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7 posts from January 2012

January 31, 2012

Update on the mobile payment wars (frm NRF): PayPal vs. Google Wallet vs. ISIS vs. NFC vs. ?

I've been following the mobile payment wars pretty closely as I believe the outcome of that battle amongst industry behemoths will have serious implications for overall online commerce.  Essentially if consumers settle on one "mobile wallet", then it seems logical they will want to use that solution for their online purchases as well as offline.

Recently I attended the National Retailer Federation (NRF) Big Show in NY and was surprised by the amount of buzz around mobile payments.  It seemed every POS vendor was talking about it and showing demos of every kind of device being used every kind of in-store experience, including mobile payments.  Of course Google and PayPal/eBay were there in a big way as well.

Also, Howard Schultz from Starbucks (which is the largest mobile payments company right now) recently made some bold statements about Mobile Payments that fit in with our thinking on the topic:

"...the unbelievable way in which mobile payment and mobile commerce is going to change the way in which consumers buy things.”

To that end, Starbucks revealed:

  • In December, Starbucks customers loaded $500m on their prepaid cards (mobile and physical)- up 23% y/y
  • Starbucks has processed 26m mobile transactions since launch 12mo's ago
  • 25% of customers pay with prepaid (mobile and physical)
  • Mobile is speeding up transaction times, creating shorter lines and enabling SSS growth because there are fewer lines

Clearly if mobile payments are already having this impact @Starbucks, they are set to revolutionize the way people shop on and offline.  Most people agree on that, what we don't know is what solutions will win and which will lose. 

To that end, I wanted to update everyone on the latest changes and of course offer some thoughts on where we are in the Mobile Payment Wars.  The sections of news are:

  • Google Wallet takes some steps back
  • PayPal leaps forward
  • Apple?
  • Isis is more than an Egyptian goddess
  • Analysis - We throw in our $.02!

Note: This part of the industry is full of acronyms, here are two all readers may not know:

  • POS - Point of Sale (also there's another version of this one, but I'm talking cash registers in this post ;-)
  • NFC - Near Field Communications - A technology kind of like BlueTooth that allows your phone to talk securely to a POS and transfer/receive payment info.  John Donahoe recently quipped that it stands for Not For Commerce.

Google Wallet takes a couple steps back

Gwallet

Google Wallet (GW) has had a couple of high profile problems since a very strong launch (we covered here) summarized here in case you didn't see them:

  • Verizon blocked the GW System (app, etc.) from all their phones, leaving just one phone and one carrier - Sprint / Nexus that is GW compatible.  This clearly isn't enough to get merchants excited.  Verizon cited that they will focus on ISIS and not allow any other payment system on their phones.
  • Google shuffled their executive ranks on the GW team
  • Most recently, Google announced that their head of payments, Vikas Gupta has left.

Of course Google is Google and you can't count them out of this battle by any means, but this feels like a one-two-three punch that could put them out of the race for at least 2012.  One wild-card is they are close to closing the Motorola acquisition so now they will have both the hardware and the OS assets, but still if the carriers are blocking them, it remains to be seen how they solve that problem (acquire a carrier?)

PayPal Wallet (PW) takes several leaps forward

While PayPal did take punch to the nose when it lost CEO, Scott Thompson, to Yahoo!, the PayPal Wallet (PW) mobile solution had a bunch of great news in the last 30 days:

  • PayPal had everyone excited that a big announcement was coming and then...
  • Dec 12th, 2011 - Announced PayPal Mobile deals - This was weird as the messaging was confusing and everyone was disappointed it wasn't a POS announcement and just seemed to be Yet Another Groupon Clone (YAGC)
  • Dec 20th, 2011 - Announced two Swedish retailers were testing PW with NFC.  Everyone was puzzled, was this the big announcement?  Huh?  Sweden?
  • January 6th - Finally PayPal revealed that they were in five HomeDepot stores (all in San Jose evidently). 
  • January 19th - On their Q4 results, Donahoe revealed that he had just gotten back from HD with a hammer and tape measure he bought with only his phone and no wallet (but he does have a PayPal card in the photo - go figure)
  • Finally, Office Depot announced last week they are also piloting the program.

 

Jd_hammer

 

While at NRF, I saw the first and best simulated demonstration of the PayPal solution and captured it for you guys to see here:

As you can see there are a couple of neat features that I haven't seen really covered anywhere:

  • Like GW, there's clearly a PayPal Wallet 'app' that stores your CC, balance and loyalty cards
  • You can pay three ways: 
  1. Swipe a Paypal card - this just has your paypal info on it. This is a new type of card, not a PayPal branded credit-card, but more like a Starbucks card.
  2. Enter your mobile number and secret PIN -This seems like the best bet if you want to go walletless, but other than the phone number, isn't really 'mobile/smartphone enabled?'
  3. NFC - If supported by phone+POS (unlikely as only one phone has NFC right now)
  • When you are done the receipt is sent to your phone and the app (PW) reflects the transaction - just like the Starbucks experience and GW demos.

