Amazon Set To Clash With EBay In Online Payments
18 Mars 2009 - 7:47PM
Dow Jones News
Amazon Inc. (AMZN), having won the battle with eBay Inc. (EBAY)
over online retail sales, is now taking aim at the increasingly
important and rapidly growing area of Internet payment
services.
Last week, eBay Chief Executive John Donahoe said he believed
there will be only one winner in online payments - and he asserted
that his company's PayPal unit would be that winner.
But Amazon is taking the fight to eBay with its own Internet
checkout services that will compete with PayPal. Over the past few
months, the Seattle company has been rolling out technology that
lets other retailers use its proprietary system, known as Checkout
by Amazon.
The effort, designed to draw more retailers into Amazon's
network, is part of the company's strategic push to expand into
adjacent markets, generate new and growing sources of revenue, and
solidify its dominance in the e-commerce sector.
"This isn't just about a few pennies of margin," said Rick
Wilson, executive vice president of Miva Merchant, one of the
leading e-commerce software makers. "Control of how money flows on
the Internet is going to be strategically important."
Amazon won't characterize the battle for dominance of online
payments in such stark terms, preferring to look at the market as a
"compelling long-term opportunity."
While eBay has said there likely will be only one winner in
online payments, most Internet observers expect competing services
because merchants believe they can boost sales by offering
customers multiple payment options. Analysts also note that Google
Inc.'s (GOOG) remains a dark horse in online payments despite
stumbling out of the starting blocks.
Amazon's challenge to eBay comes as online sales - which account
for 3.4% of all U.S. retail sales - are expected to almost double
over the next five years.
With 70 million active accounts worldwide - good enough for
about a 10% market share - PayPal has become by far the largest
Internet payment system by catering to shoppers on eBay, and
increasingly on other e-commerce sites. Amazon has 88 million
active customers, all of whom use its proprietary checkout
infrastructure. Amazon declined to say how many people use its
payment software on third party sites.
Sources say Amazon is offering a discount to sites that try its
service to boost usage.
EBay will get a better look at the challenger in two weeks when
Miva makes Amazon's Checkout available to the 50,000 merchants that
use Miva's e-store software. Both systems enable shoppers to
purchase goods, while shielding buyers' credit card information
from merchants. They both charge a few percentage points of
commission.
PayPal has an edge because it also enables shoppers to fund
purchases directly from bank accounts, transactions on which it
doesn't have to split commissions with card companies. PayPal is
also working to integrate its recent acquisition of Bill Me Later,
which lets online retailers offer shoppers credit.
Online checkout and payments is a low-margin business built on
transaction volume, which is steadily rising. U.S. e-commerce
transactions are forecast to reach $268 billion by 2013, up from
$148 billion last year, according to a study by Javelin Strategy
& Research.
Grabbing some of that revenue could help shares of either
company. Amazon's strong retail performance amid the downturn has
propelled shares up 39% since the beginning of the year, while
eBay's weakening marketplaces business has driven shares down 13%
this year.
Competition between the two heated up last July when Amazon
announced it would let other retailers use its checkout services on
their sites. Miva's Wilson says Amazon has since spent months
polishing its Checkout software and adding features to ensure it
works seamlessly across a range of sites. Amazon's efforts with
e-commerce software makers such as Miva will enable thousands of
small- and mid-sized merchants to save money on programming costs,
he says.
Challenging PayPal won't be easy. EBay is so confident in PayPal
that it expects the unit to become a second core business, with
revenue reaching as much as $5 billion in 2011, up from $2.4
billion in 2008.
Scott Kessler, an analyst at Standard & Poor's, said eBay
has to take its rival seriously but was skeptical of the threat
Amazon poses. He notes that PayPal, unlike Amazon, doesn't compete
with many of the same retailers with which it hopes to partner.
PayPal also has extensive experience combating online fraud, an
area that might trip up Amazon, he says.
"Just because Amazon has a strong track record doesn't mean that
in real-world circumstances, where speed and scale count, there
won't be hiccups," he said.
-By Scott Morrison, Dow Jones Newswires; 415-765-6118;
scott.morrison@dowjones.com