October 8, 2008
eBay to Bill You Later
It already has PayPal and now eBay is adding the Bill Me Later service to its online payment portfolio after acquiring the company for $820 million in cash and $125 million in options.
The two services fill distinct niches. PayPal is focused on handling transactions for small businesses and individuals while Bill Me Later works with major online merchants giving consumers a payment option other than credit or debit cards.
“PayPal and Bill Me Later belong together,” said John Donahoe, eBay Inc.’s president and chief executive officer, in a press release. “We now have a powerful combination of the two leading, complementary online payment products, each with proven benefits for consumers and online merchants.”
“This deal makes perfect sense,” said Bruce Cundiff, director of payments research and consulting for Javelin Strategy & Research. “Bill Me Later has adoption among the most popular large merchants on the web, and PayPal is the way that many small merchants and eBay sellers accept payments online. Together, they can extend the presence of the two brands and offer even more choice for consumers when they shop online.”
Discussion Questions: What do you think of eBay’s purchase of Bill Me Later? With consumer credit tightening, is this a good or bad time to emphasize the service? Will Bill Me Later face challenges with online merchants because of its affiliation with eBay?
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Sounds like rootin’ tootin’ shootin’ in the foot stuff to me. How much is it going to cost to chase people who don’t pay?
The knee-jerk reaction is to say, with credit so tight and bankruptcies booming, that this is a bad idea. But it looks fine to me. Business must go on. It’s not like Bill Me Later is an unproven start-up. Its customer list includes AirTran, Apple, Borders, Bluefly, Continental Airlines, eLUXURY, Fujitsu, JetBlue, Toshiba, Toys “R” Us, US Airways, Walmart.com and Zappos. Nothing I can see about the deal that should make it a bad move. I’m assuming they got it at a good price.
Like the rest of the issues that are dragging our economy down, someone has to take the risk that consumers will pay. This is certainly likely to have a positive effect on shopping by consumers and small businesses. However, consumers and small businesses will also have to pay to cover the time value of money and the risk involved. It may be a necessary activity in today’s market, but the long term costs also need to be considered.
It sounds like a perfect compliment to their growing financial services. While they shouldn’t lose sight of their core online auction business, I suspect these financial arms are more profitable and welcome additions to their portfolio.
Another view might be that the same conditions Warren cites may make this a very good move. Alternatives to traditional credit payment plans might be very attractive for the foreseeable future–particularly on major purchases. Customers who pay with traditional credit cards may not have the line of credit they used to, or may not want to tie up the line of credit they do have. And the nagging concerns about online security haven’t gone away completely either.
Although it’s a sound strategy, the timing may be a bit off right now. We’re in trouble because so many folks have not been prudent about buying only what they can afford. eBay’s original premise was good deals and massive inventory on a cash basis, followed up by PayPal’s credit options. Why not just wait for the smoke to clear to start marketing this?
If consumer credit tightens further, eBay will need an internal mechanism to keep purchase volume up. eBay is more than an eCommerce site, it is a business engine–millions of people rely on eBay to make a living or part of their living. The network effect of all those sellers and buyers staying within eBay has eliminated the other consumer auction players (in the U.S. at least) and allowed eBay to move toward straight fixed-price retailing. If consumers stop buying, they start losing sellers, and they lose that barrier to competition. It will hurt more than a drop in sales for a normal retailer.
So this is as much defensive as it is anything else, I think. PayPal’s spread as a payment mechanism slowed when it moved inside eBay and BML’s may as well, but eBay probably doesn’t care–it needs the credit facility to keep its own engine fires stoked.
eBay’s management says that Bill Me Later won’t help earnings per share until 2011. Will the credit market decline hurt Bill Me Later? Sure. Could eBay have gotten Bill Me Later for less? Probably. Is Bill Me Later a great lever for eBay’s growth? Yup.
Every solvent retailer should analyze: will credit services add to profits? In many cases, absolutely! Why pay interchange credit card fees when you can save those fees and collect a great interest spread besides? Keep the credit scores high enough and the interest rate spread is a great way to make money. In many cases, more money than by selling merchandise.
The eBay moves certainly will shakeup the alternative payments landscape a bit, pushing Amazon out on its own (which might be just fine with Amazon, given the economy and its own rollouts).
