Hot Topic: eBay Targets the Secondary Market for Future Growth
by Christina Lee on March 19th, 2009
If executed correctly, one three-year plan can result in eBay profiting from an estimated $500 billion opportunity in a new market focus: off-price retailers, liquidators, wholesalers and outlets.
But even after addressing the plan last week, analysts are still wondering if eBay can actually do it.
At a meeting held March 11 with its investors in San Jose, Calif., president and CEO John Donahoe explained how the company hopes to execute many operational changes through 2011. As a result, eBay expects total revenues to reach $10 to $12 billion by 2011, up from last year’s $8.5 billion.
But with that rise comes renovation to its Marketplaces, whose share of total company sales dropped from 50 to under 15 percent, Investopedia reported Monday. eBay anticipates that revenues will reach $5 to $7 billion as well, though after a slight decline this year, said Imrah Khan of J.P. Morgan.
Still, investing in the secondary market should soon become “a fast-growing segment uniquely suited to eBay’s strengths,” according to a press release.
The company presentation further explained that its Marketplaces model is ideal for sellers who need to sort out insufficient supply chains, test out the market price of products and advertise their best deals to buyers.
“An analogy that is fairly simple is that the old eBay made a living in peoples’ attics and garages,” said Lorrie Norrington, president of eBay’s Marketplaces operations, at the meeting. “The new eBay is sitting in warehouses, liquidators, and off-price retailers. And they’re looking for a cost-effective channel to be able to move high velocity.”
This shift in market focus is just one of a few changes to be made to its Marketplaces, in addition to more efforts to be made in its classified, advertising and fixed price sales.
“We are positioning this company to compete and win across a range of profitable ecommerce platforms focused on connecting buyer and sellers across the platform of their choice,” Donohoe said.
Analysts wonder though if eBay is making enough efforts or even the right ones.
Khan worries that, even when the company forecasts Marketplaces growth in 2010 and 2011, eBay’s Marketplace may still suffer under growing competition – from Amazon, Wal-Mart, niche Internet retailers, and more brick-and-mortar retailers going online.
“Increasing emphasis on ‘secondary retail market’ can backfire in our view and seems like bowing down to competitive pressure,” said Sandeep Aggarwal, of corporate advisory business Collins Stewart, to The Business Insider.
But other analysts – including Fuhrman and “eBay Business at Your Fingertips” author Kevin Boyd – think that current efforts to change its Marketplaces actually signal a return to the company’s roots.
“Moving to the Amazon model will be a good thing as long as they don’t totally forget their roots and realize that many average Joes do not want a business, but just want a simple auction-based market to have their nationwide yard sale,” Boyd said in an e-mail interview. “They must make sure that they do not fully abandon these sellers.”
In the meantime, such announcements for change have left their followers and investors waiting for more details on what they can expect from eBay.