item with $10 S+H = $85 in GMV

It's this change in the definition of GMV that Jeetil pointed out could be the source of eBay's y/y growth in GMV.

Calculating the impact from the fee change

Before we calculate the impact from this change, here are some facts that I dug up with their sources that are the foundation of what we need to know before we make the calculation.

  • 2010 Q3 GMV was $4.9b in the US, ex-autos
  • 2011 Q3 GMV was $5.6b in the US, ex-autos
  • Y/Y GMV Growth was 14% or $688m
  • 2010 Q3 % of items that had free shipping was 30%
  • 2011 Q3 % items with free shipping 40%

 

So to figure out the impact from the GMV change, we need to figure out how much S+H there was in 2010 that wasn't in GMV to see how much of that $688m would be attributed to the GMV change.

If we assume a $75 ASP, then in Q3 2010 there were $4.9b/$75 = 65.5m items sold

30% of those items had free shipping - so we take them out.  The fact that free shipping increased doesn't really matter because the fee structure still makes it a GMV increase on those 10% items because most sellers simply moved the S+H into core as there was no financial incentive to NOT do that (which begs the question,why hasn't everyone done that - a story for another day).

Therefore, of our 65.5m items, we had 70% with S+H which is 45.7m

Now a tricky part of this calculation is: "What is the average S+H paid by buyers when it is charged by sellers - excluding free shipping."   Well, it just so happens that at ChannelAdvisor this is the type of data that we basically have at our fingertips and it turns out the answer (from 10's of millions of eBay transactions) is $12.46.  This may seem high, but remember this includes everything (as does the fee change).  Golf club sets, tables, power generators, jeans, expedited shipping, etc.  Everything.

Given that datapoint, we have 45.7m * $12.46 = $570m

$570m is the approximate amount of S+H that was NOT part of GMV in the Q3 2010 calculation.

Therefore of the $668m increase in GMV, we can approximate that $570 of that was from the addition of S+H to the GMV calculation or:  668-570=100m

 

Conclusion

Putting it all together, it looks as if $570m of the increase was from the change in GMV and $100m was true 'organic' growth (e.g. more stuff was sold and not a change in GMV calculations) which equates to 2% organic growth in the USA.

While I definitely agree the fee change was the 'right thing to do' as it stops the mis-aligned incentive to charge high S+H,  it does look as if eBay's US GMV was essentially flat vs. growing with e-commerce.  Since the change went into effect in July 2011, we'll have three more quarters until we annualize the change, so you could argue that the change also guarantees eBay a ~13% (The ratio of $12 to $87 total cost) y/y increase from one simple change.

A couple of assumptions that could be off:

  • $75 ASP - this is our data and is probably on the high side of overall eBay
  • $12.46 S+H - While this is true for ChannelAdvisor's broad customer base, it could vary for all of eBay

Actually these probably counteract each other and you largely end up with the same range of an answer (e.g. a $50 ASP and $10 S+H is $686m) so this is actually conservative in that sense.

 

What do you think?

Hopefully this puts some real data around this GMV y/y topic and answers everyone's questions.  I'd love to hear your thoughts in comments.

 

 

 

 

 

 

 

 

October 20, 2011

eBay Q3 2011 Results

Yesterday (October 19, 2011), eBay released their third quarter 2011 results.   While these results are covered in detail by various Wall St. firms, we wanted to pull out some highlights that are relevant for eBay sellers.  Note that all of my numbers are ex-autos and ex-fx to get a clear picture of what's going on.  I also pull a lot of information from the conference call that you can get on replay from ebay's investor site or read the SeekingAlpha transcript here.

 

Key Metrics from the Q3 2011 Results (Marketplace unless otherwise denoted)

  • Overall GMV was up 11% 
  • US GMV was up 14% (vs. e-commerce at 13%)
  • International GMV was up 10%
  • Active users grew 6% to 98.7m
  • Fashion was up 18%
  • Parts was up 23% (Complete category data is in the category details below)
  • Items with free shipping grew to 40%
  • Every day over 500,000 items are sold with free shipping in the US
  • eBay now has 3 purchases/sec on mobile
  • Sold items were up 10% - a 2 point acceleration from Q2
  • eTRS sellers now represent 45% of GMV and are growing 23% y/y
  • PayPal - up to 63 of top retailers (Added Target, JCrew, Zara)
  • PayPal on eBay grew to over 73% - up 2% - Note this should really accelerate as the Cart is PayPal only - I don't think Wall St. analysts understand this, so probably a lot of PayPal upside starting in Q4 as this number essentially goes to 100% (or whatever it would be ex-autos)

All in all, it was a solid quarter and eBay seems to be growing right along with e-commerce which is good as they were losing share there for a while when they were lagging e-commerce.  eBay's margins dipped in the Quarter and their fourth-quarter forecast was below expectations which has the stock down ~4% today as Wall St. resets expectations.  Also, a lot of people are worried about the PayPal growth rate which was it's lowest ever (around 32%).

The Q+A session is always the most interesting and here's a couple of nuggets from that.

eBay not going to compete with FBA

An analysts, Matt@Wells Fargo, asked (paraphrasing here) ....what about the test on fulfillment...