If you want to try this out for real,  have to go to: https://paypal.com/anywhere and sign-up.  That link also includes a handy list of HD's that are participating.

Coming soon? ISIS 

Isis

The big unknown in this whole space is called ISIS.  ISIS is collaboration between the big three carriers: AT+T, Verizon and T-Mobile.  It's NFC based and details are very scarce, but it does obviously have the support of the carriers.  Here's what we do know:

  • 100% NFC based
  • Two test cities for 2012 have been announced: SLC and Austin
  • They have a snazzy video that shows a lady paying for subway, shampoo and then self-checking out instantly. She buys a coffee too which seems to be the 'go to demo' for this technology.
  • Here's a merchant data sheet with the usual things you would expect.
  • There's an ISIS innovation forum in Austin in late Feb where perhaps we'll learn more. It is mostly ISIS speakers and a definite lack of retailers.

History has shown mixed success with these kinds of co-opetition type efforts, so it will be interesting to see how this one plays out.

Thoughts on Mobile Payment Wars

Before diving into where we are in the Mobile Payment Wars, we have to answer the question - what about the other likely players?

Where does Apple Stand? Amazon? Facebook? Visa, MC, Amex?

Visa_vme
Many retailers talk about the 'big 4' which are Amazon, Facebook, Google and Apple.  Only Google has announced plans in this space and there's a lot of speculation that others will enter the fray:

  • Amazon - There are rumors of an Amazon smartphone, but aside from that, I suspect it will be hard for Amazon to convince offline retailers to work with them on Mobile Payments.  Most likely Amazon won't participate in this particular battle.
  • Apple - Last year when iPhone5 rumors were swirling, NFC was mentioned as part of the new device.  Could we see an iPhone5+NFC this year?  Apple has something like 250m credit-cards on file via iTunes - that plus the device could be a compelling solution, but many think it's not in Apple's DNA to fight this battle. They are perhaps the only hardware manufacturer that could strong-arm the carriers (see ISIS) to allow a solution 'through'.
  • Facebook - It's a long shot on top of a long shot, but Facebook owns the mobile usage footprint and could leverage that in this battle.  So far, doesn't seem likely.
  • Visa - Visa has an effort called V.me that I haven't tracked very closely.  This is the best summary I've found.  Seemingly at conflict, Visa is also partnered with Google in GW, so they seem to be hedging their bets.  They also will work with ISIS.
  • MC - They are all over the place.  They have a QkR trial in Australia.  They have an investment in mFoundry for their PayPass POS and they are involved with a SD-card based system called Moneto. They also will work with ISIS.
  • Amex - They are partnering with Verizon (smart) on a service called Serve (details are scant).

Who will win the Mobile Payment Wars?  I don't know, but there are three factors that are interesting to think about:

  • The buyer experience
  • The Merchant experience
  • Who has the most leverage?

Key Factor 1:  The buyer experience

All the fancy POS in the World won't make consumers use the system.  It's got to be convenient for them as well.  The Starbucks datapoint and experience proves that you can make the whole payment process more convenient for consumers and they will adopt it in large numbers.

The most convenient buyer experience in order of most to least convenient is:

  • Tap or scan - Starbucks and NFC are here.
  • Swipe - Paypal is here (+4) along with ATM
  • Phone+PIN - Entering 10+4=14 digits is a bit cumbersome, so I put it behind swiping.

So really I think to have a better experience than ATM+CC, we need the NFC capability.

Key Factor 2: The seller/merchant experience

There are two considerations for retailers:

Retailer Consideration 1: Will it drive sales?

Every retailer wants to grow so any solution that drives sales will get fast-tracked.  For mobile payments, there are several ways it can increase sales:

  • Speed consumers through checkout
  • Increase the average order value (perhaps with localized deals)
  • Allow retailers to close the loop on consumer transactions.  In this video Donahoe talks about why retailers like Paypal and mentions the data angle. He claims that Paypal gives the retailer more info - line item detail, but I find it hard to believe they don't get that with credit cards, it's their cash register that rang everything up, so I think that was a mis-statement.

Retailer Consideration 2: Will it lower costs?

  • Imagine you are a $60b retailer and you are paying credit card companies 2-5% of your sales - that's a big number.  If you can knock 1% off that rate or more, it's very big savings.  MONSTER savings.  Since Paypal has ATM, balance and CC as the funding sources, they are able to offer retailers a lower rate than credit card based on the payment mix.
  • Fewer people in checkout - Another big expense for retailers is checkout operators.  With more efficient lines, that's less people and more savings.
  • Installing expensive hardware at POS is the opposite of lowering costs, so the savings will have to have a quick ROI to justify any investment.