The bigger question is retail expansion. Acceptance of alternative payments have been sharply increasing but it’s starting to plateau. As we detailed in our analysis of the acquisition, the remaining large retailers who have opted to embrace alternative payments have to be convinced to do so. Otherwise, this will be tough sledding.
Not impossible sledding, mind you, as adding new consumers to the existing brands will still be profitable. (Footnote: Some predict Amazon to pull back from accepting Bill Me Later as a result of the deal. As one analyst said in our piece: “The Amazon and Bill Me Later relationship is dying if not dead already.”) But to push it to deliver the dollars eBay will demand, retailers like Best Buy and Sears must make the move.
Also, Bill Me Later has been trying to establish a presence in-store. It’s a bold move–don’t get me started on Merged Channel issues–but if it has a chance, they’re going to need the market might of eBay.
Facing the reality of today’s rapidly changing world, we need to remember how we got to where we are. Retail has changed dramatically over the last decade or so, and not in good ways. Profit no longer comes from making wise business decisions but from sheer volume. Having available credit allows a higher volume of sales, hence the drive for so many retailers to push branded credit card programs. You know the drill, “Save 10% on your purchase today by applying for a credit card!”
That available credit is drying up, no matter how you look at it. There are several headlines in today’s papers reporting of the impending Federalization of several financial institutions. Coupled with the increasing transportation and distribution costs, the volume that needs to move will have to increase in order to keep profits, as slim as they are in retail, moving. Without that credit, the volume will be decreasing instead.
Already retailers are showing a decline in traffic resulting in weaker numbers than LY figures, and many are not meeting projections. While Bill Me Later is not a credit provider, they do offer the same concept as take it home today and pay at the end of the month credit plans do, and they do require credit to operate. With the market collapsing as it is, how long will it be before the end of the month stops coming? Cash strapped companies have reduced buying power. Reduced buying power means less inventory. Less inventory means lower volume. You can figure out the rest.
Retail needs to change their business model of today and return to once held business models. Plastic in the drawer is not the same as cash in the drawer. eBay has the advantage of not being a retailer, but a service provider, but eventually the decreasing credit availability to the consumers who shop there will severely affect their business, the same way that it will affect regular retail businesses. Take a look at your dollars per basket and basket count figures, compare to LY numbers and go from there.
Citi Bank will suffer the same fate as other major banks in the ongoing market, and will cause some problems with Bill Me Later’s operational model, and thus eBay’s procedures. (Citi Bank is providing the credit/paper that allows Bill Me Later to operate) When the available credit dries up for Bill Me Later, what then for eBay?
eBay’s move is a risky one and considered by some as foolish in these economic times. However it could also be a very timely move that will pay off for eBay and ultimately position them ahead of their competitors, assuming the woes of our economy are short lived. Only time will tell who’s right, but I wouldn’t bet against eBay.
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Sounds like rootin’ tootin’ shootin’ in the foot stuff to me. How much is it going to cost to chase people who don’t pay?
The knee-jerk reaction is to say, with credit so tight and bankruptcies booming, that this is a bad idea. But it looks fine to me. Business must go on. It’s not like Bill Me Later is an unproven start-up. Its customer list includes AirTran, Apple, Borders, Bluefly, Continental Airlines, eLUXURY, Fujitsu, JetBlue, Toshiba, Toys “R” Us, US Airways, Walmart.com and Zappos. Nothing I can see about the deal that should make it a bad move. I’m assuming they got it at a good price.
Like the rest of the issues that are dragging our economy down, someone has to take the risk that consumers will pay. This is certainly likely to have a positive effect on shopping by consumers and small businesses. However, consumers and small businesses will also have to pay to cover the time value of money and the risk involved. It may be a necessary activity in today’s market, but the long term costs also need to be considered.
It sounds like a perfect compliment to their growing financial services. While they shouldn’t lose sight of their core online auction business, I suspect these financial arms are more profitable and welcome additions to their portfolio.
Another view might be that the same conditions Warren cites may make this a very good move. Alternatives to traditional credit payment plans might be very attractive for the foreseeable future–particularly on major purchases. Customers who pay with traditional credit cards may not have the line of credit they used to, or may not want to tie up the line of credit they do have. And the nagging concerns about online security haven’t gone away completely either.
Although it’s a sound strategy, the timing may be a bit off right now. We’re in trouble because so many folks have not been prudent about buying only what they can afford. eBay’s original premise was good deals and massive inventory on a cash basis, followed up by PayPal’s credit options. Why not just wait for the smoke to clear to start marketing this?
