EBay acquires Magento, builds a commerce OS

EBay (s EBAY) said it is buying the rest of e-commerce platform Magento, which it previously had a 49 percent stake in, in a bid to build a broader commerce operating system that spans online, mobile, social and local. In effect, eBay is looking to be the go-to resource for online and offline retailers, helping connect them to consumers.
Los Angeles–based Magento offers an open-source commerce software suite that allows merchants to build flexible online stores that can be customized easily. Tens of thousands of merchants use Magento and its newer software-as-a-service (SaaS) solution called Magento Go. The deal—the terms of which have not been disclosed—is expected to be finalized in the third quarter. The purchase of Magento comes after eBay announced in February that it had made a $22.5 million investment in Magento a year earlier, worth a 49 percent stake.
Building an X.Commerce platform
By swallowing up Magento, eBay is building what it calls X.Commerce, an open platform that can offer a wide array of end-to-end services to merchants, providing everything from local inventory data and discounts to historical information on pricing, transactions and browsing. It then offers tools for payment and helps close the loop on transactions so retailers know how it all came together. EBay, PayPal and GSI (s gsic), a digital marketing and e-commerce company that eBay is in the process of buying, would provide some of the basic building blocks for the platform. But X.Commerce would also incorporate other eBay assets and enlist the help of developers who could build on the operating system. EBay expects to share more about the X.Commerce platform at its newly renamed X.Commerce Innovate conference on Oct. 12 and 13. From the eBay press release:

“Technology-driven innovation is blurring the lines between online and offline commerce, changing the way consumers shop, and enabling retailers of all sizes to benefit from the latest innovations from the developer community,” said John Donahoe, the president and CEO of eBay. “The feedback we’ve heard from external developers has been clear — they don’t just want payments or an ecommerce site; they want access to a full set of commerce capabilities to build complete shopping experiences for merchants. We believe the acquisition of Magento and creation of our X.Commerce group will enable us to meet developers’ needs and drive global commerce innovation for retailers and consumers.”

It’s a big strategy move but one that has been tipped off by eBay’s recent acquisitions. With its pickups of RedLaser and Milo as well as its recent purchases of WHERE and Fig Card, eBay has been assembling the components for a deeper push into commerce, especially local transactions. RedLaser allows eBay to insert itself into comparison shopping as mobile consumers use their smartphones to help them shop. Milo helps connect users to the local inventory of products around them. With WHERE, eBay got not only a local guide for mobile users but also a location-based ad network and a deals service called WHEREBuys. That allows eBay to engage a user through an ad or deal; then, by integrating with PayPal for payments, it can close the loop on the transaction and theoretically charge a premium for it. Fig Card, a competitor to Square, also helps merchants accept mobile payments, which can include PayPal. And combined with GSI, which provides e-commerce infrastructure for large retailers and brands, eBay has solutions that appeal to both small and large companies.
Helping out local merchants
PayPal spokesperson Anuj Nayer said X.Commerce is not just a new platform but an emerging business division for eBay. He said the real promise is going after offline retailers who are desperate for ways to innovate and compete as online and offline shopping converge.
EBay recognizes that its marketplace can only serve so many retailers. But the company is betting it can be a valuable resource to retailers by creating an open ecosystem that helps them compete. The challenge is on for eBay and PayPal to evolve and tackle more of the offline retail world and marry it to its strengths in e-commerce. As we noted following Google’s big payment announcement with Google Wallet (s GOOG), PayPal has been working on its own mobile and point-of-sale offerings, something Google VP Osama Bedier was leading for PayPal before he switched sides in January. The company already said that it was “all-in” on mobile payments. 
As Square’s COO Keith Rabois told us recently, the bigger opportunity is in offline real-world transactions. That’s why he thinks Square can ultimately be worth more than PayPal, his old company. PayPal is showing today that it has no intention of being relegated to the sidelines of commerce as it grows via mobile and local. It still has to sort out how it will deal with point-of-sale transactions, something it said it will announce later this year. PayPal is more of a popular option for online purchases, so we will need to hear more about how PayPal can facilitate offline transactions and make it easy and convenient for people. That’s one of the promises of NFC with its tap-and-go system. On a larger scale, eBay has to show it can be nimble with this operating system and move quickly to assert itself into a market that is being transformed by Google with its NFC Wallet and Square with its new Register and Card Case products.
But clearly, eBay and PayPal can’t be taken lightly. While Rabois said PayPal’s brand has atrophied, the combined might of eBay and PayPal is still formidable, and the company has a lot of money and resources it can bring to bear on the commerce front. X.Commerce is good example of what eBay and PayPal can do when they put it all together. It’s a necessary step and a sign of how the world of commerce, online and offline, is all coming together.