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Earlier this month we reported on eBay’s spinoff of StumbleUpon, a company it owned for a little less than two years. Ebay bought the company for $75 million in May 2007. Unknown until now, though, was the spinoff value of StumbleUpon. According to a source close to the transaction, it was $29 million. (more…)
SAN JOSE, Calif. – EBay Inc. is exploring whether to require customers to use its online payment service PayPal, a move that has angered users and prompted antitrust scrutiny in Australia, where a PayPal-only rule takes effect next month.
It’s unclear whether eBay will institute a similar policy in the United States and other countries. However, the online auction company often tries big changes in smaller markets before expanding them worldwide, and says it is open to that in this case.
“We are going to take learnings from it and apply them accordingly,” said eBay spokesman Usher Lieberman.
EBay says it wants to reduce disputes and restore trust in its marketplace with the PayPal-only plan. Because eBay and PayPal can share information on each transaction, eBay says use of PayPal allows it to stop fraud more efficiently than outside payment services. Pressing that safety argument in a heated discussion with Australian users, an eBay executive compared the new rule to banning the sale of heroin on street corners.
But critics lament that PayPal is costlier than other payment options, and they suspect eBay is just interested in increasing PayPal’s revenue. Australian banks say the plan will eliminate competition for the sake of exaggerated benefits.
“Competition will be restricted, innovation and development will be constrained, new entry will be discouraged and PayPal will be able to increase fees and charges to eBay users,” the Australian Bankers Association said in a filing with regulators Thursday.
Because eBay sellers are commonly independent merchants who don’t accept credit cards, PayPal acts as a go-between. Buyers use their credit cards and bank account information to make payments, and PayPal relays the funds to sellers’ PayPal accounts, charging them 30 cents plus a commission — up to 4.4 percent in Australia. The second-most common method of payment on eBay Australia, bank transfers, cost 20 cents each.
Australia’s bankers group says PayPal is not as immune to fraud as eBay claims. While PayPal does keep bank and credit card account information secret between trading partners, the bankers group decried that it does not verify identity as banks do.
EBay’s financial reports indicate that PayPal, while hardly fraud-proof, is getting better at cracking down. Its loss rate is 0.24 percent, down from 0.33 percent a year ago. That means that for every $100 transacted with the service, PayPal has to eat 24 cents because of fraud. That is slightly lower than the rates seen in credit and debit card transactions involving the top 20 online retailers, said Avivah Litan, a payments security analyst with Gartner Inc.
EBay contends that when users opt for methods like bank transfers, their transactions are four times more likely to result in a disputed payment. EBay says reducing that risk will attract new buyers to the site.
And, the company adds, it doesn’t stand to profit directly from the PayPal rule. It claims its investments in new buyer protections could outweigh any gains from increased PayPal fees. For instance, under Australia’s new plan, if a buyer doesn’t get what he or she paid for via PayPal, eBay will refund the buyer up to 20,000 Australian dollars ($18,600).
To make the PayPal rule possible, eBay has applied for — and automatically gets — immunity from Australia’s anti-monopoly Trade Practices Act. But the Australian Competition and Consumer Commission, which is investigating, could revoke that immunity if it finds the plan will harm the marketplace. A decision is expected soon.
Critics say eBay is just trying to fatten its bottom line. Growth in eBay’s core auction listings has slowed in recent quarters, pushing eBay to expand other parts of its business, which includes PayPal, classifieds sites and online telecommunications service Skype. And eBay has already taken other steps viewed as protecting PayPal, such as banning Google Inc.’s rival Checkout service on alleged safety concerns months after it was launched in 2006.
Sellers in Australia are “absolutely furious” and resent that they are subjects of an experiment, said Phil Leahy, president of the 600-member Australia chapter of the Professional eBay Sellers Alliance.
Leahy sells DVDs, movies and CDs through eBay, a high-volume, low-margin business. He says using PayPal instead of bank transfers would cost him $4,700 per month, based on his January sales numbers of $332,000. “It’s the difference between making money and not making money,” he said.
Leahy estimates Australian buyers use PayPal about 50 percent of the time — eBay would not confirm the figure — versus an 85 percent rate in the United States. He said bank transfers are used in 30 percent of transactions. The rest are conducted with bank and personal checks, money orders, or cash on delivery, all of which are banned under eBay’s new plan unless the payments are exchanged in person. That happens rarely.
Shaun O’Brien, a seller of home theater accessories, said many Australians trust their banking system more than online services like PayPal. He worries buyers will leave when they are deprived of a choice.
“Australians here have been heavily educated against putting credit card details online,” O’Brien said. “There are plenty of customers out there that refuse to use PayPal.”
The Australian experiment could lead to a less-stringent step: Perhaps eBay will require all sellers to at least offer PayPal as a payment choice. No matter how it turns out, however, eBay surely has more big plans for PayPal, which has grown steadily since the auction company bought the payment service in 2002. Last year it accounted for $1.9 billion in revenue, 25 percent of eBay’s total.
In fact, eBay’s top e-commerce executive, Rajiv Dutta, PayPal’s former president, said last year he was convinced PayPal would someday be bigger than eBay’s better-known auction and marketplace business.
The online auction giant eBay is suing the popular internet community ad site Craigslist to “safeguard its four-year financial investment”.
In a statement, eBay claimed that in January, Craigslist executives took actions that “unfairly diluted eBay’s economic interest by more than 10%”.
No details of those actions were given by eBay.
In its company blog, Craigslist said it was surprised and disappointed by eBay’s “unfounded allegations”.
The company said eBay’s legal action “came to us out of the blue”.
The case, which is sealed, has been filed in a court in Delaware, where Craigslist is registered.
In a press statement, eBay claims that Craigslist’s founder Craig Newmark and its chief executive Jim Buckmaster adopted unspecified measures in January that have disadvantaged eBay and its investment.
Preserve our investment
EBay’s general counsel Mike Jacobson said: “Since negotiating our investment with Craigslist’s board in 2004, we have acted openly and in good faith as a minority shareholder, so we were surprised by these recent unilateral actions.
He continues: “We are asking the Delaware court to rescind these recent actions in order to protect eBay’s stockholders and preserve our investment.”
Craigslist, the seventh most popular English-language page on the Web, hit back in a blog.
“We have always treated eBay fairly as a minority shareholder, and plan to continue doing so, despite this unfortunate development,” it said.
“EBay has absolutely no reason to feel threatened – unless a hostile takeover of Craigslist, or the sale of eBay’s stake in Craigslist to an unfriendly party, is their ultimate goal.”
Uneasy relationship
The relationship between Craigslist and eBay has not always been an easy one.
Online auction site eBay acquired a 28.4% stake when it bought shares from a former employee who had been given equity by Mr Newmark.
Mr Newmark and Mr Buckmaster give away for free most of the services that Craigslist provides.
They have always appeared to have little ambition to milk profits from the popular site, which offers everything from houses for rental to nannies for hire.
A year after the deal was completed, eBay, which had said it wanted to learn from Craigslist, started Kijiji.com, a rival international network of classified ad sites that now sells ads in all 50 US states.
