eBay to Sell/IPO eBay Enterprise & Magento

Posted by: Karen Thursday, January 22nd, 2015

This is big news. Back in 2011 Magento was acquired by eBay for over $180 million. Now, after pretty much floundering around with it for 3 years eBay is going to cast it out for either full/partial acquisition or listing on the stock exchange (IPO). Not just that, but eBay Enterprise (formerly GSI) is also cast aside in the same division so that eBay can focus on it’s flailing Marketplaces Division.

Well, well, well.

eBay has stated in their quarterly results they are ‘Redeploying resources to top priorities. Scaling back/stopping other initiatives‘.  Reading between the lines here it sounds like they need more money to refocus on Marketplaces, which they admit is struggling, and they have given up the ‘Amazon fight’ around providing a full end-2-end solution for merchants small, large and giant, including on the potentially lucrative fulfillment side. Amazon won.

Having worked in large companies before my experience is that those at the top are always worrying about the financial markets, the share price, shorter term goals (1-3 years max), their investors, their bonuses ultimately. By separating eBay into three there are some easy wins, they get cash, the share price will rise just on the imminent change of the CEO, the share buy back, and the simplification of the company.

On top of this eBay are laying off 2400 staff (7% of workforce) including across eBay Enterprise (which seems already stretched to me).

Listening to the Earnings call and the subsequent questions one thing that strikes you is that there is very little talk of eBay Enterprise. Which really indicates that the financial markets care about Paypal and they care about eBay Marketplaces.

And Magento?

The downside is that for us in ‘Magento Land’ we are now at the whim of what happens next, and it is totally out of our control.  eBay Enterprise is the part of the division making the money, have no doubt that the Magento side is only really making money around the PayPal revenue it generates, nothing more. And with PayPal going then that relationship totally changes. You would hope (or maybe not) that Magento and eBay Enterprise will stay together, but there is clearly a risk someone acquiring will not see the value of Magento.

What I suppose is most disappointing is that from my perspective I see a team that pretty much is getting itself sorted, the cogs running smoothly and is clearly deeply passionate about Magento 2.  This uncertainty around what will happen to the staff and the division really could not have come at a worse time. We are in the middle of major investment in updating this platform so it will serve merchants for the next 4-5 years, and who knows what the purchaser or next CEO will want to do.  Let’s hope that eBay stick to what they have stated and provide the ‘stability and continuity‘ during this change period.

It sounds like eBay Enterprise will be cast off before Paypal, so really as soon as someone is interested. I personally don’t see an IPO, I think a company like Accenture, IBM, Oracle even will step in here and make an offer.

And the Conclusion

Will this affect us?  Maybe not, maybe slowly, maybe sooner.  What’s clear to me as a technology provider is that relying on one platform for your source of revenue could be a dangerous game. What I also know is that this community has tremendous momentum. If the right company can get behind Magento it has the ability to truly fly (it’s doing pretty well right now even with eBay around). And I believe the true revenue model is in the affiliate side of an App Shop (kickback fees), not in the Magento Enterprise sales.  I’m ignoring eBay Enterprise here, thats a whole separate discussion.

What’s also clear is that Magento 2 could have issues with timelines. It’s going to be very hard for the division to focus when you basically have a carve up going on. I’d expect to see some key faces in Magento walk away by the summer.

If the right company doesn’t get behind it then you will see a fork, because there are just so many companies now where Magento is the core of their business, and this community has some very intelligent people within it. It would require organisation but you would be surprised what a motivated community can do. I personally don’t see that happening anytime soon.

Maybe I’m naive, maybe I’m way off the ball, but what’s clear is that eBay wasn’t able to keep up with eCommerce, security or SEO, and now they are paying the price.

What’s the saying “The King is dead, long live the King“.

Bring on the next chapter of Magento. Microsoft, please don’t buy it 😉


8 Responses to “eBay to Sell/IPO eBay Enterprise & Magento”

  1. Vedran says:

    Really interesting read Karen, seems that we’ll never see Magento 2 “production ready or however you call it” out.

    That’s why I never touch beta software.

  2. Arie says:

    Karen- That’s quite interesting analysis.
    Come to think about it, it’s not far-fetched.
    Magento + eBay enterprise (formerly GSI) set a complete shopping cart platform that serves both mid-tier and enterprise.

    If that’s the case, it might be that the new spin off will focus on the enterprise market, and that would leave the mid-tier merchants potentially vulnerable.

    That brings carts like bigcommerce to be a solid alternative for the mid-tier segment as it’s structured to cater this market well (shopify is the other contender, but too focused on niche and small merchants IMO).

    I agree that relying on a single platform is a bet, hence it’s a good idea to “diversify” your portfolio.

  3. Erik Hansen says:

    It sure is interesting to witness the birth and death of a visions at such a large scale: X.Commerce fizzled before it got off the ground and eBay bought up a bunch of eCommerce-related companies and now it wants to sell them off.

    It will be interesting to see how the Extension Store monetization pans out for Magento. While it will certainly net less per merchant, it will allow them to tap into the massive Magento Community market.

    A quick thought experiment:

    Magento Enterprise monetization: Let’s assume that Magento has 10K Enterprise merchants. At $18K/yr, that is $180M a year in revenue.

    To reach that same level via the Extension Store, Magento would need to sell $3K in modules per year to 200K merchants, assuming a 30% commission. Many of our clients purchase far more than $3K in extensions for their initial build, but that large purchase of modules happens once and then they use those modules for years.

    If my quick numbers are close to reflecting reality, then I don’t foresee their Extension Store revenue equalling their Enterprise license revenue for quite some time. But it would certainly provide a solid secondary stream of revenue for the Magento business.

  4. Karen says:

    Erik, thanks for putting some numbers out there, interesting to see. What I see is that the greater revenue in extension sales is via the SAAS marketplace, not the actual extensions themselves. Companies such as Bronto, Braintree, Mailchimp, etc would be willing to pay a transaction based revenue share I suspect. And then you can have marketing from agencies, hosting providers, etc. This is far larger revenue stream than extns alone.

  5. It is scary to think about what could happen to Magento if a new company like IBM buys it who owns a competing Enterprise eCommerce platform like IBM WebSphere. I personally think Magento will not die off because the community around it is too strong and diverse. You touched on some great points that we did not cover in our post on this topic http://growwithtrellis.com/blog/the-questionable-future-magento-after-ebay-split/.

    What are your thoughts on the Magento open source community being a stronger influence on Magento similar to WordPress the number one open source software, rather than leaving the fate of Magento 2 and other updates to the software hanging on the question marks of the Ebay Enterprises sale / IPO? WordPress powers 23% of all websites and has no real owner. Automatic / Matt created it but they keep it completely open source.

  6. Hey Erik, just to add to what you said.
    Magento Enterprise stores often require multiple frontends and each frontend requires a license. They cap it at $75k for large stores.

  7. Eric Needle says:

    Hey Karen,
    Any updates? Great take on all this.

    Thank you,

  8. Karen says:

    We haven’t heard anything, assume things are still moving forwards, whats the saying ‘no news is good news’ 😉

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