This statement from Home Depot summarizes why they like the PayPal solution which they view as delivering both.

“We believe PayPal’s solution has the potential to improve the checkout experience as we know it today by making it fast, secure and more convenient for the customer while providing savings for Home Depot,” said Dwaine Kimmet, Home Depot’s treasurer and VP of financial services.

To beat PayPal's headstart on the space, the other solutions are going to have to deliver both - something that hasn't really been articulated well yet.

Key Factor 3: Who has the most leverage?

Finally, it's interesting to figure out who has the most leverage in this equation.  Leverage is important, but even if you have the most leverage, you have to build an ecosystem which takes partnering vs. pure leverage.  The alternative is you go around the 'stack' of players as PayPal cleverly has.

  • Manufacturers - Manufacturers have very low leverage with the exception of Apple. 
  • Mobile OS - Verizon kicking Google Wallet out shows that the OS is a factor and needs to connect the hardware/carrier chain, but the carrier controls the apps on the phones, sells the phones to the consumer and decides what data goes over their network.
  • Carriers - Based on what we've seen they seem to be the most powerful player in the ecosystem.  This is what makes ISIS an interesting potential solution, it is the only 100% carrier supported solution.
  • Payment systems - PayPal doesn't have a lot of leverage, which has helped actually as they had to create a solution that essentially goes around the manufacturers, Mobile OSes and Carriers going direct to retailers and consumers.
  • Credit Card Cos - The credit card companies haven't flexed their muscles yet, but you can be sure they do not like the Paypal wallet one bit.  They've been disintermated online and certainly don't want to see that happen to the other 90% of retail sales.
  • Retailers - Retailers control the last mile - if they decide for whatever reason they don't want a certain solution, they can keep it from ever seeing the light of day.  When you think about retailers that can really sway this war, the first one that comes to mind is Walmart.  In fact, if you were Walmart, this is an opportunity to possibly build your own solution. 
  • Consumers - Consumers will literally vote with their wallet and as mentioned before, all the cool tech in the World won't matter a hill of beans if consumers don't use it - it has to be convenient and add value.
  • POS companies - Finally, none of this will work if the cash register companies don't participate, but they have little leverage in the equation and will do whatever retailers need/ask for.

 From a leverage standpoint, the carriers are the king of the hill and we'll have to see what happens when the credit card companies flex their muscles, if they do.  Finally with all the complexity, a solution that is a) available now and b) doesn't require a 10-party system may actually end up winning this thing.

Mobile Payment Wars Cheat Sheet

There are a lot of players with a lot of different solutions and realizing that it can be confusing, we created this handy cheat sheet so you can see at a glance what's going on in this war.

Mobile_wars_cheatsheet

Looking at this chart and thinking through the consumer, merchant and leverage points, it looks like we have three horse race between PayPal, Google and ISIS (distant third).  But it's still early days, so while PayPal has won some battles, the war is far from decided.

Conclusions: Who do you think will win?

What do you think - will Apple swing this thing or what about Wal-Mart?  Could the CC companies finally be on their way to being cut out of their fees, or will they have the leverage?

SeekingAlpha Disclosure - I am long Amazon and 


 

January 30, 2012

Be an Early Bird for Catalyst 2012 - VEGAS!!


This year we're making some big changes with our annual US Catalyst conference.  For starters, we're moving to Las Vegas.  We decided to move Catalyst to a more centrally located city, and also one that's easy to get to--Vegas has direct flights to nearly everywhere, and they are generally inexpensive along with the Casino-fueled hotels.

The theme this year is NewCommerce.  We've heard over and over from our retailers the same questions about emerging channels, which ones you should pay attention to, how they fit with traditional channels and what you can be doing to make sure you're where you need to be--where your customers are. NewCommerce will focus on answering each of these questions with a deep look into SoLoMo, Cross Border Trade and much much more.  We're also focusing on some hot categories like Auto Parts.   Check out the current NewCommerce Catalyst agenda and stay tuned for lots of additions.
Finally, being in Vegas allows us to widen some of the partners that are coming.  You'll see what I mean in the coming weeks - trust me - if you've ever been to Catalyst, this is going to be 2X and if you've never been...What the heck have you been waiting for!?
Below are the details. The early bird discount expires tomorrow (it's $100 off!) so I'd strongly encourage you to register today. 
April 16-18, 2012
Las Vegas, Nevada
We're really looking forward to seeing everyone in April!
Scot

January 25, 2012

Project Cassini - Pulling the wraps off eBay's top-secret new search engine project

We've moved our blog! EbayStrategies.blogs.com will eventually be shut down, however the posts will live on. To access this blog post at its new location, click here.

