EBay’s Strategy for Taking On Amazon

The passenger door opened, and out sprang John Donahoe, the chief executive of eBay, who began striding toward the store. It was earlier this year, and from the outside the Westfield Valley Fair mall near San Jose had a kind of ghost-town feel to it. But Donahoe thinks he can change that. As he walked from store to store — a nearly empty GNC, a quiet Foot Locker — he pointed out how little had changed in physical retail stores over the last 30 or 40 years and what would have to change in the next few years in order for these stores to compete with Amazon and Walmart.

As he sat in a patisserie on the mall’s ground floor, Donahoe touched on his usual themes: how technology has driven scale and automation; how the big-box retailers have crushed Main Street; the way in which our shopping experiences have become less dependent on human interaction. And these changes in the commercial landscape, he said, tend to be ‘‘phrased in zero-sum terms: big retailers versus the little guy. Local versus global. The Chinese imports will kill you. Online is going to disrupt offline.’’ 

There has been much talk about Amazon driving retailers out of business — most recently, and somewhat unbelievably, by proposing to use drones to deliver purchases. For some time now, physical retailers have lived in fear of the various ways in which Amazon can undercut them. If you’re looking for a product that you don’t need to try on or try out, Amazon’s customer analytics and nationwide network of 40-plus enormous fulfillment centers is awfully tough to compete with. And even if you do need to try something on, Amazon conveniently includes a bar-code scanner in its mobile application so you can compare prices while you’re in a store and then have the same item shipped to your home with just a few clicks. (Retailers call this act of checking out products in a store and then buying them online from a different vendor ‘‘showrooming.’’) Amazon holds such sway that for many it’s the default place to buy things online.

And yet online commerce currently accounts for only about 6 percent of all commerce in the United States. We still buy more than 90 percent of everything we purchase offline, often by handing over money or swiping a credit card in exchange for the goods we want. But the proliferation of smartphones and tablets has increasingly led to the use of digital technology to help us make those purchases, and it’s in that convergence that eBay sees its opportunity. As Donahoe puts it: ‘‘We view it actually as and. Not online, not offline: Both.’’ 

Most people think of eBay as an online auction house, the world’s biggest garage sale, which it has been for most of its life. But since Donahoe took over in 2008, he has slowly moved the company beyond auctions, developing technology partnerships with big retailers like Home Depot, Macy’s, Toys ‘‘R’’ Us and Target and expanding eBay’s online marketplace to include reliable, returnable goods at fixed prices. (Auctions currently represent just 30 percent of the purchases made at eBay.com; the site sells 13,000 cars a week through its mobile app alone, many at fixed prices.)

Under Donahoe, eBay has made 34 acquisitions over the last five years, most of them to provide the company and its retail partners with enhanced technology. EBay can help with the back end of websites, create interactive storefronts in real-world locations, streamline the electronic-payment process or help monitor inventory in real time. (Outsourcing some of the digital strategy and technological operations to eBay frees up companies to focus on what they presumably do best: Make and market their own products.) In select cities, eBay has also recently introduced eBay Now, an app that allows you to order goods from participating local vendors and have them delivered to your door in about an hour for a $5 fee. The company is betting its future on the idea that its interactive technology can turn shopping into a kind of entertainment, or at least make commerce something more than simply working through price-plus-shipping calculations. If eBay can get enough people into Dick’s Sporting Goods to try out a new set of golf clubs and then get them to buy those clubs in the store, instead of from Amazon, there’s a business model there. 

A?key element of eBay’s vision of the future is the digital wallet. On a basic level, having a ‘‘digital wallet’’ means paying with your phone, but it’s about a lot more than that; it’s as much a concept as a product. EBay bought PayPal in 2002, after PayPal established itself as a safe way to transfer money between people who didn’t know each other (thus facilitating eBay purchases). For the last several years, eBay has regarded digital payments through mobile devices as having the potential to change everything — to become, as David Marcus, PayPal’s president, puts it, ‘‘Money 3.0.’’

Jeff Himmelman is a contributing writer for the magazine and the author of “Yours in Truth: A Personal Portrait of Ben Bradlee.”

Editor: Dean Robinson