EBay Pushing Into Amazon's Turf

By: Scott Morrison and Geoffrey Fowler, WSJ.com
By: Scott Morrison and Geoffrey Fowler, WSJ.com

NEW YORK -- EBay Inc., seeking to tip the balance of power in the surging Internet retail industry, is making a $2.4 billion acquisition that will intensify its rivalry with Amazon.com Inc.

EBay is acquiring GSI Commerce, a provider of e-commerce and interactive marketing services, for $2.4 billion, as eBay looks to bulk up its online marketplace and payments service. Also: Amazon shares slump on the news.

The online auction pioneer is buying e-commerce service company GSI Commerce Inc., extending its reach into several businesses that have helped Amazon build its product selection and win customer loyalty. GSI, like Amazon, has the infrastructure in place to help merchants of all sizes conduct e-commerce.

GSI, which is based in the Philadelphia suburb of King of Prussia, Pa., assists more than 180 top brands and retailers with their websites, including Aéropostale, Timberland, Mattel, Zales and Major League Baseball. With the deal, EBay gets an order-management, fulfillment and shipping business that competes directly with Amazon's own fulfillment offering for merchants. Fulfillment centers pack up orders for shipment.

"The number of retailers, large and small, that have come to us saying 'We are grappling with how you deal with mobile commerce, we are grappling with how to deal in a social-commerce world, we are grappling with how to go global' has been striking," said eBay Chief Executive John Donahoe, in explaining the acquisition.

The deal is eBay's biggest acquisition under Mr. Donahoe, who became CEO in 2008 and who has spent the past few years trying to turn around the San Jose, Calif., company. It's also the largest since eBay's purchase of Internet telephony company Skype SA for around $2.5 billion in 2005. EBay has made a series of smaller acquisitions over the past year, including bar-code scanner RedLaser and Milo, which helps users find nearby stores that have a particular product in stock.

EBay's marketplace business has resumed growing, but it hasn't kept pace with the industry's double-digit expansion. Overall, eBay's 2010 revenue rose 4.9% to $9.16 billion, buoyed by its online payments unit PayPal.

E-commerce was a $176 billion industry in the U.S. alone last year, and is expected to grow to $279 billion by 2015, according to Forrester Research.

As more people have begun shopping online, eBay's one-time star attraction—its auction business—has fallen out of favor with many consumers who prefer the simplicity and ease of simply buying items on retail websites like Amazon's. That has put eBay in the hot seat to reinvent its e-commerce business.

In a bid to reverse its fortunes, Mr. Donahoe has tried to make eBay's marketplace more attractive to large merchants selling at fixed prices. The changes, which include new fees, have pulled the site away from its roots as a site where small vendors could sell all sorts of oddities and used goods at auction.

A scanner tells a GSI employee what products to pull from the aisles.
"EBay is clearly going on the offensive," said David Spitz, president of ChannelAdvisor Corp., a firm that helps merchants and brands sell on eBay, Amazon and elsewhere. "This is definitely a step toward offering a broader array of services for the marketplace." (EBay has a minority investment in ChannelAdvisor.)

Amazon.com declined to comment.

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