Thursday, 8 May 2014

Alibaba's IPO filing is another set of key pointers to eBay's failings

Alibaba has now provided some detail to its filing of its potential IPO in the US.   Many compare Alibaba to Amazon but we think it better to compare it to eBay.

The filing details show it to be a profitable and well designed set of services in the e-commerce area.  Most of their business is within China but don't be fooled their model is applicable for any country in the east or west.  Alibaba is a massive company with US$250B in merchandise value and growth reported in Dec 2013 of 62% year and year at US$3B just for December.  Most of their money comes from their two main sites Taoboa (C2C) and Tmall (B2C).  Toaboa is consumer to consumer and is thought to be the larger generator of money with 100M daily visits.  The fact they've split their sites up is an example of the correct approach so that focus is not taken off any one area.  eBay have a single site for both C2C and B2C, but because they get more profit from B2C they've do not provide proper C2C support.  The other area where Alibaba and eBay differ is their business models.  eBays takes commission on their sales of up to 15%, with a further 3% going to Paypal - this leads to stifling their business, whereas Alibaba take no commission but instead make money from product placement and escrow services.  Additionally Alibaba has a messaging service allowing users to talk to each other.

Carl Icahn has been silenced on his protestations of how bad the eBay management is by being given a place on the eBay board for one of his associates.  But do not forget that his words that eBay has the worst management of any company he had seen.  Carl never got into the detail of the huge number of failings in the running of eBay but suffice it to say eBay's failing is clearly an opportunity for other companies to eat away at the C2C business it is ignoring and incapable of addressing

So to conclude we think eBay needs to do the following:

1) Spin off PayPal
2) Split eBay into C2C auctions and C2B auctions so focus can be given to both businesses
3) Commissions need to be reduced and alternative models such as product placement and escrow services put in place in order to eventually remove commissions altogether.
4) eBay need to add messaging capability between users

Alternatively of course other businesses will come in and eat away at eBay's position.