-I suspect he was asking about this fulfillment program that was announced in June to help Chinese sellers with CBT into the US. Swan and JD didn't seem to know what he was talking about and Swan answered about GSI and then JD added this interesting tidbit:

One of the interesting things is we mentioned earlier that top-rated sellers represent almost 45% of the GMV on the U.S. site now, U.S. eBay site. And most of our top-rated sellers are reasonably sized businesspeople, and they're not looking for fulfillment support. They actually feel like they've got their fulfillment capabilities and shipping abilities up to retail standard. So it's not a loud crying need we feel with the fastest-growing segment of the eBay seller base.

Which should put to bed all the rumors that they acquired GSI for the fulfillment capabilities to compete with FBA.

Large Merchant Program

Interestingly they really played down the large merchant program and highlighted the Coach Factory Outlet deal which was really a coupon and not a true large merchant deal.

They did discuss the eBay Factory Outlet which was good to hear.

Category Details

One of the more popular features we publish is the detailed category information which you can see in this chart (click to enlarge).

Ebay_cats_q311

As you can see the Coin category continues to do very well due to the demand for Gold and other precious metals.  I haven't seen any press on this, but eBay has even opened a bullion center to make it easier to buy gold which you can checkout here: http://goldandsilver.ebay.com/gold  (Hey if you put your life savings into this, you get a free coin - eTRS!).

Sometimes when eBay publishes results, everyone on Wall St. gets excited and upgrades the stock, etc. (bullish), other times they are very upset with the results and turn Bearish.    This time there was an interesting mix of opinions and I wanted to share some highlights that are applicable to sellers.  Only time will tell which camp is right.

The Bear case

Jeetil Patel @ Deutsche Bank has some interesting observations that add up to a bearish view on eBay's Q4 and 2012 prospects:

  • First he points out that it's somewhat apples and oranges to compare GMV a year ago to today because eBay now charges on S+H as well as core.  Only 30% of the items a year ago had free shipping so that's 70% of the GMV that saw an artificial bump from S+H inclusion.  If the average item with S+H had a 8-10% ratio of core/S+H (e.g. $50 item with $5 shipping) then the bottom line is a good 8% of the y/y GMV growth could be attributed to that fee change vs. true organic growth.
  • JP points to European weakness and eBay's explanation that it was due to Euro fluctuations.  JP theorizes that perhaps the true root cause is competitive pressures from Amazon in the region.
  • Finally, Patel summarizes: 

Simply put, we think that eBay is approaching an inflection point in its business in that competitive pressures (specifically Amazon Prime and FBA) are likely to shift consumer demand away from eBay in coming quarters. Increasingly, we think that eBay’s underlying economics work in high ASP and high-margin categories, yet in low-ASP and low-margin categories seller economics look to be negative. These economics are constantly being pressured by lower product pricing.

The Bull scenario

Shawn Milne at Janney had one of the most glowing bull cases on the Q, highlighting these points:

  • eBay's playbook of driving traffic to eTRS will improve the buying experience
  • Increasing selection and improved buyer experience will allow the company to start taking share.
  • PayPal will continue to be a strong grower.

Which side of the fence do you fall on?

SeekingAlpha Disclosure - I am long Amazon and Google.  eBay is a strategic investor in ChannelAdvisor where I am CEO.

 

 

 

October 12, 2011

Live (stream) blogging from eBay/PayPal's X.commerce Innovate

While I couldn't be there in person, eBay has thankfully implemented a live stream and we have a team there.  This is the live blogging of the JD keynote.

Check back for thoughts in real-time.

 

Our Platform, your Imagination

  • eBay started with some good loocking staging and the theme "Our Platform, your imagination"
  • They played a video that went by fast, my takeaway: "By 2013 all global commerce will be $10T" (that's not e-commerce that's ALL commerce).

Naveed Anwar takes the stage.

Naveed is the head of community at x.com and the spokesman (the Griff of X)

Main talking points:

  • Over 3000 attendees
  • Tons of change in the industry
  • Consumers are in control.
  • Merchants - eBay "We need help!"
  • In order to win, it's not spending the most, it's keeping up with the pace of innovation
  • Having the tools and capabilities to get ahead
  • We want to help you get ahead and sell more stuff
  • Bunch of talking points/housekeeping about the conference
  • X.commerce is a platform and a community with over 850,000 developers
  • Over 300 x.commece engineers at the conference

Introducing JD - a developer friendly CEO.

But first a video:

  • What will you change?
  • Shows some notional retail examples/challenges like a lady flipping through 100's of coupons
  • Hats are boring then some code makes them cool
  • iPhone user gets a real-time coupon
  • People use NFC to pay at retail
  • Hardware sales guy makes a ton of dough
  • Developer pets dog
  • The future of commerce begins today.

