I have been thinking about eBay over the last 6 weeks. The primary reason for it is “why did eBay repratriate $6 billion?” but also other news such as – David Marcus leaving Paypal into a newly created role at facebook, eBay being hacked and not saying much about it and the continued focus on Russian ecommerce. The company also announced moves into Latin America and an acquisition (AppTek) which is suppose to aid it in moving into new regions. The point is that eBay has been in the news for a variety of reasons and seems to be going a hundred miles a hour in a hundred directions.

PayPal – the “unifying element of commerce”
I am firm of the belief that eBay should have spun PayPal off. Why? Payments is a hot industry which is seeing an enormous amount of innovation. Tell me – where does PayPal fit into that? Close to the end of the line for payments businesses? I thought so.

I read the excellent piece about the PayPal mafia that was in the  TechRepublic and I could not help but wonder why eBay could not keep any of the founding team to stay at the business. Would PayPal have been spun off by now?

Secondly, the company has bought a variety of startups to make them more relevant such as Zong, Braintree etc but they seem to be making little headway in comparison to competitors (Stripe, Paymill etc). If eBay was strategic they would have ensured that PayPal was a lot more streamlined and making inroads in offline payments. Carl Icahn was right to say that the company needs to be pushed into a spin-off. I am well aware that a unified eBay makes sense but in the bigger scheme of things PayPal is ensuring that eBay continues to create returns for investors an hiding the lack of performance from projects like eBay Now and the eBay marketplace.

The $6 billion repatriation is to ensure that eBay can spend aggressively to defend their markletplace territory from Alibaba and Amazon. On a global scale Alibaba will be a huge factor for global commerce and payments and thus eBay needs funds to do advertising, acquisitions and investments into current business ventures.  I also believe that the large chunk of cash is to be able to deal with potential lawsuits over the hacking incident. One just needs to look after the effects that hacking has had on Target bottom line to understand that eBay has big potential costs.

When John Donahoe mentioned that they would not be making any acquisition based on this capital injection – I was skeptical. A few weeks later they announce the acquisition of AppTek which is to assist with the translation of listings for new markets. I particularly don’t agree with that way of market entry for any global company as it is ultimately more based technology then on providing customers what they need.

Long term implications
eBay, I sense also has another problem that seems to be gaining momentum. They are unable to hold on to founders of companies after their earn out of shares occur.  This is a pretty big issue and also a major differentiator to Amazon. (Yes, I am aware that the Quidsi founders have left but they were tasked to focus on their own business.)  At eBay, founders are given very Senior roles – Jack Abraham was Director of Local prior to his departure. David Marcus was CEO of PayPal and his departure has left John Donahoe looking for replacements instead of looking at long term business plans. Is this symptomatic of a culture issue at eBay? I will for the moment give eBay the benefit of the doubt but this seems to be a recurring theme.

A global battle that needs deep pockets and patience
I sense we are the beginning of a war between eBay and MercadoLibre in Latin America.  MercadoLibre has become a regional power that is no longer the startup that eBay invested in. The gentlemans agreement with regards to market entry has passed thus eBay are now trying to enter Latin America via mobile apps. The mere fact that eBay has made it clear that they are unwilling to either sell their shares or increase their shareholding in MercadoLibre tells me that this battle is going to be a long one.

EBay’s stepped up efforts in the region could help MercadoLibre and others in a highly competitive space by encouraging more people to shop online, MercadoLibre’s chief financial officer, Pedro Arnt, said Wednesday at a telecom conference.

“This is far from a zero sum game,” he said. With e-commerce accounting for just 3% to 4% of total retail in the region, gains are to be made from offline commerce, and the more players convincing consumers to buy goods online, the quicker that shift will occur, he added.

eBay has to start considering their global business. They have in the last year entered Russia, Latin America and have invested into Snapdeal from India. The markets already have dominant ecommerce businesses such as Ozon, MercadoLibre and Flipkart and their investors are starting to ramp up their investment. I strongly believe that eBay is at a point of serious implications – they need to scale more globally and thus protect themselves from investors such as Naspers, Tiger Global and Rakuten or consider scaling back global investment.  It almost feels that eBay is a late entrant in most emerging markets.

The interest into Russian ecommerce is due to the fact that Russian customers are able to import a very high dollar value of goods per year. Thus being able to shop via eBay will ensure that a significant impact is made on computers but also tremendous scale is built without too much marketing investment.

The reality
Don’t get me wrong, John Donahoe has done a great job but eBay is at a point in which they need to be clear about their future. Do they protect their US market position against Alibaba or do they invest more heavily into emerging markets such as Latin America, India and Russia? It seems that Mexico is about to get a lot more attention from eBay but eBay needs a plan.

So why did eBay repatriate $6 billion? I think it is a combination of the above – defense against Alibaba and Amazon. Capital needed for market entry in Latin America and Russia; to ensure that eBay gets the same scale as seen in China for sellers. I also think some of the cash is to fund projects such as eBay Now.

Then to add to the capital that was repatriated eBay also announced a $3bn Senior Unsecured Notes offering.”eBay intends to use the net proceeds from the offering, which are estimated to be approximately $3.48 billion, after deducting underwriting discounts and estimated offering expenses, for general corporate purposes, including, among other things, the repayment of outstanding commercial paper borrowings.”

Where does this leave eBay? Needing a clear vision for future growth.