If consumer credit tightens further, eBay will need an internal mechanism to keep purchase volume up. eBay is more than an eCommerce site, it is a business engine–millions of people rely on eBay to make a living or part of their living. The network effect of all those sellers and buyers staying within eBay has eliminated the other consumer auction players (in the U.S. at least) and allowed eBay to move toward straight fixed-price retailing. If consumers stop buying, they start losing sellers, and they lose that barrier to competition. It will hurt more than a drop in sales for a normal retailer.
So this is as much defensive as it is anything else, I think. PayPal’s spread as a payment mechanism slowed when it moved inside eBay and BML’s may as well, but eBay probably doesn’t care–it needs the credit facility to keep its own engine fires stoked.
eBay’s management says that Bill Me Later won’t help earnings per share until 2011. Will the credit market decline hurt Bill Me Later? Sure. Could eBay have gotten Bill Me Later for less? Probably. Is Bill Me Later a great lever for eBay’s growth? Yup.
Every solvent retailer should analyze: will credit services add to profits? In many cases, absolutely! Why pay interchange credit card fees when you can save those fees and collect a great interest spread besides? Keep the credit scores high enough and the interest rate spread is a great way to make money. In many cases, more money than by selling merchandise.
The eBay moves certainly will shakeup the alternative payments landscape a bit, pushing Amazon out on its own (which might be just fine with Amazon, given the economy and its own rollouts).
The bigger question is retail expansion. Acceptance of alternative payments have been sharply increasing but it’s starting to plateau. As we detailed in our analysis of the acquisition, the remaining large retailers who have opted to embrace alternative payments have to be convinced to do so. Otherwise, this will be tough sledding.
Not impossible sledding, mind you, as adding new consumers to the existing brands will still be profitable. (Footnote: Some predict Amazon to pull back from accepting Bill Me Later as a result of the deal. As one analyst said in our piece: “The Amazon and Bill Me Later relationship is dying if not dead already.”) But to push it to deliver the dollars eBay will demand, retailers like Best Buy and Sears must make the move.
Also, Bill Me Later has been trying to establish a presence in-store. It’s a bold move–don’t get me started on Merged Channel issues–but if it has a chance, they’re going to need the market might of eBay.
Facing the reality of today’s rapidly changing world, we need to remember how we got to where we are. Retail has changed dramatically over the last decade or so, and not in good ways. Profit no longer comes from making wise business decisions but from sheer volume. Having available credit allows a higher volume of sales, hence the drive for so many retailers to push branded credit card programs. You know the drill, “Save 10% on your purchase today by applying for a credit card!”
That available credit is drying up, no matter how you look at it. There are several headlines in today’s papers reporting of the impending Federalization of several financial institutions. Coupled with the increasing transportation and distribution costs, the volume that needs to move will have to increase in order to keep profits, as slim as they are in retail, moving. Without that credit, the volume will be decreasing instead.
Already retailers are showing a decline in traffic resulting in weaker numbers than LY figures, and many are not meeting projections. While Bill Me Later is not a credit provider, they do offer the same concept as take it home today and pay at the end of the month credit plans do, and they do require credit to operate. With the market collapsing as it is, how long will it be before the end of the month stops coming? Cash strapped companies have reduced buying power. Reduced buying power means less inventory. Less inventory means lower volume. You can figure out the rest.
Retail needs to change their business model of today and return to once held business models. Plastic in the drawer is not the same as cash in the drawer. eBay has the advantage of not being a retailer, but a service provider, but eventually the decreasing credit availability to the consumers who shop there will severely affect their business, the same way that it will affect regular retail businesses. Take a look at your dollars per basket and basket count figures, compare to LY numbers and go from there.
Citi Bank will suffer the same fate as other major banks in the ongoing market, and will cause some problems with Bill Me Later’s operational model, and thus eBay’s procedures. (Citi Bank is providing the credit/paper that allows Bill Me Later to operate) When the available credit dries up for Bill Me Later, what then for eBay?
eBay’s move is a risky one and considered by some as foolish in these economic times. However it could also be a very timely move that will pay off for eBay and ultimately position them ahead of their competitors, assuming the woes of our economy are short lived. Only time will tell who’s right, but I wouldn’t bet against eBay.