JD takes the stage

Jd_xcom

  • We are on the cusp of transformative change
  • I believe we will see more change in how consumers shop and pay over the next 3yrs than we've seen over the last 15yrs.
  • Why? 
  • We used to think about offline and online.
  • How many of you have been in a store and used a smartphone app to buy from phone?
  • Yep - happening all over the world - lines are blurring.
  • We are taking the e out of e-commerce which makes it $10T opp->

Taking_e_out

  • Half of offline goods were influenced by online.
  • It's about commerce (period).
  • As we think about it, the consumer is in charge (and they are all green with one eye ;-)

Consumer_humb

In fact we'll do $5b on eBay in mobile this year and $3m will be paid with paypal (does that mean that $2b won't pay with paypal - I've never understood why the paypal number isn't bigger than the eBay number?)

 Merchants of all sizes must innovate:

Merchant_diagram

 JD then talks about some convos with retailers - 

  • "How do we go global?"
  • "What do we do about groupon?"
  • "How do I drive foot traffic in my site?"
  • Germans want to go global
  • "We need more data about our customers!"
  • You need data to compete in this world.
  • We are retailers, we want to delight customers, we are not technologists

 eBay was fortunate 15yrs ago to be at the epicenter of this.  And now we are at the doorstep of a transformative period.

This is our goal and we will not compete with you! (Amazon dig)

JD wants to talk about x.commerce today, not eBay/Paypal/GSI.

History of X.commerce

  • 2yrs ago, I said that developers are our new third customer (buyers/sellers/developers)
  • Last year we demod some really innovative mobile/digital stuff
  • Gave us feedback - "If you want us to help you, build exciting innovations, then we want more than payments."

Today we are announcing X.commerce - it's an open commerce operating system stack ecosystem (?).

We're bringing together the full stack of e-commerce services so you can drive innovation.

No single company can provide all the solutions.  They need different solutions by vertical, solution, etc.

Our goals:

  1. We are going to partner and make acquisitions to build the full commerce stack.
  2. We are going to be open - Paypal is open, so is magento, GSI will be next year with V11
  3. We want to make it easy. It's not a loose collection - come to one place to get everything you need.

In summary, eBay is going to enabled commerce (no e).

JD closes with a video before he introduces Matthew.  The video features:

  • Newegg, monster cable
  • Yahoo stores
  • Consumer is changing rapidly, social, etc.

Matthew Mengerink (GM of Xcommerce)

  • Retail is a platform game - you are either in or out.
  • It's not just a platform, a Fabric
  • A flexible, interwoven fabric that pulls everything together.
  • Tells story about his teenage daughter buying a fleece she didn't want
  • Open is important - respect the developer's and the merchant

About the Xcommerce fabric

  • It's a pub/sub model
  • Allows you to write once and go viral
  • Merchants need what developers are building

Demo 1 - SoccerPro

  • The neighborhood store faces all the competitors online as well as the local competitors. 
  • They have little to no money for technology.
  • We found a store called Soccer Pro that fits this perfectly.
  • We did an extreme makeover
  • (video in the vein of extreme makeover)
  • SoccerPro - founders
  • They have no technology.
  • (FYI This is not soccerpro.com - it's www.soccerprorc.com (No idea what the RC is about))
  • They have two locations in Redwood City (ah that's the RC) and Belmont
  • As part of the makover they gave these guys a free hosted storefront.
  • Demo - setting up store (Magento Enteprrise)
  • They have a new online store (Cygnix did something to help)
  • Now they are pushing some inventory to eBay and milo
  • Now Adobe takes the stage (Bill Ingram - VP of Adobe)
  • SiteCatalyst for Magento (Interesting, most use Google Analytics, not $$$ analytics)
  • Analytics are important

Demo2 - Viviann's handbags

  • They look at Viviann's email roi
  • They look at her product-level conversions
  • Losing 80% of shoppers at checkout 

 You can go to x.com and download the fabric and play with it yourself.

CBT

CBT is a huge opportunity for merchants, but it's an ugly problem.  X.commerce can solve that.

Mazentop - representing YBridal - Shows how they setup a French E-comm site.

Roy from Magento takes the stage

Magento connect - where developers can purchase extensions.  Over 100,000 merchants have access.  You can tap into x.commerce today via Magento Connect.

(Roy leaves, Matthew is back)

 In 2012, we'll be opening this up even more.

Paypal has created a great new way for you to leverage this

PayPal Access (this was leaked earlier this week)

  •  Onboarding customers is hard
  • They have to update their shipping info, etc.
  • PayPal is going to make it easier - stop filling out forms.
  • Login with PPA - THE Commerce Identity
  • Others are focused on 'social access'
  • When I want to use my wallet, I need a 'commerce identity'

Example: tinypay.me (click here: www.tinypay.me)

 Toys R Us takes the stage

Betsy Poirer - Digital Channel Marketing Director

  •  TRU recently introduced buy online, ship to store
  • Now they are bringing in-store to online.
  • Use case:
  • Email from wife- please buy this eBay item (TRU on eBay)
  • Wife reminds him, he's jammed up.
  • Uses the local tab (milo) and finds the item
  • He forgets something and uses Redlaser (now with Milo and paypal integrations) and buys the item for in-store delivery.

(Sorry for the delay - had a conflict)

The keynote wrapped up with Facebook taking the stage. The big hoopla around a big announcement turned out to be nothing major - they are giving Magento developers access to the FB open graph (which wouldn't they already have that?)

