EcommerceBytes-Update, Number 368 - October 05, 2014 - ISSN 1528-6703     2 of 6

Ramifications of the eBay PayPal Breakup for Sellers

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eBay's board will break up the company next year in a move that splits the marketplaces and payments business into two separate, "independent" companies. Devin Wenig, who is currently president of eBay Marketplaces, will become CEO of new eBay company after the breakup, which will include eBay, eBay Enterprise (formerly GSI Commerce), eBay Classifieds, Magento, and StubHub.

Dan Schulman, who joined the company as the new President of PayPal on Tuesday, will become CEO of PayPal after the split. That will include PayPal, PayPal Credit (formerly Bill Me Later), Braintree, and Venmo.

Current eBay CEO John Donahoe will hold no executive positions at the new companies, but he may remain on the board of one or both firms. He will stay with eBay Inc. until the breakup is complete. It could take up to 12 months, eBay told users, but it would likely complete the split by the end of June, according to its announcement to Wall Street.

A Change in Thinking
Beginning in January, eBay resisted pressure from activist shareholder Carl Icahn to spinoff PayPal. But after 9 months of insisting that the two companies were best together, Donahoe and the eBay Board of Directors changed their minds.

CNBC's David Faber asked John Donahoe to explain that change in thinking in this video interview.

Donahoe explained that as eBay's board looked forward, they prioritized the value of focus, strategic agility, and the ability to move quickly in a changing competitive landscape as being more important than the synergies they had said were so important earlier in the year, described in this slide from January.

Donahoe said eBay and PayPal could achieve many of the benefits of these synergies through "arms-length commercial relationships." Donahoe said they looked into whether they could get the benefit of data-sharing for eBay and PayPal's risk models through a commercial arrangement, "and we became comfortable we could."

What the Split Means for Sellers
Where does the breakup leave online sellers who use one or more of eBay's services? So far, the company isn't sharing much information. It told sellers in a post on its announcement board that the creation of independent eBay and PayPal businesses would take up to 12 months to complete "so this has no immediate impact on your account."

Donahoe said commercial agreements between PayPal and eBay would let the two firms share data to minimize risk - essentially eBay would have its cake and eat it too.

There remains uncertainty about how eBay will pull this off. Here is some of the current thinking on the rewards and risks sellers could face as a result of the breakup:

More choice in payment methods for eBay sellers. Some sellers are hopeful that eBay will allow additional payment methods on its site - and make them easy for shoppers to use - though there is no guarantee this will happen. eBay could make PayPal a preferred payment method and make little change to how it works with other payment providers.

Greater acceptance of PayPal. eBay rivals could be more accepting of PayPal once it is no longer under eBay's umbrella. However, if potential partners believe there is a wink-wink, nudge-nudge agreement between the two firms after the split, they may be no more willing to enter into deals with PayPal than they are today. In addition, there's already a trend for marketplaces such as Etsy, 11 Main, and Bonanza to offer direct checkouts that give them advantages over using third-party systems.

Technology challenges. If eBay has to tinker with the PayPal integration on the site, and if it chooses to integrate with other payment services, there is a risk of glitches during the process. Adding to the challenge - eBay's Chief Technology Officer just left the company, so he won't be there to oversee the untangling of eBay, PayPal, and Bill Me Later (now called PayPal Credit).

Fee changes. When we asked sellers in January what a PayPal spinoff would mean for them, a reader named Ric wrote, "Personally, I think that if the two companies were separated, eBay would almost immediately impose substantial fee increases, and seek to create new fees in order to appease Wall Street analysts as well as investors."

A perception of weakness. There are some who believed the company when it said eBay and PayPal were stronger together. In addition, eBay is foisting its $7.5 billion in debt on the "new" eBay. PayPal will be debt-free after the split. Moody's placed eBay under review for downgrade as it wondered how much of the estimated $15 billion in cash and liquid investments eBay would allocate between the two companies.

Possible acquisition(s). Some believe the post-split companies will be ripe for acquisition. Donahoe denied that was the reason for the move, but he didn't rule it out when asked if Alibaba could be a possible acquirer: "To be perfectly clear, this move is not designed to position either business for sale."

Related Stories
Here are articles and blog posts from EcommerceBytes about the breakup announcement from the past week, and please feel free to share your comments.

eBay PayPal Split Not Designed for Sale to Alibaba (Newsflash, September 30, 2014)

Moody's Places eBay on Review over $7.5 Billion Debt (Newsflash, October 1, 2014)

And By the Way, PayPal Has a New President (Newsflash, October 2, 2014)

eBay and PayPal to Split, John Donahoe Will Remain on Boards (EcommerceBytes Blog, September 30, 2014)

How Will John Donahoe's Tenure at eBay Be Remembered? (AuctionBytes Blog, September 30, 2014)

Speculation that eBay CEO Fumble Led to PayPal Breakup (EcommerceBytes Blog, October 1, 2014)

What does the eBay breakup means for your business?
We asked you in January whether eBay should spin off PayPal. Now that it's approaching reality, please let us know how it will impact your business.

Comment on the AuctionBytes Blog.


About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.


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