So, I asked you to think about whether eBay or Amazon is a better company. I pointed out that Amazon’s stock is performing a lot better than eBay’s this year.
One of you rightly pointed out that Amazon’s margins are a problem. Indeed, as I discussed at length in the series we just completed, Amazon really needs to rethink the margin equation. What’s alarming is that they keep entering low margin businesses.
In contrast, eBay has a very profitable business model, but their problem has been growth. For the first nine months of 2007, the number of listings on eBay was down 3 percent from the same period in 2006. We also analyzed eBay recently, and recommended that they diversify out of ecommerce as their primary business model.
In terms of Traffic, Amazon is up 11% while eBay is down 1% before the holidays. Not good news for eBay. That means, shoppers are going elsewhere. Let’s see how the holidays fare, although, there is inherent advantage that Amazon has wrt holidays and gift giving: eBay doesn’t offer gift wrapping!
I am also a huge fan of Amazon’s personalized recommendations, because it has gotten to know me over a long period of time. It knows that I like Michael Ondaatje’s Cinnamon Peeler, and for that reason alone, I will never leave Amazon. [I will also never leave Netflix, even though I have said that I would never invest in DVD rentals … Netflix knows that I like Love Song for Bobby Long.] In contrast, eBay has a rather marginal understanding of my tastes and preferences.
In my vision of a Web 3.0 world, Personalization will be the key determining element, and I do think that Amazon understands this phenomenon much, much better than eBay.
Finally, and this really should scare eBay, PowerSellers are moving from eBay to Amazon. Why? Most likely because Amazon is offering to take care of their entire logistics and fulfillment needs, which for many of them have become significant as their businesses have grown. eBay will hurt tremendously if they don’t come up with a creative response.
Overall, Amazon is a much more creative company, while eBay, when it tries to be creative, does stupid things like buying Skype. I don’t like Amazon’s business model and profitability equation, but I have greater faith on Jeff Bezos and his team’s ability to make changes than I do on Meg Whitman and her team.
So, what’s the chance that Amazon can make a strong success of their Marketplace initiative and use that to change the profitability equation?
I’d say pretty high!