Note: The company I cofounded, Hunch, was acquired by eBay in November 2011. I am now an eBay employee. But all the opinions expressed below are my own, and were developed prior to the Hunch acquisition, through my own research on e-commerce.
Amazon and eBay are the two largest e-commerce companies. As of this writing, Amazon has a market cap of about $87B, trading at a trailing twelve-month P/E of about 139. eBay has a market cap of about $42B, trading at a trailing P/E of about 13. Each company competes with many other companies in many different areas. For example, Amazon competes with Apple on tablets (Kindle vs iPad) and digital media (Amazon’s media store vs iTunes). Ebay’s Paypal unit competes with multiple payment companies, and its marketplaces division competes with other “peer-to-peer” e-commerce sites like Craigslist. But given the potential size of the e-commerce market (not to mention the online-to-offline commerce market), Amazon and eBay’s main competitors are each other. And to understand their large strategic moves (e.g. large acquisitions like GSI and Zappos), it is important to understand their fundamentally opposing strategic outlooks: eBay wants commerce to be more decentralized (around its GSI/Magento partners and eBay marketplaces sellers) and Amazon wants it to be more centralized (around itself).
First, some background. During the dot-com boom, many largest offline brands debated how to best move their businesses online. Some tried to build their own websites from scratch. Others partnered with commerce technology providers. Toys ‘R’ Us took a novel approach and signed a “strategic alliance” to outsource all of their e-commerce operations to Amazon. Over the next few years this relationship soured – apparently Toys ‘R’ Us felt Amazon was competing too directly with them and successfully sued to end the relationship.
