June 6, 2011
This morning eBay announced it has agreed to acquire Magento, the open source eCommerce platform that will be combined with other solutions to form a unit within eBay called X.Commerce. eBay already had acquired a minority stake in Magento in 2010, but after this latest transaction, it will own all of Magento. The folks down in San Jose have been busy this past year, paying approximately $2.4 billion for GSI — which came with a controlling stake in Intershop — as well as a raft of other mobile commerce solutions such as Milo and RedLaser. This announcement today means:
- For Magento users, this is a very good thing. It is time for Magento to mature as a solution and as a business. The same development approach and business practices that can support a small insurgent open source commerce platform do not scale to supporting multiple products with very diverse needs and across many maturing clients. Users of Magento’s enterprise solution have been struggling with support and product traction as Magento invested in the MagentoGo SaaS solution and tried to manage a rodeo of new and existing partners, customer acquisition, and diverse product initiatives. In retrospect this was too much to take on at once, and Magento may have outgrown its ability to deliver on the expectations. With the completion of this acquisition eBay has the ability to clarify the product initiatives, add needed investment to product development, and mature the support given to developers, partners, and customers. A failure to do so will erode the Magento value proposition and see a raft of clients evaluating their long-term commerce capability solution providers and platforms. It will take time for the core challenges to resolve, so for Magento users struggling now this announcement will mean little in the short term. For Magento users in the longer term, this should be a positive.
- For Magento this answers the business model problem. eBay and PayPal have a unique opportunity to monetize merchant services and platform offerings by incorporating PayPal payment services and the eBay marketplace offerings. The addition of the GSI portfolio of merchant and marketing services, such as creative agency, search marketing, email services, and fulfillment can provide a diverse set of revenue streams for the X.Commerce business at eBay. In essence the platform is an enabler for payments and other merchant services. For the commerce platform marketplace as a whole, this is a salvo over their decks as Magento, GSI, and Intershop have an increased ability to drive creative deals for the core platform and bundle a diverse set of services together to build solutions for their clients. For services providers supporting integration, system implementation, and support for the Magento platform, this should answer a key question about the long-term monetization plan at Magento and reinforce their existing businesses as eBay invests in the product.
- eBay’s marketplace is eroding, leading to eBay’s needed diversification into services. Large retailers and well-established brands have never flocked to eBay, for many reasons including the user experience, lack of control over their brands and products there, and the perception that eBay was the Web’s garage sale (which makes Craigslist the Web’s flea market). And just as the core full-price marketplace game was becoming dominated by Amazon, the eBay marketplace is suffering from the additional threats of private sale and other social commerce trends opening up avenues for sales of distressed inventory that offer more control over the customer experience and that are targeted at specific segments of customers. For eBay, diversification into a broader set of merchant services — including the commerce platforms merchants are using — is necessary to protect the threats to its core business as well as potentially drive those merchants back to the core eBay marketplace as a complement to other ways it is working with them. Streamlining the integration to eBay from Magento, GSI, and Intershop are some simple ways that may play out.
This year has been one of significant mergers, acquisitions, and evolving solution dynamics as the market reacts to the changing set of core commerce technology requirements. We at Forrester will remain focused on advising our clients on the changes and what this means for your current solutions and how the solution market is changing moving forward. For clients of Forrester, I encourage you to use our inquiry process to discuss your unique and specific questions about your situation.