Commentary

eBay Buys Magento, But Problems Loom

What has eBay done with all the money they made off of their Skype sale? Well, some of it has been ploughed into buying the rest of L.A.-based Magento, an e-commerce platform offering open-source software that helps merchants create easily customized online sales platforms.

This move appears to be part of eBay's larger strategy to own the value chain in commerce. Magento provides them with the point-of-sale suite it was missing to complement its payment gateway services, mobile shopping and digital e-commerce marketing. As a company, eBay is evolving and they are building -- according to the Magento blog -- a "global, open commerce platform that leverages the worldwide developer community," with Magento at the core of this new platform.

Already, eBay is suggesting they plan to support the existing open source efforts of Magento that will expand on its existing community base, but my guess is what they're saying is hype, unless they plan on significant upgrades to the community edition of Magento.

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Currently, Community is the most basic of Magento's three product levels, which escalate in quality and support to Professional and then Enterprise levels.

The community edition is free and supposedly supported by a large amount of open source developers, while the Enterprise edition comes with licensing fees that start around $10k per year. But despite what eBay might say they're aiming for, the community edition simply does not suit the needs of a larger e-commerce organization and is certainly not easily scalable; it leaves the Community level looking like a classic bait and switch.

I call it a bait and switch because, while the community edition does offer fairly effective out of the box solutions, it just isn't right for businesses that plan on expansion and do not have a robust development team. What business doesn't plan on growing? These businesses ultimately require the Enterprise level offering.

Moreover, Magento in general has been plagued with complaints about support. Even after purchasing the professional or Enterprise version, it's joked that now you have bad support and a number to call.

And while Magento prides itself on its open source community, the reality is that it is not at the scale of something like Drupal/Ubercart. That's why the Community edition suggests the bait and switch situation. It is fairly effective for a free product, but it isn't really extensible like a truly open source platform without significant development efforts. Worse, if you want to upgrade to the enterprise version later -- believe it or not, you can't! You have to rebuild the whole site over.

The reality is that there is not a huge (evident) upside for eBay to promote the open source aspect. The only way eBay makes money this way is by convincing a significant number of small businesses to use the Community version and then springboard into engagement with eBay services that do make money, like Paypal.

Unless they have a clever business plan on how to make money through the open source development of their own platform, promoting the open source qualities becomes little more than a marketing technique for them -- resulting in potentially an even worse bait and switch, or, if the open source project succeeds, a drastic loss of enterprise sales.

Overall though, Magento Enterprise -- which if you are going to use Magento is all I would recommend -- is a fantastic product, and, with eBay's acquisition, will likely transform into a very solid enterprise e-commerce system, one that actually has the customer service that $10k/year warrants.

It will likely become part of a host of products that are seamlessly integrated. This, in turn, will provide great value to Magento customers, as end-to-end integration is difficult to accomplish.

1 comment about "eBay Buys Magento, But Problems Loom".
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  1. Philip Cohen from Retired, June 10, 2011 at 5:44 p.m.

    eBay, Magento, AliExpress, Skype, Fish, FigCard, GSI, RedLaser, Where, Milo, PayPal, Google, Schmoogle, whatever …

    The fact is the rusting old hulk eBay is presently being kept afloat by the clunky PreyPal so it’s good to see these boys recently squabbling and threats to PreyPal now coming thick and fast. It’s interesting times for all we eBay “haters” (oops, I mean “watchers”). I just hope that someone has remembered to bring the popcorn.

    PayPal is mostly registered in various places not as a “bank” but only as a “money transmitter” (like Western Union), and PayPal actually claims that they are not a “payment processor”, and there is a minute degree of truth in that claim because it could, nonsensically, be claimed that they do no more than facilitate the transmission of money by riding on the back of the banks’ existing payments processing systems.

    In fact, the only thing creative about PayPal has been their use of users’ email addresses as an identifier for online transactions. PayPal is otherwise no more than a blood-sucking parasite on, and in the main cannot function except via, the banks’ existing payments systems (via their banker, GE Money Bank—Ugh!).

    PayPal, outside of whatever will ultimately be left of the Donahoe-devastated eBay Marketplace, will undoubtedly eventually be consigned to the history books by all the retail banks/Visa/Mastercard once those players get their “online” act together.

    Some people may not like “the banks” but all those participating retail banks at least supply a professionally run payments processing system—unlike PayPal’s—and even PayPal concurs with that assessment: except for intra PayPal “account” transactions, they use the banks’ payments processing systems all the time and simply could not exist without them.

    Regardless, all the above comments apply equally to all of the other third-party “payments processors” that are emerging out of the woodwork and wanting to have access to your banking account. Unless they have a formal arrangement with all the participating retail banks, as do the likes of Visa/MasterCard, then the result is invariably going to be as potentially problematic as is PayPal’s clunky operation for its merchants—many of whom can tell you a sorry tale or two.

    All anyone needs to know about the clunky PayPal can be found at:
    http://forums.auctionbytes.com/vbulletin/showthread.php?p=165263

    Is that PayPal’s blood in the water, and are those “sharks”—oops, “banks”—I can see circling?

    Enron / eBay / PayPal / Donahoe: Dead Men Walking.

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