As we’ve noted many times, the playing field of payment processing options (the processing of credit and debit account transactions made in-store, on the phone, or online) is drastically changing for small businesses. That just got a little more confusing with news that Ebay is spinning off PayPal, the transaction platform that has dominated the small business segment of the online payments arena for over a decade. Square has made dramatic inroads to even the smallest of businesses. (Have you been to a flea market lately?) This is a playing field with nearly every brand showing up to play, from Intuit to Amazon, Alibaba to Google, even Apple has shown up in the past few weeks with Apple Pay.
The new Ebay’s competition
Ebay spinning off PayPal is definitely a cash winner for Ebay. Analysts place the value of PayPal over $30 billion. That provides Ebay with some deep pockets — but pockets they’ll need when facing the first major challenge they’ve had to their core business: the hosting of a vast marketplace where small businesses sell and buy from one another, as well as to consumers.
Alibaba’s cache of IPO cash raised from its recent IPO means that it will have the strength to enter the U.S. marketplace with hopes to peel off Ebay users with an approach different than Ebay’s. Alibaba does not charge listing and transaction fees like Ebay. They provide listings free and generate revenue from selling advertising to drive users to the products listed. Such a model has provided Alibaba with extremely high margins on revenue compared to Amazon.
How will Ebay serve the small business market?
With the exit of Paypal, Ebay’s focus on serving small businesses will only grow in importance to its shareholders. Ironically, Ebay is in the process of winding down two small business storefront creation options it had acquired to offer small businesses, the Magento Go platform and ProStores. (Magento’s enterprise platform will be the focus, spokesmen said at the time of the announcement.) Ebay faces formidable competition on this front, as well. Players ranging from Google to Shopify to Amazon and Alibaba are just the beginning of that parade.
Will auctions and fixed-priced stores (and StubHub) be enough?
Ebay will still be a massive auction and fixed-price marketplace for millions of sellers and buyers. CraigsList has encroached on Ebay from one side (the garage sale crowd). The power sellers on Ebay, those who are fully devoted to selling products online, will likely try out competing channels like Alibaba, as its “no transaction fee” model will surely be attractive.
Ebay’s ability to retain its massive audience of buyers will be key to its longterm survival. Sellers will ultimately be where the buyers go (or stay).
That, and it will still own StubHub.
So what does the spin-off of Paypal mean for small businesses?
A strong PayPal with more competitors should lead to less expensive transaction fees (competition is good). Such competition should also lead to more innovation (see: Apple Pay). It also means that the next few years will be the most explosive in options for small businesses to sell things online to their neighbors down the street and customers they discover throughout the world. Likewise, Ebay will have to shift into overdrive on developing various products for business verticals, local retailers and non-traditional payment clients (service providers, for example). Also, on a wide range of a fronts, Ebay must start looking like everything from Angie’s List to the local delivery businesses announced by Google and Amazon.
Only downside: It will be confusing getting there.