Hadoop_logo
 

 

 

 

Background

Long-time readers will recall that I have a background in Computer Engineering so from time to time do like to geek out on the intersection of e-commerce and technology.

Today's post is one of those times!! But hang-on, I'll 'land the plane' and we'll talk about eBay buyers and sellers in a bit.

Also by way of background there is a big trend in software driven by online businesses like eBay and cloud computing called BigData.  BigData is all about how can you store a ton of online data, manipulate it, analyze it, etc.. - essentially use data to grow your business more rapidly.

In the World of BigData there is a very popular system, called Hadoop,  which features a cute little yellow elephant (big data get it?) for the logo and is modeled after the Google MapReduce+File System technologies.  Hadoop is becoming the go-to system for companies looking to tackle BigData problems and eBay is no exception.

At the end of 2011, eBay technologists started speaking about their top-secret Hadoop-based project called Cassini as a way of recruiting engineers to help with their efforts.

Interestingly (for you eBay vs. Amazon watchers) the efforts appear to be driven out of the Seattle engineering center for eBay which is led by Ken Moss, who along with a ton of current eBay technologists came from Microsoft.  You can read the job openings here which give you some more insights into what they are up to.

Finally, I'm on the record for the last 5+ years as being frustrated with eBay's lack of innovation in the buyer experience.  It hasn't really moved much in the last 2yrs even though eBay is reportedly ramping up R+D spending.

I'm optimistic that Project Cassini will answer all of these questions - What's eBay doing with Hadoop? What's eBay doing to improve the buyer/search experience? Why is eBay ramping up a Seattle dev office?

What is the mysterious Project Cassini?

We've been hearing rumblings and whispers about this 'big' (e.g. lots and lots of resources) project at eBay for the last two years.  In the last 60 days, two presentations that are out on the net from the different talks that eBay has given around Cassini have leaked that reveal what is going on with this (previously) top-secret project:

  • Hugh E. Williams, VP of Search gave this talk (embed) at Hadoop World/Cloudera.
  • Juhan Lee, Director of Hadoop engineering, gave a talk in China and his slides are available here.

This slide from Juhan's preso does a great job of explaining what eBay's up to with Project Cassini

Cassini_slide_1

 In a nutshell, Project Cassini appears to be a complete re-write of the entire eBay search infrastructure and software system.  In Hugh's talk, he highlights that the current search system (Voyager) goes back to 2002 and has tons of problems and flaws.

eBay has put over 100 engineers on Cassini for the last 18 months and will be launching it in 2012 to have an entirely new eBay search experience.

Details on the release (timing and features) are scant, but there are hints in these decks and other comments:

  • Cassini uses all data by default - I presume this means that Voyager was limited in the datafields it could index and manage, but Cassini explodes that out.
  • "Platform for ranking innovation" - This hints that the new system will have an entirely new ranking/ordering algorithm (just when we got used to BestMatch!) or it also hints that eBay will be able to do a lot more testing and tweaking than the current system allows for.
  • Much more history in our index - The BM RecentSales algorithm only looks back ~15-30 days, this must be because they have to get the data out to keep the system crisp. It sounds like Cassini will keep a lot more data and thus allow for a longer RecentSales window.
  • Ability to rescore entire site inventory - eBay could implement 4 flavors of best match, (or give it a new name) and then pick the winner much faster than with Voyager.

The new system will be able to handle the 250m searches/day and 2b pageviews so it has some big shoes to fill.

What does Cassini mean for Buyers?

It's early to tell and these decks have no screen shots or anything, so this is pure speculation (with a healthy sprinkling of wishful thinking).  Let's face it, BestMatch just isn't very good.  You have to think WWGD (What Would Google Do) and WWAD (What Would Amazon Do) on this topic.

Amazon - well we know what they would do - they would have a gold-standard catalog and then sellers would list against that.

Google - Google would make the search engine so good you wouldn't have to have bestmatch, lowest, highest, lowest with shipping, lowest without shipping, highest with shipping, ending soonest, newly listed and the myriad of other confusing options that the eBay search engine has today.

