Can Groupon Disrupt Amazon and eBay's Third-Party Sales?

By Markets Fool.com

GiveGroupon credit for trying.

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The company, which started as a daily deals site has changed its business from that initial focus and is broadening into travel and selling hard goods. That segment, which focuses mostly on selling discount, often out-of-season, or last-year's-model merchandise has grown to become the company's second largest revenue stream.

In the fourth quarter of 2014 Groupon's Goods segment produced $595 million in sales and a $66 million gross profit while Local, the name it uses for its coupon/deal business took in $833 million delivering a $279 million gross profit. The company has transformed its business from the often-copied local store deal model into something closer to a traditional discount retailer.

Now Groupon plans to leverage its 260 million global subscribers to take onAmazon andeBay by creating a store which allows third-party merchants to sell their goods -- albeit with a catch.

What is Groupon doing?
The company is launching Groupon Stores,a third-party marketplace that requires participatingretailers to sell their products atprices 5% lower than they do anywhere else online.

"Unlike Amazon and eBay, the Groupon Stores marketplace is meant for a select number of your products that you're looking to liquidate or promote through a discount," the company wrote in an FAQ. "There are no listing fees, but we do require that products be placed at lower prices than Amazon, eBay, or anywhere else they may be listed online."

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The difference between this offering and Groupon Goods is that the merchants hold the inventory and fulfill any orders which come through Stores. The new platform should give the company more items to sell without increasing its inventory or risk. It's a smart move for Groupon which comes with a fair amount of upside and very little risk.

Stores is still in private beta and has not settled on official pricing according to a company spokesman,GeekWirereported.

How is this different than Amazon and eBay?
Aside from requiring merchants to offer items at the lowest price they sell them online, Stores has a few other differences from Amazon and eBay's third-party seller marketplaces. Groupon, at least in the beta test, is charging a flat 15% of the sale price as its fee to retailers using the platform,Re/Codereported. That fee could change, Groupon PR chief Bill Robert told the website, as the company is still testing the platform.

eBay has a much more complicated pricing structure which depends on what type of store a retailer signs up to have on the auction site. The cost, which can include listing fees and commissions, can be estimated using the company's Fee Illustrator tool. eBay's structure has a lot of variables, which makes it hard to compare to Groupon or Amazon's offer, but it's fair to say Stores is a more straightforward proposition.

Amazon charges a base fee of $39.99 a month and takes a percentage of the sale or a flat fee (depending upon the item being sold) which varies widely based on what you are selling.

Once again, Groupon's deal -- should it stand as it is in the beta -- may not be cheaper, but it's a lot easier to understand.

Can Groupon topple the giants?
Groupon has a big hill to climb but growing its Goods business from nothing to around $2 billion a year in under five years is fairly impressive. The company has also stocked up on ex-Amazon talent to help it undertake its assault on the category.

The company'sCFO Jason Child and North AmericanPresident Rich Williams are both former Amazon employees; as areRobbie Schwietzer, Groupon's SVP of operations, andVinayak Hegde, who heads Groupon's Seattle office.

This is a smart play as Groupon is not asking retailers to abandon Amazon or eBay. Instead the growing retailer is asking them to bring a good deal or two to its platform. That fits with the value proposition model which is at the core of the company's brand and it should be an attractive offer to at least some sellers.

eBay and Amazon may have nothing to worry about right now, but Groupon has found a way to build a steady assault on their businesses. Right now it's just nibbling away at the edges, but establishing relationships with third-party vendors -- should they be successful -- gives the company the building blocks for an all-out assault down the road.

The article Can Groupon Disrupt Amazon and eBay's Third-Party Sales? originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. He booked his last vacation using Groupon Getaways. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.