Amazon vs Ebay

Alice Berescu
Narcisa Curelaru

Ever since arriving in the mid-1990s, Amazon.com and eBay have

disrupted brick-and-mortar retailers across the world. Amazon evolved
from an online bookstore to a massive superstore for physical and
digital products, while eBay revolutionized online auctions and digital
payments by acquiring PayPal.

Over the past 10 years, Amazon has

crushed eBay in terms of pure revenue
growth.
Amazon's revenue is split into three
segments -- media (e-books, video,
music), electronics and general
merchandise, and "other" (Amazon Web
Services, ad services, and co-branded
credit cards)
eBay's revenue comes from three
segments -- Marketplace (its main site),
Payments (PayPal), and Enterprise
(Magneto content management,
omnichannel operations, and marketing
solutions).

Over the past eight quarters, Amazon posted a net loss four times,
while eBay only posted a net loss once, in the first quarter of 2014.
Amazon has trouble squeezing out a profit due to higher expenses from
fulfilling orders (up 30% YOY in the first nine months of 2014) and
higher expenditures on technology and content (up 41% during that
period). Together, those two categories accounted for 23% of Amazon's
operating expenses.

Amazon uses its free cash flow (FCF) more efficiently than eBay. Amazon
had FCF of $1.08 billion versus eBay's $4.57 billion over the past 12 months,
although both companies had comparable operating cash flows ($5.71 billion
for Amazon and $5.75 billion for eBay).

spends plenty of cash on practical uses like adding more

fulfillment centers and upgrading them. Amazon added eight new centers
in North America and 20 overseas. It's also willing to make cross-industry
purchases like Twitch, which it bought for $970 million. Lastly, investing
in gadgets like the Kindle and Fire TV tethers more users to its Prime
ecosystem.
By comparison,
gobbled up smaller auction houses and
classified advertising sites over the past decade, but it has no clear plans
to straddle and disrupt other industries like Amazon does. eBay's biggest
acquisitions were PayPal (2002), Skype (2005), StubHub (2007), Bill
Me Later (2008), and GSI Commerce (2010). Since it sold Skype
to Microsoft in 2011 and will spin off PayPal soon, eBay's inorganic
growth has been fairly conservative. This means that eBay could put its
cash to better use on more new products, services, and acquisitions.

 Amazon has two key tools that eBay lacks -- Kindle

devices and the $99-a-year Amazon Prime
membership program. Amazon sells Kindle tablets
and e-readers as well as Fire TV devices at paperthin margins to generate more revenue from digital
media and physical purchases. With Prime
membership, Amazon customers get free two-day
shipping, free e-books, unlimited streaming of
select media content, and discounts. Prime's user
base has risen from at least 20 million confirmed
members in January to an estimated 50 million in
September. Consumer Intelligence Research
Partners reported that the average Kindle owner
spent 30% more on Amazon than non-Kindle
owners, while Prime members spent twice as much
as non-Prime members.
eBay doesn't have anything like the Kindle or Prime
to lock in existing members while luring in new
ones. That's why eBay's Marketplaces revenue only
rose 6% YOY to $2.2 billion last quarter, while
Amazon's total revenue soared 20% to $20.6
billion.

Fees
On eBay, youre free to list and relist until your item sells.
Once you do sell, eBay takes a straightforward 10% cut.
On Amazon, there are referral and variable closing fees.
Referral fees are based on the type of product being sold. For example,
Amazon takes a 10% cut for Tires & Wheels, while Video Games
render a 15% cut.
Variable Closing fees are also contingent on item category. Media
products are a flat $1.35, unless they are Fulfilled By Amazon, and the
fees for non-media products are based on the weight of the item.
In addition, there is a fee of $.99 cents per item, regardless of its category.
However, this cost is waived for sellers who pay a subscription fee. And
only after all of these fees are deducted does a seller receive the final
amount.

Convenience
Online shopping is popular because its more convenient going to a brick-andmortar store, where selection may be more limited.
eBay is the home of the auction-style listing, which trigger-happy shoppers may
find inconvenient since they must wait for the auction to end. Moreover, shoppers
usually must wait at least another day for the seller to process and ship their order. In
this regard, eBay is more trafficked for rare, limited edition, and used items items
that are not commodities.
Whereas eBay rewards patient deal-hunting, Amazon is all about convenience. A
$79 yearly subscription with Amazon Prime gives members the right to free 2-day
shipping. Because of Amazon Prime, millions of customers shop on Amazon for
everyday essentials, such as
coffee beans, socks, and toilet paper.

Format
On eBay, every product gets its own listing and photos are an integral
part of eBays listing format. You must have at least one photo uploaded
onto your listing. If youre selling a used or rare item, multiple photos are
mandatory to gain a following. This process can be time consuming, but
its extremely important to get your listing presentation right.
On Amazon, products share listings meaning that multiple sellers
hawking the same product share the same listing. Only one stock photo is
used for all of an items listings, and the way sellers differentiate
themselves is via price and the Buy Box.

Customer Behavior
Because many listings on eBay are auctions, its easy for fraud to occur. A
significant number of false buyers harass sellers by bidding on items and refusing
to pay if they win. These auction trolls also sometimes bid to raise the price of the
item and cause the legitimate winner to pay an inflated price. If you face an
auction troll, you may choose to invoke a Second Chance Offer or in any other
situation where the winner cannot pay, you can choose to pass the item along to
the next highest bidder.
Sniping is another commonly encountered phenomenon in auction-style
listings. Snipers are users who bid at the very last second. If your item is listed
for over 3 days and you havent seen much bidding activity, its safe to assume
that someone will bid right before the auction ends.

Customer
Engagement

On Amazon, buyers expect little to no engagement with sellers. However, this has
changed in recent years, as Amazon has put more effort into badgering shoppers to
review their transactions on Amazon.
On eBay, the feedback system is very important. eBays interface plants its
notifications box in a very conspicuous place and stresses leaving feedback for
completed transactions by flagging those items. In fact, eBay sellers do their best to
maintain impeccable feedback, to the point that some beg buyers to reach a
compromise with them in the event of a disagreement, rather than rashly dole out
negative feedback.

It's obvious that Amazon is the superior e-commerce stock. Although its
valuation is high and margins are nearly flat, it has a clear plan to grow
its core business by expanding the Prime empire with consumer devices
and digital content. By comparison, eBay will spin off its high-growth
PayPal business soon, leaving its investors with the stagnant
Marketplaces and Enterprise businesses.