Going back to 2009 - eBay started the NPSE (New Product Shopping Experience) which we covered here.  The experience was and still is pretty buggy - you can tell there's something just not 'right' behind the scenes.  Also, eBay has not made much progress at all rolling this out, so something is definitely up - it either doesn't perform well or breaks their infrastructure.  Perhaps Cassini will solve the back-end problem and we'll finally see the experience a) work and b) roll out further

One concern I do have that I worry Cassini+eBay aren't doing enough to solve - if you do any general search on eBay for hot items and sort by lowest price, there is still a lot of really weird and scary stuff on the site.  Here's just one random example:

I did a search for an iPhone 4S, chose 'New in Box" and "cell phone (not accessories) and did a low-price search.  I took a screen shot and dropped in red numbers so I can reference the top 9 results here: (click to enlarge)

 

Iphone_4s_lowest_price

  1. Ok this one is an accessory and I explicitly said no accessories - Seller mis categorized
  2. Not sure what this is, but it's not an iPhone
  3. Seems to be an iphone 4s for $495, but look at the picture, this is listed as unopened - ok?
  4. Complete fraud if you ask me, you are getting an iPhone 4s box for $500 - this is going to create a great buyer experience.
  5. Ok - looks like we get an iPhone, but what does "BAD ESN" mean?  Here's what the seller says: "You are bidding on a sprint apple iPhone 4s black 16gb in brand new condition with a bad esn .still in plastic as you can see in the photos. Cannot activate on the sprint network, however it can be flashed to work on other networks ."  I'm going to go out on a limb and assume most folks won't be able to get this thing to work and notice the BAD ESN thing.
  6. I selected NEW IN BOX - this says "NO BOX" right there in the title? (Top Rated Seller!)
  7. Seems like a real iphone4s for $500
  8. Seems real

So out of the top 8 results, we don't hit what seems to be a real item we are looking for until we get to result 7 and 8.   That's 6/8 or 75% of the top listings that are bad for those keeping track at home.

In CompSci we have the idea of GIGO (Garbage In, Garbage Out) - eBay could have the world's best search technology and if it just serves up bad listings faster, it won't improve the buyer experience.

Hopefully eBay has a dual approach - technology and clean out the garbage that will yield results.

What does Cassini mean for Sellers?

Obviously a better buyer experience is good for everyone in the eBay ecosystem.  Using my example above, not only is it bad for the seller of iphone number 7 and 8 that there are 6 bad results above them, but when the eBay buyer spends $500 for that empty box in listing 4, or gets an iphone without a box when they they thought they would - they will do everything they can to get a refund and leave eBay probably forever.

What I think sellers can anticipate as a ripple from Cassini is:

  • eBay will have to go through a cleansing period to clean up the bad data that has calcified
  • eBay will then want a whole bunch of new data from sellers - this can be painful, but does improve the buyer experience so is a necessary evil
  • Most sellers ignore or don't even know about the NPBE so will need to revisit this as hopefully it rolls out site-wide post Cassini.

Timing and what do you think?

eBay has been very hush hush on the Cassini roll-out, saying only 'maybe 2012'.  In the past they have rolled out new technology like this in smaller markets (usually AU, IT, DE and UK are the first guinea pigs), so we'll keep a watch out for that.

That's all the scoop on Project Cassini - let us know your thoughts, questions and comments in comments.

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

 

 

January 20, 2012

Groupon Goods Update and a Wolverine Bonus!

In late 2011, we introduced the idea that Groupon could effectively become/build a marketplace in this September piece and then this follow-on October piece where we tracked the value of the goods sold via the then fledgling "Groupon Goods" program.

While I haven't written about the program in a while and Groupon had a small distraction, their IPO, the program has been quietly marching on and we've been tracking it over the ~15 week cycle since its inception.  From here on, I'll abbreviate the program as GG to save on some typing.

Changes to Groupon Goods Program

There have been a couple of material changes to the program to report on:

Promotion - First the program started as an email-only program - you had to get the GG emails and it appeared that they were sending it to about 10% of their US email base.  Today the program is now featured on the Groupon home page, header and within the daily local deal emails as you can see here:

Groupon_goods_promos

Ease of use - When the program first launched it was a bit cumbersome as a consumer because you had to follow these steps:

  1. Purchase the product-specific groupon
  2. Wait for the sale to end
  3. Get a unique one-off coupon code
  4. Go to the retailers site
  5. Find the product
  6. Add to cart / buy
  7. Enter the groupon coupon code
  8. Complete transaction

Many of the GG items still use this system, but in the batch we're talking about in this post which ran 1/11-1/18.  The majority of the items had a much simpler purchase flow:

  1. Buy the product at GG with your stored information
  2. Verify purchase, complete.

I suspect they will see a much larger completion rate and made this move as the drop off from the old system had to be pretty large (would guess 20%-ish).

Deal dynamics - The final big change is the deal dynamics.  When they initially launched there were 6 deals and the ASP was $57 with a range of $40-$440.  They sold as many as 28,000 of one unit.  In the latest completed sale:

  • Number of deals: 20
  • ASP: $32
  • Range: $10-$295
  • Deepest quantity: 5,000

So they are trending towards more deals with more shallow inventory.  Also, the ASP has come down by about half - from $57 to $32.

