eBay Buys GSI Commerce to Go After Really Big Sellers

Last Updated Apr 1, 2011 10:02 PM EDT

eBay is buying e-commerce and interactive services company GSI Commerce (GSIC) for about $2.4 billion. The idea is to combine GSI's healthy roster of wealthy clients with eBay's marketplaces to become even more appealing to big name sellers.
Given eBay's traditional focus, that last sentence tells you virtually all you need to know. The company has struggled with not zagging as the online commerce market zigged. Now eBay has found that while still on top of the personal auction heap, its marketplace business has lagged behind Amazon, to say nothing of the likes of Wal-Mart and Target. The GSI acquisition is an attempt to diversify the business and get the company moving in the right direction again.

According to its 2010 earnings report, non-GAAP net revenue (results excluding Skype, which it finally sold), was up 13 percent to $9.16 billion. Of that, marketplace revenue was $5.71 billion, up 8 percent from the previous year. Payments revenue -- including PayPal, Bill Me Later, and eBay merchant services -- was $3.44 billion, about 23 percent higher than 2009. In other words, the payment business is the company's engine of growth.

However, the payments unit is under attack from a number of sources, particularly on the mobile commerce front. Google (GOOG) will partner with MasterCard (MA) and Citigroup (C) to integrate a retail payment system into Android. And American Express (AXP) announced a new service that lets consumers get pay for goods and services from computers and mobile phones. There's no way the company can count on continued growth solely from payments.

And so, the marketplace division must perform better. Something that dogs eBay is the thing that was so key to its early success: its focus on small players. eBay offered a way for individuals and small businesses to sell and buy and participate in e-commerce. But there is only so much business they can do, and eBay makes its retail money the new-fashioned way, by taking a small slice of transactions. Growth means adding more transactions.

That's where the GSI acquisition fits in. If eBay can bring the large retailers into marketplace activities, it should grab significantly more transaction fees. GSI would also offer an additional revenue opportunity from small sellers. GSI offers fulfillment services to companies that don't want to store their own inventory or process order shipments. That could appeal to individuals and mom-and-pop operations that want to make money but not spend inordinate amounts of time physically sending orders out.

Related: Image: morgueFile user clarita.
  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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