SeekingAlpha disclosure - I am long Amazon and Google.  eBay is an investor in ChannelAdvisor where I am CEO.

 

 

 

 

 

October 07, 2011

Could eBay's worst nightmare come true?

Yahoo!'s problem, could be...eBay's problem

There's a ton of press about poor ole beleaguered Yahoo! and what the company is going to do post Carol Bartz.  I'm not an expert on Y!, but it appears that 30-40% of Yahoo! is locked up in Alibaba stock (and they own 40% of Alibaba) and Alibaba has some kind of a right of first refusal that would allow them to block a deal they don't like.  Also, Jack Ma, the crazy smart, sly like a fox CEO of Alibaba recently was reported as saying

(when asked about yahoo) ...Alibaba is "very interested in Yahoo" and then asked to clarify if he wants to buy the Y! Alibaba stake or ? he said: "The whole piece of Yahoo. China is already ours, right? It's already in my pocket. I cross my fingers , just to say we are very, very interested."

If this happened, I firmly believe this could be eBay's worst nightmare coming soon and I haven't seen anyone in the press or Wall St. thinking this through, so wanted to share some thoughts on this topic and get feedback.  One of the benefits of being in the biz for 10yrs+ now is I was first hand at a lot of these happenings.

Ni Hao, Alibaba - a quick primer on China's e-commerce giant

Headquartered in China (Hangzhou to be specific), Alibaba has rapidly built a massive e-commerce company with many subsidiaries.  Here are the very brief highlights: (here is more info)

  • Alibaba Group - Parent company to all of the below.
  • Alibaba.com - B2B (business to business) site for sourcing goods from China.
  • Taobao -C2C ( consumer to consumer) marketplace - the GMV here is bigger than eBay's global footprint, coming in at $120b - that's 2X eBay.  Seems crazy high, but what you have in China is a) a larger marketplace share and b) Taobao owns the market.
  • Taobao mall (tmall) - B2C (business to consumer) marketplace - their GMV is included above I believe.  Tmall has done a great job of recruiting a ton brands to the marketplace.
  • Alipay - Alibaba's payment system that cuts across all of these sites and also is accepted off-network like Paypal merchant services.  A testament to the scale of Alipay is that Amazon.cn takes it as a payment option!  I don't think Alibaba discloses the TPV (Total Payment Volume) of Alipay, but I imagine the bulk of Taobao's $120b goes through here as well as a big chunk of off-Alibaba sites as well, so I'd guess it's > $100b.
  • eTao - Alibaba's search engine - competes with Baidu.
  • AliExpress - US-based B2b portal for US companies to buy pallets of items from China vs. Alibaba which is truck loads.
  • Aliyun- Their cloud computing (think Amazon EC2/S3/AWS) .
  • Yahoo China - Their portal in CN.
  • Other assets - Alibaba is building a huge fulfillment network (think Amazon FCs on steroids) for China, investing billions.

eBay and Alibaba - a long history of butt-kickin' (and it wasn't Alibaba's)

At the height of the Meg Whitman regime's hubris, Meg decided that eBay was going to conquer China.  They acquired a local auction company and proclaimed victory.  AFTER eBay was dominant, Ma started Taobao and essentially kicked eBay out of the region with the exception of some CBT today in 3-4 years.

During the battle, some of the best Meg and Ma quotes surfaced as the two duked it out toe to toe.  Here are my personal favorites that really illustrate the Meg regime and the cleverness of Ma:

  • Meg Whitman at a Wall St. meeting in 2005 when asked about China and are they worried about Alibaba/Taobao: "A bunch of small competitors are nipping at our heels".
  • Jack Ma in response (He's channeling Sun Tzu here): "We want to be the world's largest consumer site." "eBay may be a shark in the ocean, but Alibaba is a crocodile in the Yangtze River.  If we fight in the ocean, we lose - but if we fight in the river, we win."

 If you want a detailed exceptional read of how this played out, Stanford has a great business case study with all the gory details here.  Here's my quick summary of the battle and how eBay lost.

  • 2002 - eBay acquires Eachnet for $180m and is the leader in China overnight.
  • 2003 - Alibaba launches Taobao to deal with the perceived eBay threat - what will become the death blow - Taobao is free for sellers vs. eBay's standard 10% take rate.  Prices are lower by about 10% on Taobao, selection mushrooms, etc.
  • 2003/2004 - Alibaba launches Alipay (2% take rate) and Tmall (also has  fees) - this gives them the monetization to keep Taobao free.
  • 2002-2004 - eBay performs a series of miscues that lead to decreased marketshare such as replatforming Eachnet, a failed payment system and not reacting to Taobao's free structure  - Eachnet goes from 80% market share to 40%.  Meg vows to spend 200m to win in China and spends a month there to help the local team duke it out - famously says: "Free is not a business model." when asked about Taobao.
  • 2005 - eBay Live, eBay kicks Alibaba out of the show at the last minute (classic Cobb/Whitman) at the show eBay announces Global Sources as their premier China partner. In response, Alibaba gave EVERYONE a bright orange bag that were everywhere at the show. You could see smoke coming out of Meg's ears. eBay tried to stop people from entering the hall with them, but gave up when they realized pretty much everyone had them.
  • 2006 (Dec) - eBay capitulates and sells the remaining consumer-facing pieces of eBay China to Tom's online.  Many believe that China+Skype caused Meg's final ousting @ eBay.
  • 2006-2009 - A relatively quiet time where Alibaba completed their dominance of the Chinese market and grew the Alibaba/Tao/Alipay trifecta.
  • 2010 - Alibaba quietly acquires two of the smb-oriented eBay-only selling tools - Vendio and Auctiva and now has a big chunk ebay listings, sellers and buyers flowing through their systems.
  • 2010 - JD goes to China with a white flag for AliFest to talk about wanting to partner with Alibaba - there are some awkward height jokes and Jack admitting he feels guilty for crushing eBay so bad -  JD is very quiet during that part (about 4mins in).
  • 2011 - Paypal drops AliExpress - reports cite Paypal's concern over the growing consumer nature of transactions on the platform.