It's a little publicized fact, but a big chunk of Groupons team come from Amazon.  Consequently, watching the program mature over the last 15 cycles, my conclusion is they are making some smart changes based on data, consumer behavior and trends they see in the program all in a very Amazonian fashion.

Finally, the rapid explosion of deals shows that there is no shortage of supply for this offering and further supports our thesis that Groupon could possibly take this program much deeper and further.  For example, it looks like they are actually emailing fewer people the GG emails as they tweak the program, yet sales continue to be very strong.  How strong.....?

Tracking the latest Groupon Goods Sale

Funny you ask - we've been tracking the GG's since inception and in this post report on the sale that ran from 1/11/12-1/18/12 (they run Wed->Wed) to get a pulse of the program.

In the 1/11 deal set, there were twenty deals and they generated over $2m in GMV.  This table details each deal and the totals.

Groupon_goods_1_11_12

On a per-week basis, GG is pushing $2.1m in sales across 67k items.  That gives it an annualized run rate of $200m, making it one of the top 4 marketplaces in the US and ten globally:

Top US marketplaces (by GMV)

  1. eBay - $25b (us, ex-autos)
  2. Amazon - $10-12b (estimate)
  3. Buy.com - $250m (estimate)
  4. GG - $200m
  5. Sears, Walmart, BestBuy, NewEgg  (all very nascent still)

If GG is only leveraging ~10% of it's audience, we still believe they could scale this program up to 

Conclusions and a Bonus - Awesome Groupon video to watch...

What do you think about the GG program - fad or future top marketplace?  In conclusion, if you haven't seen Andrew Mason's interview on 60-minutes from this weekend, it's time well-spent.  My favorite part is when he likens Groupon to Wolverine and Stahl looks at him like he's from Mars - and voices over: "I'm not sure what that means".

Here's an embed of the original piece:

Here's a bonus video worth watching too: (watch for the rent-a-monkey piece):

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.  I occasionally buy Groupons, mostly for manicures and teeth whitening ;-)

January 19, 2012

Peeling the onion on eBay's 2011 Q4 results

Last evening, January 18, 2012, eBay released their Q4 2011 results.  

Here is how eBay did across the metrics we follow in the World of eBay Marketplaces:

Ebayq4_11_results.jpg

 

While we don't cover it, PayPal continues to do very well and the GSI unit over-performed as well.   And with the eBay Marketplace, everything about the Q was very solid and ahead of expectations, with the exception of GMV growth in the US (in-line at 10% and below e-commerce's 15%) and Intl (below expectations at 9%).  I'm sure these results will continue the drum beat of people suggesting the company should split eBay marketplaces and Paypal.

A deep-dive on eBay marketplace growth

One interesting part of the Q that sellers are already picking up on is this: "If GMV grew at 10% how did revenue grow at 16%?"  The answer is that eBay's effective 'take rate' (the % of revenue they make on GMV) went up pretty strongly for the Q - coming in at 7.9% (marketplaces) and 3.71% (paypal) for a total take rate of 11.61%.  There are a couple of factors that drive this:

  • As covered historically, eBay's July 2011 fee changes moved S+H into the take rate umbrella
  • FP vs. Auction - that mix of formats will cause a change
  • Category changes - some categories like CE have lower fees and as they decrease in mix for categories with higher take rates (e.g. jewelry and CSA), then you'll see the take rate nudge up.

That explains the disconnect between revenue and GMV, now let's look at why GMV came in at/below expectations for the Q.

Whenever we look at GMV growth we find it helpful to look at the category data.  Here's the eBay category data for Q4 - sorted by y/y category growth and color-coded - green grew faster than e-comm, yellow grew around e-comm and red was below 10%.

Ebayq4_11_categories

When you think of the eBay marketplace as a portfolio of categories (which it is and is increasingly becoming more siloed), you get  a better feel for where eBay is making inroads and where they are losing share in e-commerce. As you can see there are only two categories that grew faster than e-commerce (BI/H+G) and 9 categories were moderate and ten categories that lagged.

Vehicles have been problematic for years so no surprise there, but some of the categories point to erosion from competition (most likely Amazon you would have to assume) such as BMV and Video Games.  It's also interesting that CE and Musical Instruments had a tough Q.

Jewelry and Coins had been on a huge spike, presumably due to the melt-value price of gold and other precious metals, but growth from that trend seems to have either annualized or decreased.

It will be interesting to see if eBay's increased verticalization strategy on CE will help turn around the category and if they can get CSA to grow faster than 11% with the concerted effort on eBay Fashion in 2012.

Finally, we've mentioned that our SSS for auto-parts is north of 50%.  Our customers tend to all have adopted eBay's fitment feature in that category which is probably a core driver of the super-sized results for that set of ChannelAdvisor customers.

