eBay takes a step back from e-commerce

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It has finally dawned on eBay (EBAY) that retail e-commerce is s competitive business with low margins. The company's online payment system, PayPal, has excellent margins. Its VoIP operation, Skype, is a bust.

The relatively new management at the online auction operations has decided it is time for the company to play to its strengths. According to The Wall Street Journal (subscription required), "EBay Inc., a onetime Internet star that thrived with its pioneering auction model, is retreating from its strategy of competing across the board in online retailing as it contends with its own missteps and changing consumer behavior."

A quick look at the eBay 10-K shows why the move is way overdue. Last year, the company had an operating income of $2.1 billion on revenue of $8.5 billion. PayPal brought in $2.3 billion in sales but it grew at more than twice the rate of the company's core auction business. As PayPal continues to pick up new clients, it is clearly the future of the company in terms of revenue improvement and operating income.

It is a shame that eBay took too long to decide to play to its strengths.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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