Dwivedi

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Thursday, June 02, 2005

Poor logic for eBay acquisition of Shopping.com

I have been scratching my head all day today to figure out why eBay, a great company that I admire immensely, will acquire Shopping.com. Not that Shopping.com is not a good company, but somehow I do not see a business model fit between the two. eBay has been very successful in its niche and so has Shopping.com, but the two types of shoppers that they attract are so far apart in their approaches to shopping.

While eBay is characterizing the acquisition as a way to provide more opportunities for its sellers, I believe that eBay wants to tap into the pool of 50 million visitors to Shopping.com website. With its 60 million users, eBay will have access to approximately 100 million visitors allowing it to become even a larger player in attracting online shoppers - the people that Google, MSN, Yahoo, Amazon, and many other websites are chasing.

The other reason why eBay is interested in diversification is the modest growth rate in the auction business. Through its aggressive strategy, eBay has captured the market on a global basis faster than anyone would have expected. However, further growth will only come when more users go online in Asia and broadband penetration improves in North America and Eastern Europe.

I am typically very skeptical of M&A where there is no clear business model fit and that is why if I were a shareholder of eBay I will be quite concerned. The value that Epinions and Shopping.com create is available to anyone with a click. Why should Shopping.com then be a part of eBay, I don't understand. I had the same doubts when eBay acquired Paypal. Paypal could have become the de facto payment system for eBay users even if they did not acquire it.

What does it mean for you?

  1. Do not make an acquisition just because you want to grow.
  2. If a partnership or strategic alliance can do the job, never merge or acquire. In case of Paypal and Shopping.com, eBay would have been better off with an alliance.
  3. Acquisitions often create distractions and distractions are not good for business. Small acquisitions are even worse.

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