eBay Acquires GSI: What It Means

The eCommerce technology and services marketplace awoke to some interesting news today. eBay announced today that it will acquire GSI Commerce. The deal has a number of implications for GSI’s customers, partners, and competitors and also changes eBay’s position as a services provider and partner within the industry. It’s a big deal*, with eBay paying $29.25 a share, or approximately $2.4 billion.

Why did eBay buy GSI, what’s in it for them?

  • Diversification. eBay’s core marketplace business is eroding while key competitors — principally Amazon — put up huge numbers. As the auction and SMB focus of eBay and PayPal begins to plateau, growth must come from the much larger market segment of large merchants. This deal broadens eBay and PayPal’s portfolio of services substantially, though the synergies are relatively small. eBay CEO John Donahoe characterized that as $60M, so that is not the key to the deal.
  • Multichannel. PayPal has been growing, but is it is hard to see that growth continuing as a solution focused on online small businesses, auctions, and peer-to-peer payments. PayPal needs to roll out multichannel payments solutions, enabled through the proliferation of smartphones like the iPhone, Android phones, etc. This deal gives PayPal access to large merchants on a consistent platform to begin to roll out a new set of multichannel payments solutions. John Donahoe spoke this morning of the changing landscape of multichannel commerce and the pace of change. eBay wants to be a solution to merchants entering into the new era of agile commerce.  With this acquistion — together with RedLaser, Milo, and CriticalPath — eBay is signaling that it wants a piece of the mobile shopping+search+payments+local evolution of consumer behavior and will be competing with Amazon and Google tooth and nail. 
  • Big merchants. eBay is losing the mindshare of the consumer. One of the key gaps for eBay has been access to the assortments of large retailers and well-known consumer brands, who have never felt comfortable with the eBay marketplace and consumer experience there. Google and Amazon are the places consumers begin a shopping experience today. eBay has a loyal and dedicated following, but that is focused on auctions and second use goods. Regular priced merchants on the eBay platform are small businesses, and once they get over $1M in annual retail sales, they usually bail eBay, often for any number of other platforms that enable them to sell on other marketplaces like Amazon, as well as their own sites.

What does this mean for GSI customers?

  • The platform. The technology platform has been a sore point for GSI’s customers for many years. GSI has had a number of fits and starts as it has worked to correct a cobbled together architecture that was bandaged together as it grew quickly through its first decade and half. With the strategic investment in Intershop, GSI restarted an effort to rebuild the platform, from the ground up. That effort — named v11 by GSI — is nearly complete. The eBay acquisition likely means even further investment in that solution, though the value for GSI or eBay will not be in the platform — it is in the services delivered around it. GSI has been growing globally as well, and Intershop has resuscitated its business in Europe, including the full-service segment. eBay will want to see that growth accelerate.
  • The breakup. Michael Rubin will be forming a new company and RueLaLa and ShopRunner will be going with Michael. It is surprising that eBay did not want these assets as they are focused on fashion and higher-end consumer brands, precisely the group eBay needs in its marketplace. (Whereas it makes sense for eBay to divest Fanatics as that would require they own inventory and compete with eBay merchants.) Many of GSI's larger clients will continue to see value there, though private sales will represent a small piece of the business for the larger merchants, and ShopRunner is a nascent solution. I expect little impact here.
  • The resources. GSI has been stretched thin in many areas of the business. Acquisitions naturally bring with them a desire to drive efficiencies into the business. In this case it may mean that customers of GSI will find their key account management people laid off or even busier, placing their business priorities in further question. eBay and GSI need to ensure that the needs of the GSI core customer base do not experience any fall off in service, and if anything, those groups must be reinforced to ensure client satisfaction.