So we had a lot of activity in '02-05 and it's been relatively quiet lately as the companies stayed in their relative geographies.  Now with Yahoo! in play and Alibaba as a likely buyer/player, we could be looking at another intense period of competition.

The Aligator is coming to the Ocean - why should eBay be worried?

They say a picture is worth a thousand words. Here's what happened to eBay when Taobao turned the model upside down in China:

Taobao_marketshare

So in three years you saw that the battle was over and then by four  years it was totally done.

Based on what we've seen historically, here is the foundation for the 'nightmare scenario':

  1. Alibaba buys Yahoo! (Which Ma has said he wants to do AND he has a ROFR).
  2. Alibaba launches Taobao (probably different name) in the US - with a free or very low business model - say 1-2%. (Ma has stated they want to be the WORLDs largest marketplace).
  3. Alibaba launches Alipay, maybe it has something disruptive like free ACH payments. (No-brainer)

Now you have a proven marketplace as a platform, but to bring it to life you need supply and demand.

Supply

  • More than half of eBay's listings go through the API (and vendors like ChannelAdvisor) - including Vendio and Auctiva.   
  • Alibaba owns Vendio+Auctiva - perhaps they offer free services and zero listing fees to sell on Taobao US.   They could also offer a "click here to list this product on Taobao for 10% less since you aren't paying any fees!" button.  
  • In very short order, Taobao would have a very large selection overlap with eBay.
  • Alibaba has had great success with Tmall and that idea of segmenting b2c/c2c inventory they could easily leverage here. Instead of free, maybe it's 5%  -half off eBay/Amazon and other marketplace's fees.
  • Maybe they build a large FC network - eBay is reticent to do this, Alibaba doesn't seem to have the same concerns as they want the best buyer experience possible and don't have a high margin legacy business to protect.

Demand

  • Alibaba leverages the Yahoo! assets (top three visited site on the internet) to route traffic through these assets (heck maybe they also take on google with eTao?).  Also, Yahoo has Yahoo Shopping and Stores which would be very valuable assets in this game.
  • A marketplace with prices 10% cheaper than eBay would automatically draw a fair amount of supply (see Supply) and offer lower prices to consumers, which has worked very well for Taobao in CN.
  • Alibaba could run a very aggressive campaign promoting their "10% less than eBay" new marketplace to appeal the value buyers out there.  They have the Yahoo! ad network and all those assets to leverage.

This isn't a stretch or unproven strategy, it's the exact same playbook they used in China and that also worked in Japan for Softbank.

But eBay is really PayPal so who cares?

Most folks on Wall St. view eBay really as Paypal plus a marketplace and there's a lot of analysis that demonstrates that eBay doesn't get much credit for the marketplace if you do a sum of the parts.  What's really interesting about Alibaba+Yahoo getting in the game though is you have the first competitive threat to not only the eBay marketplace, but to Paypal.  

Alipay is multi-lingual, multi-currency and even has some features that Paypal doesn't offer.  It could also be leveraged to help US brands sell more into China which Paypal is effectively locked out of as their CBT flows out of China.

What should eBay do?

Well, as you can see, I think eBay has a strong vested interest in keeping Yahoo out of Alibaba's hands.  So you  could see:

  • eBay buying Yahoo! (long shot)
  • eBay helping a group buy Yahoo!
  • eBay has a huge lobbying team - that team could lobby congress to stop such an acquisition.

If eBay isn't able to block the merger, they should batten down the hatches and prepare for some choppy seas.

What do you think?

Readers, what do you think? Should eBay be concerned or am I making a mountain out of a mole hill? Should they make a run at Y!? Sellers - would you sell on Taobao US? One thing is for certain - the Chinese proverb - 'May you live in interesting times' is definitely in play!

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.

 

ChannelAdvisor Same Store Sales (SSS) for September 2011

Note: This is a monthly feature published by ChannelAdvisor highlighting the Same Store Sales (SSS) across our wide range of over 3000 retailers and ~$3.5b in GMV.  Details on the SSS including methodology and schedule can be found in this post.  If you are interested in last month's (August 2011) results you can find them here.

