eBay Is Slowly Transforming Into Amazon, but it Will Happily Keep its Profits

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It's now an open secret that eBay has Amazon -like ambitions, and has been giving the latter a swift kick where it counts. The erstwhile auction site has been undergoing a gradual makeover that has seen it slowly shed its former tag as a rather drab online site that peddles Pez dispensers and the like. eBay has become a formidable online marketplace with state-of-the art retailing concepts such as Same-Day Deliveries and Home Deliveries. The best part is that eBay's Marketplaces are not just other flash-in-the-pan, me-too services offered more as an afterthought, as the services have actually been delivering solid results and giving Amazon a run for its money.

Meanwhile, old brick-and-mortar retailers such as Wal-Mart , Target , and lately, Home Depot, have joined the same-day deliveries bandwagon too. But same-day deliveries might not work out quite the same way for these retailers like it does for Amazon or eBay.

eBay's Marketplace to compete with Amazon Prime
eBay has conjured what it sells as a 'better and cheaper' way to attract third party sellers in the form of a series of eBay Marketplace platforms such as Shopping.com and Rent.com. Shopping.com is designed to compete with Amazon's lifeblood, its Amazon Prime online service, that has proven hugely popular with Amazon shoppers. Amazon Prime shoppers typically spend two and half times as much as regular Amazon shoppers. Sales from the platform accounted for a good 10% of Amazon's $61 billion 2012 sales revenue.

eBay has not stopped here. It has taken the battle to Amazon's home turf by introducing the utopian retailing concept of same-day and home deliveries. eBay recently moved to bolster its same-day deliveries with a tie-up with Shutl, a U.K.-based start-up that has recorded considerable success with same-day and home deliveries.

eBay has promised its shoppers that it will take the game a notch higher in 2014 when it launches eBay Now across 25 cities in the U.S. eBay Now is all about perfecting the art of instant gratification. It will not only deliver goods to customer's homes on the same day they are ordered, it will also let customers delay the time of delivery until they are available to pick up their merchandise. A mom working at a 9-5 day job will order from eBay during the day while she is at work, and delay delivery of her goods until the time when she is finally home.

A little bit of gambling
Granted, it is still quite early to tell if eBay's gamble with same-day deliveries will prove to be a success for the company. However, CEO John Donahue recently pointed out that the company can afford to just break even with this service, since the company's biggest objective will be to grow its revenue. eBay will charge its customers a piddling $5 to use eBay Now, hardly enough to even cover the cost of the service.

Perhaps eBay has learnt from Amazon, which cuts the prices of its products to the bone in a bid to grow its revenues. However, unlike Amazon, eBay's high gross margins provide ample room for the company to gamble a little bit.

Revenue growth in the retail space seems to be a big determinant of share price. Share price gains for companies here seem to closely mirror their revenue growth.

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