Why was eBay's GMV growth so far off the ChannelAdvisor data?

In Q4, our customers at ChannelAdvisor as reported in our SSS data had a great Q on eBay - growing ~18% for the Q and hitting a record ~22% in December.  We've covered this in the past, but I thought it was important and timely to cover why there is a pretty big 8% gap (10% vs. 18%):

  • First and foremost, our data is mean to be a benchmark for our thousands of customers, not a predictor of eBay GMV.
  • We like to think that our software and strategies we employ give our customers an edge on the competition - our customers are clearly taking share so we feel pretty good about that.
  • TRS - Pretty much all of our customers are top-rated sellers vs. eBay over-all
  • Geo - Our mix is 80% domestic, 20% non-domestic, so we are not as influenced from softness in say, Germany
  • FP - Our customers are trending towards 80% FP while eBay overall just hit 64%.  FP is growing much faster than auctions
  • Seller size - Our customers tend to be much larger in the $50k/m and up
  • Category mix - As you can see by the category data above, there is a big swing in how each eBay category (BI up 18%, Video games down 10%) performs.  We are overweighted on Auto parts, CE, CSA

Other interesting datapoints

Combing through the news release, conference call and analyst reports, here are a couple of other interesting tidbits:

  • eBay's mobile GMV for 2011 came in at $5b and they are projecting $8b for 2012.  eBay did ~$60b for 2011 so that puts mobile at 8% which actually is in-line with what most other retailers are seeing.
  • Paypal's mobile GMV for 2011 came in at $4b (I've never understood what is in each of these numbers - wouldn't you think that the Paypal number would be bigger than the eBay number?) and they expect it to grow to $7b.
  • eTRS sellers grew 19% y/y in Q4
  • FP is now 64% of GMV
  • They are going to open up the PayPal trial in HD up to ~50 stores (more on this later from NRF)

Up next...Amazon

All in all, this was a great Q for eBay and they are already focused on turning around some of the categories with lagging growth.  Amazon doesn't report until January 31st, so stay tuned for coverage of their results on sister-site, AmazonStrategies.  We have been holding a ton of interesting posts and topics such as (PayPal POS vs. Gwallet from NRF, details on eBay's new search engine, Cassini, and an update on Groupon Goods), stay tuned.

What did you think about eBay's Q?  Sound off in comments, or yell if you have questions.

 

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

 

January 18, 2012

eBay earnings are today!

All eyes in the World of e-commerce are on eBay today as they release their 2011 Q4 results.  eBay is first to report out of the Google, Amazon, Y!, etc. internet group and everyone is looking not only to how eBay did, but what it means for all of the other companies in the sector.

As usual, we'll have a full analysis out this evening.  Here's our eBay results tracker that highlights what we think are the 10 metrics out of the hundreds eBay reports that we feel gives the best read on the health of the marketplace business.

Ebayq4_11

We always first look at the GMV growth and then user metrics and finally revenue.

As a reminder, our data indicated that eBay had very strong GMV growth in Q4, so hopefully they'll be able to overachieve the 10% US and 11% intl expectation.  Comscore reports that e-commerce grew 15% in Q4, so that's the bar for 'growing with e-commerce'.

 

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

 

January 04, 2012

ChannelAdvisor Same Store Sales (SSS) for December 2011 PLUS Holiday 2011 Wrap

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 (November 2011) results you can find them here.

Today we are releasing December data for Marketplaces (eBay/Amazon), Search and Comparison Shopping Engines (CSE).  Also as this is the last of the SSS data for 2011, we provide some closing Holiday/2011 thoughts.  

Later in January we will be posting the 2012 SSS schedule as well as detailing any changes.

December  2011 results

December is the end of the Holiday period and gives us our last insights into how the Holiday shaped up for e-commerce until we see public reports from retailers, Google, eBay and Amazon.

Here are the highlights from December 2011's SSS:

  • Overall - Overall December came in at up 21% - a steady showing on top of November's robust 25%  This puts to bed the bear case that Holiday 2011 (at least for e-commerce) was front-end loaded.
  • Amazon - Amazon came in at 51.3% continuing their share-gains in e-commerce.  This is down slightly from November's 60% growth rate.   As we've mentioned previously what we think is going on is that Amazon is being more competitive and deeper at the product level and that's giving 3P sales a slight headwind and also last year's comp is very tough.  Amazon did issue a press release that was mostly Kindle oriented, but did also feature some interesting stats about 3P.  You can read the complete release here. My favorite piece was this excerpt: "the number of sellers who exceeded $5,000 in sales during the holiday season increased 44 percent year-over-year. For the year, businesses on Amazon sold hundreds of millions of units worth billions of dollars worldwide."
  • eBay -  eBay's growth accelerated nicely again in December, coming in at 22.1%.  Note that this is the fastest pace we recorded in 2011 and since we began releasing SSS data @ ChannelAdvisor.  We expect a lot of questions around this datapoint so have provided copious eBay details further in the report.
  • Search - Search finished a great year coming in at 18.1% for December. 
  • CSE - Comparison Shopping Engines continued their 2011 struggles with another weak month coming in at down 1.8% year over year.