Today we are releasing September data for Marketplaces (eBay/Amazon), Search and Comparison Shopping Engines (CSE) along with extra supplemental data for those that were upset we didn't get to that in August (apologies!).

September 2011 results

September wrapped up Q3 with good strength in most channels and set us up for a solid Q4 2011 (more details coming).  In the World of retail, September gets us out of back to school season and ready for Fall/Halloween costume season which leads us right into holiday.

Here are the highlights from September 2011's SSS:

  • Amazon - Amazon came in at 82%, wrapping up Q3 with a strong showing which I'm sure benefited from the Kindle Fire excitement last week (details on our thoughts here) and more thoughts below.
  • eBay -  eBay had a solid September, coming in at 15% y/y growth which was down slightly from August's 17.8%, more analysis on eBay later in the report.
  • CSE - Comparison Shopping Engines continued to claw back from the Panda debacle and showed only down 11%.  Hopefully they'll get to 'even' for the holiday season.  The big news in CSE land was the new Google Product Search (GPS) requirements that went live 9/22 and you can see the fruits of that data here with more to come for the holidays I imagine.
  • Search - Search had a good pop in September, rising 20.1% - details follow in the Search details section.

SSS Chart

The following chart details the SSS data for September 2010 through September 2011: (click to enlarge)

  Sss_sept_chart 

September Softness?

We had a lot of questions from Wall St. and the media about reported softness in the end of September.  Often deteriorating consumer confidence was mentioned.  Looking at the September data, the only channel that declined from the August SSS was eBay and even that was very minor and not cause for alarm.  Based on September's SSS, we are not seeing any signs of softness.  In fact as you read the channel detail sections below, you'll find some other evidence (e.g. search AOV and CR) that indicate the consumer is very much alive and kicking (even with their sentiment in the dumps).

Amazon Observations

We always declaim in the SSS data that sometimes the SSS data is influenced by software cycles at ChannelAdvisor.  For Amazon in September at Shop.org's annual summit we launched our Amazon 360 major release which in beta we saw materially increase sales for customers.  This likely had some small (2-3%) impact on Amazon in  Q3 and should play a more material role as the software is adopted by our customer base now that it's GA (generally available).

Review of our Amazon Estimates

In our prime coverage we also introduced several ChannelAdvisor-proprietary estimates:

  • Prime - We believe that as of Amazon has 10-12m Prime customers.
  • Prime 'Juice' - When an Amazon buyer joins Prime, their purchase volume goes up 3-4X
  • Kindle Fire - We believe that Amazon will sell 5m units in Q4 and 20m in 2012. 

The real question is how many of these Fire users will add Prime (we believe a large > 50% will as the device isn't as useful without the Instant Video, etc.), and how many will be 'adds' or incrementally new users to Amazon and how many will be (like me) - part of the Amazon ecosystem already.  We'll be carefully monitoring the active buyer count as a key way of looking for the lift we expect to come in on Fire and an indication of magnitude.

Why is Amazon growing > 80% (5X e-commerce)

Other than Amazon 360, the key contributors to the Amazon growth story are what I think of as three intertwined and increasingly amplifying flywheels:

  • Flywheel 1 -> 3P:  Consumers love selection / Sellers love consumers -> 3P explodes the Amazon selection, making it the best-stocked store on the internet.
  • Flywheel2 -> Prime: Consumers love free shipping / Prime gives Consumers all they can eat / Consumers 'lock-in' on Amazon and spend 3-4X / 3P (flywheel intersection!) Sellers love consumers, but need FBA to get to Prime / Amazon keeps large selection, adds an improvement to the consumer experience.
  • Flywheel3-> Kindle: Devices on-ramp people into the Amazon ecosystem / They buy Prime (flywheel intersection) / They also buy a ton of e-books and generally are 'on Amazon' shopping more, which drives more demand for 3p sellers (flywheel intersection).

The last Flywheel is just getting going and we expect the Kindle Fire to add material growth in 2012 on the order of 20-25%.  If these flywheels act the way they have for the last 4+ years, we would not be surprised to see accelerating growth from Amazon in 2012 which is really amazing given the scale they already enjoy.

eBay Observations

eBay had a solid showing in September. Here are a couple of interior datapoints that maybe of interest.

  • eBay Motors Parts and Accessories -  In July P+A grew over 33% and in August ~30%.   In September, P+A cooled slightly coming down to 20.1%.  P+A is seasonal towards the summer months so as we enter the Fall, it could be we're seeing some normal seasonality.  Also we had some very large customers really ramp during that time which contributed to the growth.
  • Format shift - We continued to see significant growth in the fixed-price format vs. auctions.  In September, fixed-price grew at a steady 21.7%, continuing to validate eBay's decision to make fixed-price listings a priority.  Auctions were under pressure decreasing at about 9% y/y on a SSS basis as both sellers and consumers and to some degree (via search mix and what-not) eBay abandon the format.
  • Large Merchants- On September 19th, we covered eBay's launch of EFO in the US which illustrated eBay's success at getting large merchants onto the platform.   Throughout Q3, in addition to EFO, eBay launched some substantial new brands (not in SSS) and we saw good growth in the large merchants over a year old that are in the SSS data.

eBay launched their TV campaign and we have no idea how hard they are running that program.  We haven't seen any evidence positive or negative on the program.

