One Point Four Billion Dollars!
That is the rough monetary figure our friends at eBay shelled out yesterday on acquisitions and charge offs. This in an effort to grow the overall business and move away from the core competency of what eBay was built upon - Auctions.
I know the image on the left looks very little like Mr. John Donahoe. For those who do not know, it is not the man, but is it the essence of... the plan?
Mike Myers' Dr. Evil represents the quest for world domination projected from the point of view of an out of touch and somewhat maniacal leader in charge of a click of similarly out of touch executives who are trained to only say yes.
Is there any similarity here?
With the shopping spree announced during the October 6th Investor call (in an effort to cover the facts of a very large layoff), John Donahoe and eBay have made a statement. This eBay statement can be and already has been interpreted in many ways by many people.
Most journalist, analysts and pundits have zeroed in on the biggest news of the day, the $945 Million dollar purchase of Bill ME Later.
BILL ME LATER
Bill Me Later allows consumers to purchase merchandise from websites without a credit card as an open-ended credit account. It is a service offered on dozens of websites including Amazon.com, Dick's Sports, ESPN Sports, ProFlowers.com and Zappos.com.
This new service will join the PayPal portfolio, giving eBay an unique online payment service which offers credit without the same regulation or accountability of standard credit card or banking institutions.
Getting Away from Credit Cards
Paypal has been working towards limiting its charge-back exposure from standard credit card companies for some time. With the addition of Bill Me Later, PayPal's expenses will be reduced and profits will increase. The reduction in expenses is not expected to trickle down to the merchant or consumer.
On the surface this move seems to be a big win for eBay/Paypal. Until questions are raised concerning the wisdom of spending available cash in a time of economic crisis (for the entire market) and when the expected return will not be realized for several years time (2011). Currently the US stock market is in crisis which places a heavy burden upon anyone attempting to sell credit. Bill Me Later does just that, without normal credit card regulations or protections.
The Bill Me Later CEO and shareholders are certainly very pleased with this development and that the sale was consummated in these uncertain times. The purchase of Bill Me Later was the only major acquisition announced on a day when the market lost over 700 points in trading before recovering to a mere 300 point loss for the day.
eBay stockholders were not as enthusiastic about the announcements, which included the additional purchase of Denmark based online Classifieds sites dBA and BilBasen for $390 Million and the layoffs of nearly 1600 eBay employees and contractors worldwide. eBay Stock ended the day at a 52 Week and 5 Year low of $17.89 per share. Expect a further sell off in the next several days, weeks.
Back to the Headline
The headline above does not mention anything about stock prices or acquisitions. But it does bring attention to the almost crystal clear facts regarding the core business of eBay - Auctions. eBay is doing everything in its substantial power to move itself and its businesses away from the origins of the company.
Auctions are not part of the current or future investment plan at eBay.
The clarity with which this signal has been telegraphed can not be denied.
eBay is divesting itself from auctions and investing in everything else. eBay knows where the bread is buttered and there is less butter to be had in the core auction business than ever before. The butter has recently come more easily from moving money (PayPal) and now it is starting to come from advertising (Yahoo & Classifieds). These are key factors in the decisions we have seen announced recently.
- eBay loves free auctions because they really like paid advertising. Advertising is a cleaner, easier, and better revenue model than auctions could ever be, Google has proven this.
- eBay loves PayPal... well, because it's PayPal and because it does nothing but generate cash. Now with a 19.99% yearly financing revenue stream from Bill Me Later, PayPal "should" become even more of a cash cow.
The announced layoffs most likely will not effect either the Classifieds or PayPal departments. I would bet these layoffs all reside squarely within the core eBay marketplaces and eBay itself. The growth of the core business has not been as exciting as it once was and we all know corporations feed on constant growth.
Without year by year gains meeting projections, heads will roll.
eBay cannot and will not spin off the auctions component of the business, the world has become attached to that aspect of the eBay mystic. One could suppose core auctions and possibly the other marketplaces (motors, fixed price) will now suffer a slow decline in importance within the eBay family of cash cows.
eBay itself has seen the light from within. Todays management is not attached to yesterdays revenue model and they are aggressively seeking new territory to conquer.
Que the Dr. Evil Reference...
The eBay management seems to be coming from the perspective of one Dr. Evil coming out of a long cryogenic sleep and adjusting to new world conditions.
Even though "Virtucon" (eBay) is very successful, few of Dr. Evil's advisers will argue with the despot or tell him what in the evil empire's world exactly has changed. Everyone has their own idea on which way the Evil organization should go or do to dominate the world.
Therefore, Dr. Evil attempts to disrupt the planet with his own plan for World domination.
The verdict is out on whether Austin Powers will save the day, or if Dr. Evil actually can keep "Virtucon" from becoming just another forgotten evil empire.