eBay grabs GSI to better battle Amazon

Computerworld - After becoming something of a second-class player in the online world, eBay Inc. is looking to get back into the game.

The company, well known for its online auction site, announced on Monday that it has agreed to buy GSI Commerce, a company that runs online stores for retailers, for about $2.4 billion. With this one purchase, eBay gains more than 180 retail customers and, it hopes, a chance to grow enough to go toe-to-toe with Amazon, a top-rate player in the e-commerce business.

"Technology is changing how consumers shop, and retailers and brands are changing how they compete," John Donahoe, eBay president and CEO, said in a statement. "The acquisition of GSI ... will significantly strengthen our ability to connect buyers and sellers worldwide."

Pennsylvania-based GSI processes online payments, fulfills orders and manages customer service for clients such as Timberland, Kate Spade and Ralph Lauren.

eBay is considered a steady player, but not necessarily a booming Internet business. Giving individuals and smaller businesses a place to auction anything from pocket books to bicycles and even a household of belongings, the company hasn't risen to the realm of Amazon, which works with major retailers to sell their wares at a fixed price.

"eBay has to expand or it will be trivialized," said Rob Enderle, an analyst with the Enderle Group. "They lost their way some time ago and seem to be struggling to get back on track. They are still big enough to be relevant, but they just don't seem to understand how to ensure that outcome."

For eBay, however, becoming a major player may mean more than trying to buy its way into the big-dog club.

"GSI is a technology company, for the most part, helping firms set up stores," said Enderle. "Just as a good golfer can't buy great equipment and become Tiger Woods, eBay can't buy a technology company to become a true competitor to Amazon. In effect, they've bought a great set of clubs and they need to develop the expertise to use them properly."

However, Dan Olds, an analyst with The Gabriel Consulting Group, said eBay is on the right track since it can't get where it needs to be without the right tools.

"This acquisition could go a long way toward starting to make eBay competitive with Amazon again," he said. "With the ability to sell products from mainline vendors and deliver them quickly, it will give eBay the capability to compete heads-up with Amazon on at least some products."

Olds also noted that this is not going to be an overnight gain on Amazon.

"It's going to take them some time and effort to get to parity," he said. "One thing Amazon does really well is customer service. Amazon has done more than anyone to take the fear and doubt out of online purchasing.

"GSI, with its established relationships with major vendors and fulfillment operations is really just a starting place for eBay," added Olds. "It gives them a start on the road to match Amazon."

While eBay may not have Amazon's reach, it does have cash and a solid payment system, while its executives understand e-commerce. And that, according to Ezra Gottheil, an analyst with Technology Business Research, is a great starting point.

"So eBay plumbing now will be behind Toys R Us and NFL and Ralph Lauren," said Gottheil. "And that's a far cry from collectables and used clothing."

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin or subscribe to Sharon's RSS feed . Her e-mail address is sgaudin@computerworld.com.

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