The theme of the Ads is: "When it's on your mind, it's on eBay" and eBay has revealed 5 of the reported 6 ads if you haven't seen them:

12days_thumbnail 

Advertising industry magazine, Ad Week, largely found the ads to be..., well, you have to read their review as I don't think I can give it justice.  Maybe the 12 days of Christmas will turn their thinking around.  Interesting in these days of political correctness they are going with a hard Christmas theme.

 Search Details and Observations

In August, we didn't have an opportunity to share the search data so we are catching up this time with two months worth of data. 

August search details: (click to enlarge)

  Sss_sept_search1 

September search details: (click to enlarge)

Sss_sept_search2 

Inventory-driven-search (IDS)

As mentioned in the Amazon section, frequently software releases can impact our SSS data.  IDS is one that we released in Q1 and is really cooking and a big part of the growth you saw come in for September.  Also, from the metrics you can see positive trends:

  • AOV is up nicely y/y - Consumers are still comfortable with a > $100 cart.  In the 08 recession, AOV and CR were two of the leading indicators that showed the consumer was exiting stage left.
  • CR - Conversion rate is up nicely y/y - again showing stable consumer confidence, but also Google continues to improve the quality of traffic.
  • Clicks - Google continues to increase clicks. That can be any number of things on the pre-click side - e.g. Google showing more ads, quality is higher and getting a higher CTR, and with IDS we are buying a TON of long-tail terms now for our clients so our coverage is surging.
  • Orders - More clicks and higher CR equals... More orders - up 15% plus 4% AOV bump - boom you are up 20%.

 Holiday Forecast

Given this last datapoint before we head into Q4, we still feel very good about the holiday and have been offering this forecast to customers:

  • 80% probability - We'll have mid teens y/y growth in e-commerce for Holiday 2011. I'd say 17% is right where we see it heading today.
  • 15% probability - While the consumer seems to be ignoring the EU problems that are causing gyrations in the stock market while they also plow through the domestic bad news around debt, budgets, joblessness, etc., at some point that could cause a double dip recession.  If we do see a material slow down in Q4, e-commerce growth could trim its sails and slow to the 0-10% range.  That seems unlikely given what we see today, but it's a cloud that still looms out on the horizon.
  • 5% probability - Along with the double-dip cloud is the ray of sunshine that the economy starts picking up steam and we end up with a holiday that is in the > 20% y/y growth range here in the US. 

As for each channel, I think you'll see performance similar to what we saw in Q3, with these caveats/predictions:

  • Amazon - I believe we'll see the holiday continue to front-end load, so Oct/Nov will be > 80% growth y/y fueled by earlier shopping, couch shopping on Tgiving and Kindle Fire excitement.  Overall for Q4, we expect Amazon to come in up 80% y/y with plenty of upside potential.
  • eBay - eBay should continue to grow in-line with e-commerce so the same forecast generally applies.  eBay has a broader mix of upside/downside than Amazon.  Upside: Mobile/Tablet shopping, ad campaign, large merchants.  Downside: CE is sluggish, apparel hasn't been really burning it up, P+A seasonality.
  • CSE - As mentioned, I think CSE goes neutral to slightly positive as they get a year's worth of Panda under the belt.
  • Search - Google has a ton of programs coming that should help them stay in the 5% above e-commerce growth range so I'd put them at 20-25% y/y growth for Holiday 2011

 

 SeekingAlpha disclosure: I am long Google and Amazon.  eBay is an investor in ChannelAdvisor where I am CEO.

 

 

 

October 05, 2011

Groupon Goods - $2m in the first week!

Groupon_goods_logo

Last week, we covered the launch of Groupon's Goods (which I will call GG for short) 'marketplace' here.  It looks like the deals are running every week now as it's Wednesday and folks around the office started to get fresh deals (more on that in a second).  In my original post on Groupon Goods, I theorized that if Groupon could do a deal a day, they could get this up to a multi-billion dollar GMV business pretty quick.

Let's check in on that thesis.

How was week one?

The first week for GG was a solid showing.  As you can see in this table, GG drove $2m in GMV during the first week.

Groupon_goods_wk1

The standout performer was the $40 Altec lansing iPod Dock which drove an amazing 28k units for > $1m in sales or half of the GMV for the week.  The item actually sold out at that velocity so it probably had room to go from there as it sold out in 3 days.

GG run rate

So given what we know:

  • Weekly pace
  • $2m/wk run rate

GG is on a 52*$2=$100m run rate based on this first shot.  What's going to be interesting to watch is where does  GG go from here?  Obviously to get to my $1b, GG has to grow 10X.  Here are some ideas:

  • Wider distribution - I have no idea if this was sent to the whole 131m+ Groupon subscriber base or a subset.  Based on anecdotal evidence, it was a subset. So this is one dimension they could grow on.
  • More deals - The more deals you have, the more GMV. Will they expand from five a blast or increase/decrease?
  • Deeper deals - The Altec ipod dock sold out, what if there had been 48k available, would they have hit $2m in that deal alone?
  • Increased frequency - Right now it looks like this is rolling weekly.  Obviously Groupon is in the daily deal biz, so I suspect they will crank the frequency of this up 6x over time to make it daily.
  • ASP - On average the week 1 deals had an ASP of $56 and a range of $40-440 - there's some interesting behaviors in deal of the day that eBay has seen around the $10-$50 price point where you can really pop volumes at those levels as you tap into discretionary dollars.  It will be interesting to see if Groupon gravitates up/down/neutral on ASP.

