eBay (NASDAQ:EBAY) took the next step in its battle for global dominance against e-commerce giant Amazon (NASDAQ:AMZN) by partnering with transportation firm FedEx (NYSE:FDX) to offer customers discount on shipping. The tie-up will enable eBay merchants to print FedEx labels at home and ship at a discount of up to 37%; however, they will still have to visit FedEx stores to ship the goods.  The company is already preparing for its international shipping program for which it has tied up with Pitney Bowes Inc. (NYSE:PBI). The move seems beneficial to both sellers and buyers as they will save on costs and can help the company attract customers. However, the move could have a negative impact on eBay’s revenues as the company earns on the final value of goods sold, which includes shipping charges.
Amazon incurred $1.2 billion in net costs/loss on shipping during the first half of 2012. This includes $930 million earned from programs like Amazon Prime and Fulfillment by Amazon. eBay does not and cannot offer similar programs as it is not directly involved in the shipping of merchandise sold on its portals. Hence, its exposure to shipping-related costs is much lower compared to Amazon though it had $70 billion worth gross merchandise volume (GMV) in 2011 which was 44% more than Amazon’s.
eBay charges a final value fee that varies between 7% and 13% on goods sold through its portals.  The final value includes shipping costs which the company started including after discovering that sellers were deliberately lowering prices of goods by charging higher shipping costs to cut down on the fees paid to eBay.
The company hopes to mitigate the expected loss of revenues from discounted shipping through higher transaction volumes. The same holds true for similar arrangements with UPS (NYSE:UPS) and USPS. In addition to revenues, we will look forward to seeing the impact of this move on the mix of selling formats as the total final value fee is capped at a maximum of $250 for auction style listing but is a decreasing percentage as the value increases for fixed price format. Currently, fixed price format contributes 66% of eBay’s total GMV. Prima facie, we expect the fixed price selling format to gain as a result of this arrangement, which would put the company squarely in Amazon’s territory.
We currently have a $50 Trefis price estimate for eBay, which is at par with the market price.
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- EBay Teams Up With FedEx on Shipping to Compete With Amazon, Bloomberg Businessweek, October 2012 [↩]
- Fees for selling on eBay, eBay [↩]