eBay’s New Retail Platform Is Mostly Free, So What’s the Catch?

EBay is making the tools it uses every day for its own marketplace available to other merchants — for free.

The platform, called X.commerce, was unveiled yesterday at the company’s developer conference in San Francisco and is designed to help any size retailer, ranging from family-owned stores to Toys “R” Us, keep up to date as shopping goes online and mobile.

In an interview, X.commerce’s VP and General Manager Matthew Mengerink explained that the basic package is free, and if a retailer elects to add extras, there could be a small flat fee paid to developers. Additionally, if the retailer wants to host its inventory on eBay’s servers, it would cost between $25 and $125 a month, depending on the amount of inventory in the system.

So, what’s the catch?

Mengerink says there isn’t one, although the company does have a plan for how to make money.

But first, here’s an explanation of what you get for free.

At the core is Magento, an open source e-commerce platform that helps retailers quickly create basic Web sites. Other features include Milo, which lets retailers list their in-store inventory on the eBay site; or Red Laser, which gives them access to mobile bar code scanning technology; or even third parties, like Kenshoo, which will manage online marketing campaigns (of course, retailers will have to pay for the ads).

He explained that it was in eBay’s best interest to make the tools free because retailers often said in the past that they don’t have the cash.

“Our innovations slowed down because they don’t have the money,” he said.

X.commerce is a big bet for eBay and will represent its fourth major division, joining the eBay Marketplace, PayPal and GSI Commerce. The platform has been stitched together through a variety of acquisitions over the past year, which are just now starting to jell and make sense.

During the keynote yesterday, eBay’s CEO John Donahoe said, “The whole entire company’s mission is to enable commerce. We want to enable merchants of all sizes to compete in this new environment and we will not compete with them.”

As for how it will help generate revenue, the plan is for the X.commerce platform to be one big lead-generation machine for eBay’s other services, namely PayPal and GSI Commerce.

For instance, if retailers first build a site based on X.commerce, there’s a chance they will pick PayPal, even though it is one of 500 payment gateways available on the platform.

Additionally, Mengerink said, if the retailers become successful, perhaps they’ll need more robust tools and graduate to GSI Commerce, which eBay acquired in March for $2.4 billion.

GSI powers online presences from such retailers as Calvin Klein, Levi’s, Sports Authority and Radio Shack, and will do everything from take pictures of products to fulfilling the orders. GSI takes a portion of sales from the increase in revenues to the site.

EBay will also have a more steady flow of revenue from applications sold on the X.commerce site through an upcoming app store that it will be launching. Developers will be able to create applications or widgets for e-commerce Web sites and sell them in the store. Each time a retailer buys one, eBay will take a 20 percent cut.

“If eBay and PayPal and GSI show that they can be valuable, they will come to you,” Mengerink said.

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work