eBay buys Magento to boost its e-commerce developer tools

Magento's open source platform is designed to offer greater control and flexibility for online store creation

In a move that could help eBay improve its tools for online store developers, it has acquired Magento, the maker of an open source e-commerce platform.

The online auctioneer last year acquired a minority stake in Magento, which is based in Los Angeles and has about 290 employees and tens of thousands of merchant customers.

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The deal is expected to close in this year's third quarter. The plan is for Magento to remain in Los Angeles and continue supporting its partners and customers, as well as keep developing its product roadmap, while leveraging eBay's additional resources and helping eBay develop X.Commerce, according to an FAQ about the deal (PDF) Magento posted on its site.

Magento's platform is designed to be modular and flexible, so that e-commerce developers can have more control over how they build their online stores than if they use software whose source code can't be modified.

"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," said eBay CEO John Donahoe in a statement on Monday.

In addition to tools for creating the design, content and functionality of an online store, Magento's software also has a management console with marketing, merchandising and content management features, according to eBay.

Magento will become part of eBay's new X.Commerce group, whose mission is to create a vibrant developer ecosystem around what the company calls "an open commerce platform."

"eBay is evolving to become a strategic commerce partner focused on delivering new ways for merchants of all sizes to drive innovation. As a centerpiece of this strategy, they are building a global, open commerce platform that leverages the worldwide developer community. And Magento will be at the core of this new, open commerce platform, called 'X.Commerce,'" wrote Magento CEO Roy Rubin in a blog post.

Magento may prove to be an integral component of eBay's collection of commerce capabilities, said Leslie Hand, an IDC analyst.

"It ties the mobile, payments and order management components together and may very well enable eBay to deliver an online/offline commerce application for small retailers," Hand said via e-mail. "I am not sure that the capabilities will scale to larger organizations, if this is even being considered by eBay."

In the past year, eBay has struggled to grow the revenue of its core business, the auction and fixed-priced marketplace, but it sees greater growth in the PayPal online payment unit, and is seeking to capitalize on emerging e-commerce trends, like mobile commerce and the increased synergy between online and offline shopping.

eBay is also pursuing larger vendors that have traditionally preferred to do business with Amazon. In March, eBay agreed to pay $2.4 billion for GSI Commerce, which makes a suite of e-commerce and digital marketing tools and services used by many large retailers including Adidas, Calvin Klein, Levi's, Ace Hardware, Godiva, Radio Shack and Toys R Us.

Having a strong suite of enterprise-class e-commerce developer tools is key for eBay's pursuits of these high-growth markets because they can offer large retailers help with building their own storefronts along with mobile and social commerce.

However, the Magento software is more suited for smaller merchants that have outgrown the eBay Marketplace but whose annual sales are usually under $2 million, and rarely larger than $10 million, said Gartner analyst Gene Alvarez in a phone interview.

"eBay's move to buy this company is in line with its strategy to capture more and more of commerce occurring in smaller enterprises, kind of e-commerce for the masses, and driving payments to PayPal," Alvarez said.

"Magento customers are bigger than the typical eBay individual merchant but not big enough to support the costs of more industrial-strength e-commerce solutions," he added.

The Magento platform lets eBay give options to its larger marketplace merchants that are ready to graduate to having their own online stores in their own websites, and thus extend eBay's relationship with them, Alvarez said.

Magento also gives eBay a community of e-commerce developers that can boost participation in eBay's developer program, he said.

A challenge for eBay will be to integrate the technology of Magento and GSI Commerce into its own offerings quickly to benefit existing and potential customers, Alvarez said.

Copyright © 2011 IDG Communications, Inc.