By Jeff Meisner E-Commerce Times
10/06/08 12:12 PM PT
A decline in overall consumer spending and increased competition have put the squeeze on eBay, the once high-flying online auction house. eBay is responding to the pressure with a restructuring plan that eliminates 1,000 positions from its payroll. At the same time, it's acquiring payment service Bill Me Later in a nearly $1 billion cash and stock deal.
How Much is 'Free' Costing You? Learn how DaveRamsey.com saw a 567% uplift in ROI with Omniture. This complimentary guide and webinar cover the most important factors in selecting an analytics solution. Download Now.
Online auctioneering pioneer eBay (Nasdaq: EBAY) announced it will slash 1,000 jobs and acquire online payment processor
Bill Me Later for US$820 million in cash and $125 million in outstanding options.
The 1,000 layoffs will cut San Jose, Calif.-based eBay's total workforce by 10 percent and will result in a pretax restructuring charge of about $70 million to $80 million, most of which will be recorded in the fourth quarter.
"While never an easy decision to make, these reductions will help improve our operations and strengthen our ability to continue investing in growth," said eBay President and CEO John Donahoe.
The company expects to hit the low end of its third-quarter revenue guidance and exceed third-quarter earnings per share guidance.
eBay is scheduled to announce third quarter financial results on Oct. 15.
Losing Market Share
Though once the dominant player in the online auction market, eBay has been slipping.
"Our view has been that eBay has been suffering from fairly significant market share losses over the last few years -- in particular, in its core market," Derek Brown, an equity analyst with
Cantor Fitzgerald, told the E-Commerce Times.
A slowing economy and a downturn in consumer spending have posed increasingly difficult challenges.
"We think those things have slowed the growth rate at eBay," Brown said.
eBay has lost market share across the board.
"At the lower end of the eBay market, there's been erosion to services like Craigslist and local newspapers," Gene Alvarez, an analyst with Gartner (NYSE: IT), told the E-Commerce Times. "If you're not an active seller, then there are a lot of players that offer free classified ads."
eBay is also losing market share to larger competitors such as online retailing giant Amazon.com (Nasdaq: AMZN), which launched an online marketplace where users can sell their own items years ago.
"Amazon offers new and used products," Alvarez said. "Those are products that once sold only on eBay."
Bill Me Later
The acquisition of Bill Me Later gives eBay control of two of the largest online payment processing companies -- the other being PayPal.
"We are making aggressive moves to strengthen our leadership positions in e-commerce and payments to competitively position our company for long-term growth," eBay's Donahoe said. "Bill Me Later is a perfect complement to our portfolio, a company that belongs with PayPal."
Bill Me Later adds functionality and a customer base that PayPal has not yet really penetrated, said Cantor's Brown, who has given eBay's stock a sell rating.
"It seems as if eBay paid a reasonable price for Bill Me Later," he added.
However, the PayPal portion of eBay's business has not panned out the way the company originally hoped, according to Gartner's Alvarez.
"eBay had also hoped that PayPal would become a viable payment engine for non-eBay Web sites and that it would act as a credit card processor for other e-commerce sites," he said. "Of the major sites, I'm not seeing PayPal as an option. Credit cards seem to still be the primary payment method for the major e-commerce Web sites."
ubExact Gives Search a Little More Personality October 06, 2008
ubExact is a new beta-phase search engine that focuses on direct navigation, geography and action-based searches. ubExact as it currently works may be a better search tool for consumers researching a product purchase or a service, writes reviewer Jack Germain. It's still a little rough around the edges, but new features and functions are on the horizon.
Related Stories
Post-eBay: Trademark Injunctions No Longer a Sure Thing October 02, 2008
The courts have been grappling recently with the question of whether patent and trademark law both require the same test before a judge grants a permanent injunction. Under the eBay ruling, judges in patent infringement cases must apply a four-factor test. Are the rules the same for trademark cases?
Online Auctions, Part 2: The eBay Diaspora September 10, 2008
As eBay shifts its strategy to appeal more to larger sellers, it risks alienating the clientele that made it a success. However, the company is making changes and working toward a strategy it hopes will lead to growth, and that's better than doing nothing, say experts.
Related News Alerts
More by Jeff Meisner
AT&T Launches Netbook-With-Service Experiment April 02, 2009
AT&T is plugging a new plan in Atlanta and Philadelphia, offering netbook computers for as little as $50 to consumers who sign up for a monthly broadband access plan at $60 a month or more. The deal might be especially attractive to mobile workers in the healthcare and financial services sectors, who need more than a smartphone to conduct their business.
Microsoft Offers Small-Biz Server Value Meal April 01, 2009
Microsoft has unveiled a budget-minded server package for small businesses, providing the hardware, software and administrative services necessary to run their operations in much the same way that larger enterprises do. The offering could provide some competition for cloud-based hosted services, which have been gaining traction.
New Google VC Fund on the Prowl for Great Ideas March 31, 2009
Google is pouring some of its millions into a new venture fund on the lookout for innovations, particularly in the consumer Internet, software, clean tech, biotech and healthcare arenas. The move may seem counterintuitive during a recession, but Google argues that "great ideas come when they will."
Headline Feeds
Talkback: 