Now that week two is out, we see some signs of what Groupon is experimenting with.

Groupon Goods - Week 2 - What does it tell us?

Here's the week two set of deals:

Groupon_goods_wk2_deals

A couple of interesting observations:

  • There is one less deal (4 this week vs 5)
  • The range is $9-$129 (lower than last week)
  • Current ASP is $32
  • One of the deals is already sold out - ice cubes sold out at 4600 units by the time I received the email!

Groupon Goods introduces Variations

One tricky concept in e-commerce is variations or parent/child relationships.  You have a product that has different styles - e.g. colors, sizes, etc.

The little walking clock turns out to come in different colors and here's how Groupon handles it (the guitar does as well)->

Groupon_goods_wk2_variations

More than meets the eye

I did an informal survey around the office and of about 250 people:

  • pretty much everyone subscribes to Groupon (ok we are a pretty e-commerce savvy group, but interesting non-the-less).
  • Only about 50% of Grouponers got the GG deals
  • Women received a slightly different set of deals:

Groupon_goods_wk2_female

So Groupon is actually doing a split/segmented mailing and in total there are MORE deals, just better targeted.  More observations:

  • Groupon clearly isn't hitting the whole list, my guess is it's about half and it seems to be the people that purchased most recently.
  • They expanded, not contracted, the number of deals
  • They are smarter at segmentation (and they know your gender!) than a lot of people give them credit for.

Stay tuned for the Week 2 results

That's actually a lot of progress for a week, so we'll keep a close watch on this to see how it goes as the offering is evolving rapidly.  What do you think of the program so far?  Sound off in comments.

SeekingAlpha Disclosure - I am long Amazon and Google.  eBay is an investor in ChannelAdvisor where I am CEO.  I did not buy the Groupon Goods HotPants (no really).

 

 

October 03, 2011

What do YOU think the big eBay/Facebook announcement is?

A series of three events has everyone in the Press and Wall St. very curious about what's going on between FB and EBay/Paypal.

First, Robert Scoble is a technology blogger who became famous at Microsoft and is now at Rackspace (more on Scoble here and this is his main site).  On September 23rd last week, Scoble was at an unrelated event in the Bay area and let slip that he knows of a big Facebook/eBay collaboration coming soon (presumably at the X.commerce event next week).  You can read the details at TechCrunch.  The exact quote as reported was:

Paypal and Facebook are working on something big to be revealed in two weeks.

Then there was news on Sept 29 that Facebook mobile executive Katie Mitic is joining the eBay Board of Directors.  

Finally, today (October 3, 2011) , Scoble has a lengthy interview with JD out embedded here:

 

In it JD talks about:

"Our teams are working closely together to innovate and and experiment.  how do you bring your social graph into eBay?  How do you bring eBay listings into your Facebook?"

 

So it's a little confusing, because you have:

  • Scoble initially making it sound like a Paypal thing
  • FB's mobile exec joins board which makes it seem like a mobile thing
  • JD makes it seem like a standard eBay marketplace thing.

I thought it would be fun to speculate a little bit on this, so several of us at ChannelAdvisor put together this top ten list.

Top 10 things that FB/eBay could be announce next week

  1. (payments) - Paypal will let you login with FB connect (yawn)
  2. (payments) - FB is dumping credits and moving 100% to Paypal (unlikely, but BIG)
  3. (payments) - Paypal will let you convert your FB credits to Paypal real dollars
  4. (mobile) - FB app will include eBay functionality or Milo or RedLaser or Where geotargeting
  5. (mobile) eBay app will tie in with FB mobile app in some way
  6. (marketplace) - eBay will support FB connect and pull in your graph like other retailers have been doing for years (yawn)
  7. (marketplace) eBay will relaunch it's really terrible FB app (yawn)
  8. (marketplace) FB will dump partner Oodle's 'marketplace' app in favor of eBay. (possible, but yawn)
  9. (payments) - Your eBay/PP activity will be added to the new FB ticker - "Scot just spent $500 on some star wars item and his new balance is $-30!" (unlikely but would be funny)
  10. (most likely) Some type of Barney partnership  around cross promotion of the FB developer community and X.commerce.
  11. (bonus) - eBay attempts to breath life into the dying auction format by making them suddenly social.

 

What do you think is up between the two companies?

It was hard to pare the list down to 10 because there's a ton of areas you could see them poking around together.  For example, eBay's really big on group gifting, so maybe that is the anchor point.

That's what we came up with - what do you think? Put your vote out in comments on one of our options, or we'd love to hear yours.  Of course we'll be reporting on the event as it happens, so stay tuned.

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.