eBay: Strategic Acquisitions, Going Social and its Open-Source X Factor!

eBay has consistently been on an acquisition path. Back in 2002, it acquired PayPal and phased out its own competing service Billpoint, which it had similarly acquired in 1999. This year, eBay bought Zong, a mobile payment platform, for a record $240 Million to boost PayPal’s mobile capabilities. After tense negotiations and a lawsuit by the founders of Skype, eBay did go on to acquire the Internet communications company. Many wondered at the time, how it made sense for eBay – described as the ‘Gorilla’ of online auctions – to jump on the internet telephony bandwagon; so much so that the then CEO of eBay had to make numerous impassioned speeches to convince people of the rationale. eBay until then had made many significant investments in e-commerce related purchases but none that showed signs of diversification.

A few years later, eBay top honchos started talking about something they called ‘Social Commerce’. In an online landscape where ‘Social’ was being added to practically every business and entity that existed on the Web, ‘Social Commerce’ seemed like just another inflated buzz phrase. This is until it sort of seemed to make sense.

Max Mancini, who joined the ecommerce site in 2003, was focused on helping realize eBay’s social commerce dream.  He described it as “sharing information to create new trust models.” In simple terms, the model that eBay and other auction sites for second hand goods work on is the basic human trust that exists between strangers. Although eBay did start an internet reputation system, it was far from ‘social’, the way we understand social media in today’s world. In fact, the reputation system that helped eBay thrive for many years, by encouraging user-based feedback and evaluation was so wondrous that a Harvard paper was dedicated to the findings and workings of this mechanism.

However, the Web has emerged over the years as a haven for anonymous existence to a more specific, detailed and traceable virtual life. Web users moved from being as ambiguous as possible on the Internet to more personal, in large part, of course, thanks to social media. This exposure, in terms of our personal identities, has also gone a long way to ensure safety on the Web. Some will say risk, but nevertheless, authenticating ourselves on the Web makes it a safer place for all of us and reduces criminal activity.

In a growingly open online atmosphere, whether or not we like our privacy compromised, eBay’s trust model could be taken a step further by going social. Basically, eBay is tapping into the ‘Kevin Bacon’ rule, where one look at online networks like Facebook indicates that we all seem to know an awful lot of people in common. Ever added someone on Facebook only to find out you had several ‘mutual friends’ you had no idea you did? eBay’s foray into social commerce is this hitherto uncharted territory and a move away from the 90s anonymous, stranger evaluation-based trust model to buying second hand good from people within a tighter, more traceable online friends network.

eBay’s innovator developer conference has been indicative of the direction that the ecommerce auction site is set to take, with its integration with Facebook, eBay is set to dig deeper into Social Commerce. With Facebook’s Open Graph, which is the graphic connection tree, created by Facebook users, and its integration into eBay acquired and owned commerce platforms Magento and GSI. However, if eBay’s innovator conference signifies anything it’s how eBay is set to, or at least aims to, become not just the leader of social commerce but also of innovation in commerce – electronic, mobile and beyond.

At the innovate developer’s conference in San Francisco, eBay announced its X.Commerce platform, a sort of “uber platform” for small developers to create ecommerce apps. The open source model has gathered great traction in recent years and there’s no reason why it shouldn’t work for an e-commerce giant like eBay. X.Commerce creates a great opportunity for developers who’re vying for their share of attention and money on the Web, many of them also incubating full-fledged online business ideas of their own.

There’s almost nothing like open source to cheaply boost innovation for online business giants. Small developers take the risks by investing their time and resources and if the application works, it benefits both the big company and the small developer. As has been reported widely, X.Commerce is a coming together of eBay’s PayPal, Magento and GSI to create a whole new enhanced experience for buyers and sellers. Among the ‘partners’ that have created APIs for developers are Adobe, Facebook and Kenshoo, so applications related to online shopping, mobile and location-based applications can find a wider range of platforms for integration.

eBay’s acquisition of Milo, for $75 Million is also set to pay off. Milo does a fabulous job of listing inventory of some 50,000 stores across the country, with millions of products from Target, Macy’s, Best Buy etc. in real time. Now, as eBay announced at the developer conference in San Francisco, Milo will be launching an API, which will be integrated into the X.Commerce platform, and developers interested in integrating local inventory into their apps have an opportunity to do so.

Following eBay’s plans and grand announcements at the conference, the company looks like it’s all set to show that its acquisition spree over the last decade and strategy has paid off. After the Innovate Developers Conference, eBay reported that its third-quarter earnings of $490.5 million, which works out to 37 cents a share. The auction site’s GAAP earnings were 48 cents a share on revenue of $2.97 billion.

Part of eBay’s achievements and increased earnings are also thanks to its mobile commerce strategy. PayPal particularly is helping eBay push the auction site’s mobile capabilities forward. The company expects to generate $5 billion in merchandise volume in 2011 and is hoping that PayPal mobile alone will exceed $3.5 billion in payment. With an open-source platform to drive innovation, integration of some of its key acquisitions and a great deal readiness to changing consumer behavior, with online-to-offline buying market set to grow to 1.3 trillion by 2013, according to some estimates.

Sources: CNET, Bloomberg, ZDNet, SC Magazine