SSS Chart

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

Dec_sss_2011



eBay Observations

Early in the report we highlighted that eBay had it's strongest showing since we started tracking SSS with a 22.1% y/y increase.  Not only is this a record, but eBay is now growing a tad faster than e-commerce overall for us and you can visually see from the chart above they appear to be closing the gap with Amazon's growth rate a bit.

Before digging into what's behind this surge in growth at eBay, here are a couple of interior datapoints of interest.

  • eBay Motors Parts and Accessories - This category saw very strong growth in December, coming in at a record-setting 57.6% y/y growth for ChannelAdvisor customers in the category.  This is highly unusual as usually growth in the category wanes in the Winter months.  We've said there is probably some warmer than usual weather benefit here, but frankly this seems to be a category where eBay is really hitting on all cylinders and bodes well for the focus on other verticals like Fashion and CE.
  • Auctions - Auctions continue to drag on eBay's growth rate showing a decline of 18% y/y.  But for ChannelAdvisor customers Auctions are now a small enough percentage they are not diluting the growth as the did.  It's important to note that ChannelAdvisor's customers have been ahead of the format change compared to the data that eBay reports and eBay's overall growth rate could be much lower as they have a higher concentration of auctions than our seller base.
  • Fixed-price - Fixed Price transactions grew at 26.8%
  • Large Merchants - The HP/Touchpad sale and several other sales by large merchants at the end of the holiday season 
  • Holiday 11 - While no 'one' hot item was written about much this holiday, there were a good 10-20 toys across genders and age groups that were very thin and traded vigorously on eBay. 

 

Given that data we believe the top five contributors to eBay's stellar December results were:

  1. Format changes - As Auctions trend towards zero or 'non material', eBay will naturally rise to the FP growth rate.
  2. Large merchants - We're a bit biased on this as most of these merchants are customers, but even those that are not (like buy.com) are turning in record numbers (buy.com cracked $6m/m for the first time in Dec.) - eBay buyers clearly like the availability of this type of inventory and are voting with their wallets.
  3. eBay Motors P+A - Congrats to the Motors team for turning in a great December, Q4 and frankly 2011.  This category is clearly on fire and with tons of enhancements to the buying experience over the year, the team kept the fanning the flames.  eBay also had a great presence at SEMA which could have played a role and tees up a great 2011.  It will be exciting to see what further innovations eBay has for this category in 2012.
  4. Hot toys, hard to find - Items like LeapPad, Monster High, Paper Jams and lots of other toys were sold out at retail by BlackFriday.  eBay benefited substantially from this in December.  Even iPhone 4S' were hard to find!
  5. Back-end loaded - Last year we saw the holiday pull up - indicating that shoppers started early - and stopped by about 12/7.  This year they were either procrastinating, having a hard time deciding, spending more or dipping into their credit cards.  Or perhaps they were disenfranchised with the offline shopping experience.  Whatever the underlying reason, eBay definitely benefited from more activity in December over-all than we saw last year.

It's important to restate here our normal disclaimers that ChannelAdvisor's data is not a perfect proxy for eBay:

  • Our customers are larger than the eBay average
  • We have different category mix
  • We have different geography mix
  • Our customers tend to be ahead of the FP/Auction format transition

 Search Details and Observations

Here are the search details for December  2011:
Search_dec_sss

Note that CPC was down y/y and conversions were way up - this is primarily due to the bulk of our customers this year being in the Product Listing Ads (PLA) system whereas last year it was in limited beta.  This program is nirvana for retailers as it drives higher conversions at lower CPCs and is also a win for Google as the absolute revenue is substantially increased because of the increase in efficacy.
Also note that AOV this year is essentially identical to last year which indicates that consumers continue to buy items in the same price-range.  Historically in 2008 for example during the Great Recession, we saw this drop precipitously as consumers significantly pulled back.
Holiday 2011 Wrap
In our late December report we concluded that the holiday came in ~23% up y/y for our customers on a SSS basis.  December's final report solidifies this datapoint.  The 23% is significantly above our 17% forecast - hopefully these trends continue into 2012.
Happy New Year everyone!  We'll be back shortly with 2012's schedule and our normal blogging pace.
SeekingAlpha disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.