EBay Buys GSI for $2.4B in Bid to Manage E-Commerce for Big Retailers

March 28, 2011

EBay has agreed to acquire GSI Com­merce, the e-commerce tech­nol­ogy and mar­ket­ing ser­vices com­pany, for $2.4 bil­lion in cash and stock. In its second-largest deal to date, eBay is mak­ing a play to man­age the e-commerce oper­a­tions of other large retail­ers and brands, open­ing another front in its com­pe­ti­tion with Amazon.

“Retail­ers need a part­ner, not a com­peti­tor,” John Don­a­hoe, eBay’s president-CEO, said dur­ing an investor call on the acqui­si­tion. To con­trast, e-commerce giant Amazon’s rela­tion­ships with retail­ers has been under recent strain. Tar­get, for one, is build­ing its own e-commerce site, end­ing its part­ner­ship with Ama­zon, whose other prod­ucts often come into com­pe­ti­tion with the big-box retailer’s business.

Ebay is angling to be the next major chan­nel for retail dis­tri­b­u­tion for large and small busi­nesses, said Bob Swan, the company’s chief finan­cial offi­cer. GSI will meet large retail­ers’ needs, while other prod­ucts such as Pay­Pal and eBay will serve local mer­chants. To date, GSI clients include Aero­postale, Adi­das, Toys R Us and Dick’s Sport­ing Goods.

GSI’s e-commerce ser­vices accounted for $700 mil­lion in 2010 rev­enue, with global mar­ket­ing adding another $200 mil­lion, Mr. Swan said. GSI will con­tribute $1.2 bil­lion by 2013, Mr. Swan said. The deal is expected to close dur­ing the third quarter.

“These large mer­chants are look­ing for help,” Mr. Don­a­hoe said. “They’re say­ing: ‘We need help with more than just payment.’”

Chris Sari­dakis, GSI’s head of mar­ket­ing ser­vices, will lead the GSI unit at eBay. As part of the deal, eBay will divest GSI busi­nesses not core to its strat­egy. All of GSI’s licensed sports mer­chan­dise busi­ness and 70% share of ShopRun­ner and Rue La La will be sold to a new com­pany, with GSI founder and CEO Michael Rubin at its helm. GSI acquired the flash sales site Rue La La in 2009.

Tra­di­tion­ally an e-commerce and ware­house provider for retail­ers, GSI has made recent strides into mar­ket­ing ser­vices. It has acquired a num­ber of smaller shops over the last few years, includ­ing San Francisco-based web­site design and mar­ket­ing firm Sil­verlign, email firm eDi­a­log and affiliate-marketing firm Pep­per­jam. The agency unit GSI Inter­ac­tive, which was rebranded True Action in late 2009, had $109 mil­lion in U.S. yearly rev­enue that year, com­ing in at 15 on Ad Age DataCenter’s U.S. dig­i­tal agency ranking.

These agency ser­vices will dove­tail with cur­rent eBay prop­er­ties to get retail­ers into social and mobile com­merce, Mr. Sari­dakis said. Last year, eBay pur­chased Milo, a search engine for local shop­ping; mobile bar­code scan­ning and price com­par­i­son app Red­Laser; and app devel­oper Crit­i­cal Path. In 2006, eBay acquired inter­net phone com­pany skype for $2.6 billion

Last fall, for­mer MRM CEO Rueben Hen­dell landed at GSI to head its 350-person agency unit, which includes True Action and Sil­verlign. He reports to Mr. Sari­dakis, who joined GSI from Gan­nett Co., where he was chief dig­i­tal offi­cer and head of mar­ket­ing services.