Intercontinental Exchange (ICE), the parent of the New York Stock Exchange, is reported to be considering a bid to acquire eBay, the pioneering internet-based goods auctioning platform. Both ICE and eBay have been transforming themselves in their respective domains — ICE setting prices and trading financial products, and eBay doing the same for commercial goods. What could each bring to the other?
eBay started in the dot.com era, pioneering online auctions of consumer goods sold by others, bringing buyers and sellers together. Today they are attempting to transform their platform from an electronic marketplace offering auctions, which are declining in number, to a direct from-seller-to-buyer platform to compete with Amazon and other online merchants.
ICE started life over two decades ago as an over-the-counter energy contract trading system, originally backed by large oil companies. With further backing from Wall Street banks, it quickly set its sights on acquiring other exchanges, from the International Petroleum Exchange to the mighty NYSE and the Chicago Stock Exchange (CSE); many futures, currency and commodities trading systems and firms; and data providers such as Interactive Data Corp.
It distributes the prices each financial product is quoted at and those prices that buyers and sellers consummate their sales at. This data is sold to individuals and institutions, and in many cases, to the same buyers and sellers that participated in this “price discovery” process. Prices are discovered through electronic auction markets, hybrid electronic and human trader markets, and dealer-to-customer markets. This trading data and the economic and financial information associated with its underlying companies and contracts comprises a large source of revenue for trading platforms and exchanges alike.
ICE’s price distribution revenue alone was $500 million, 10 percent of its total revenue.
At ICE’s NYSE and its other listing platform, the CSE, it places new companies’ shares on its platform to raise capital for them as Initial Public Offerings (IPOs) as well as to provide a place to sell early investor shares to others (Direct Listings).
eBay’s e-commerce site sells merchandise very much as Amazon does. It was a pioneer in e-commerce but has struggled to keep up with competitors such as Amazon, Alibaba, Shopify and Walmart. The company has sought to distance itself from its reputation as an online auction house – as opposed to an electronic marketplace – as online auctions have fallen out of favor.
eBay has also grown through acquisitions, acquiring firms that run auction systems, payment systems and merchant acquisition systems. Skype, StubHub, PayPal, Butterfield & Butterfield, Internet Auction Co., and Craigs List are among some 50 acquisitions over the two decades of its existence.
eBay is an online marketplace that facilitates the sale of products – both new and used – between third-party sellers (i.e. private labels) and buyers. On eBay, price listings are affected largely by the number of bids, and how aggressive buyers bid on a certain product.
ICE’s interest in eBay comes as the traditional way that ICE has grown — through acquisitions of rival trading market operators – has gotten tougher. This is due to the decreasing targets available from increasing acquisitions, mergers and resistance by international regulators to cross-border transactions of financial market operators.
What will the destiny of merging the platforms of these two companies be?
Small merchants can be offered both a merchandising and capital raising platform. As these firms grow using eBay’s selling platform, its sales can be monitored to a point where its revenue and profits are recognized. Exclusively for eBay platform users, the firm’s shares (or a contract to buy its shares at a future date, or the issuance and sale of shares through an ICE platform) can be made contingent on the company achieving sales targets.
More can be done through a combined merchandising and capital raising platform model.
Many start-ups today sell apps, a completely digital form of merchandise. Incentives can be provided to such digital start-ups to sell through the eBay/ICE platform. Apple’s App store is a prime example of such a merchandising platform that in 2019 generated $50 billion in revenue for Apple. ICE, in contrast, had total revenue in 2019 of around $5 billion. An eBay/ICE platform can compete in a unique way for the huge App market and other digital start-up markets.
The novelty of this eBay/ICE tie-up is to tightly couple the two, given that the financing of the business and the business itself can be enabled on the same information and communication technology platform. Investors/traders can view price discovery of the company’s shares at the same time and, where appropriate, on the same screen as the web-enabled business. Statistics, such as number of visitors, purchases made, click-throughs, views and other metrics of digital-based businesses can sit side by side with quotes and sales of the company’s shares.
For the first time, investors/traders can see a business’s books and records updated in real-time, observe its progress evolving in real-time and observe the price of its shares changing in real-time.
Allan D. Grody is president of Financial InterGroup Advisors, a New York-based management consultancy serving financial institutions and their regulators.