Our thoughts:

  • For eBay this is a good move, even if the value is not immediately evident. eBay needs to do something, and many things, to become more relevant to both the consumers (in their marketplace) and to the marketplace as a whole. Becoming a stronger player to larger retailers and consumer brands is an important move. GSI ultimately serves a small segment of those retailers and brands in a very diverse solutions market, but the acquisition of GSI, and its marketing services, gives eBay and PayPal access to many key brands that can support growth of PayPal’s multichannel payments solutions and eBay’s marketplace recovery. Combined with PayPal’s strategic investment in Magento and the MagentoGo platform, this enables eBay and PayPal to offer services to businesses large and small. 
  • For GSI customers it will be wait and see. You just never know. On paper this looks to be a positive for GSI and Intershop customers, as a larger parent with strategic interests in multichannel commerce acquires GSI and sends all the right signals. But fundamentally the business will be reoriented around marketplace and payments, and it is a question whether the fundamental challenges of the GSI platform and client satisfaction will be further improved. Some GSI clients may even be rushing to their agreements to read through their "change of control" language to see what leverage they may have as a result of the deal. GSI marketing services clients may be concerned that the unique needs of marketers and merchants in the retail and consumer market will be appreciated in their larger entity with many other priorities.

One thing we do know is that eBay is getting serious about growth. As one senior eBay person told me this morning, they are not done. As they said, “We are in it to win it.” eBay is focused on the larger merchant segment, multichannel, and global commerce market. That is a good thing.

Let me know what you think in the comments below.

Thanks, Brian

*You can read about the details in eBay’s press release here.

Comments

Great comments, thank you.

Great comments, thank you. This and the Oracle+ATG deal will for sure change the landscape of e-commerce platforms a bit in the near future I guess. There are room for more mergers in the market, who is next? :)

Yes, there will be further moves

Mattias,

Thanks for the comment. Yes, there will be further moves in terms of mergers, acquisitions or new platform offerings. It is still early in the evolution of eCommerce to commerce solutions that link touchpoints and enable the new consumer behaviors. Companies no longer can live without an online and mobile commerce solution and they are putting increased pressure on solution providers in the ERP, OMS, and CRM spaces, while at the same time local/mobile commerce opportunities are accelerating. It will be interesting to see the evolution.

Thanks, Brian

gsieBay

Nice Brian. This wake-up call was esp interesting from a global commerce perspective.

We're seeing many retail brands that want to test the waters of international e-commerce first enter intn'l markets through in-country marketplaces. eBay has been in an acquisitive mode on this front and now this part of their story is even better, esp in the EU given GSI's assets there.

eBay can now offer brands large to small (and yes, this is a very nice complement to ebay's Magento investment - my first thought in fact this AM) a platform for US e-commerce and an on-ramp to international e-commerce.

It would have been very interesting hearing Michael Rubin pitch this deal, given his past and proven ability to build e-commerce on-ramps.

The dynamic to watch will be the performance of the revamped GSI platform and whether it is really ready for prime time. If not, eBay may have bitten off a lot more than expected.

Looks like spring has arrived afterall.

indeed

Kent,
Great to hear from you. Yes, it will be important that the v11 platform be ready for primetime, and I agree the international offering is important, but must be beyond NA/EU to be compelling. GSI has begun to support the Japanese market, but as of yet does not have a compelling solution for the Chinese market.
Thanks for the comment, Brian

Thumbs down

Great post, Brian. I agree that eBay needs to do something to grow, and their moves on the m-commerce side are helping. But this was an expensive acquisition for an unclear strategy. I don't think hosting brick-and-mortar retailers worked for Amazon, nor do I think it will work for eBay. I must be missing something. Time will tell.

Nope

Brian,

Thanks for the quick response to the news this morning, but I have to disagree with your main 2 conclusions. It may end up being good for GSI clients (it couldn't have gotten any worse under Rubin's reign), but it is a bad move for eBay.

It doesn't look like eBay did their due diligence before taking this step. A 51% premium for a platform with a very disenfranchised customer base, many of whom are jumping ship, or want to do so? EBay should have really dug into the industry (it's different than the one they are in), before pinning their hopes on GSI. I know you've heard the saying that "GSI's biggest strength is it's legal department", because once you are in, you can't leave.

Maybe eBay did their research, and think they can fix a failing platform. Rubin took the best parts, and left them the mess to clean up.

Good luck eBay!