eBay Is Smartly Treating StubHub Like Uber

Tickers in this article: EBAY

NEW YORK ( TheStreet) -- As eBay struggles with an admitted "hole" in its marketplace business, the e-commerce giant is treating StubHub as if it were a venture investment, focusing on user growth and loyalty over profits as a way to ensure the long-term footing of the business. StubHub may cast a pall over eBay's earnings results in 2014, but it remains a point of strength for the company and CEO John Donahoe.

eBay has received sharp criticism for its inattentiveness to PayPal, a once-dominant payments division that has come under pressure from a new breed of mobile apps, card readers and wallets. StubHub, however, appears to be a part of eBay that is managed with the entrepreneurial spirit of Silicon Valley's most prized businesses such as Uber, Facebook , Twitter , Amazon and Airbnb.

Instead of focusing on extracting ever-higher profits and revenue from StubHub, eBay is playing a long game by protecting its market position from new entrants, while also improving user loyalty within the ticket marketplace.

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In early 2014, eBay changed the way users see ticket prices on StubHub so that listings included all fees and not just the nominal price of a ticket. The move meant that tickets appeared higher in price than the past because fees wouldn't be disclosed later in a users' checkout, but it also added a new level of transparency.

StubHub users now see an "all-in price" that includes fees. But that switch to transparency risked undermining StubHub because competitors might then appear to have lower prices. Were users to gravitate to StubHub's competitors, it would lower overall listing and transaction volumes, harming the quality of the marketplace.

After witnessing a slowdown in activity with the introduction of all-in pricing in the first quarter, eBay decided that it would not go back to its old ways. Instead, the company decided to simply a smaller fee from each ticket sale on StubHub, lowering the overall revenue the business earned.

That created a hit to eBay's overall Marketplace revenue, however, the move may successfully ward-off competitors without scale, ensuring the long-term success of the business.

eBay CEO John Donahoe told that story on a generally underwhelming conference call with analysts on Wednesday.

"[W]e've got a leadership position here, a leadership franchise," Donahoe said of StubHub. "We're going to make sure we compete aggressively. And so it is an outstanding take rate business. We've lowered our take rate. It's still a very good take rate business and we're competing. And we feel comfortable and good about how we're competing and the effectiveness," he added.

That is exactly the entrepreneurial vision driving the growth of new commerce platforms like Uber, Airbnb and  GrubHub . Grow scale now, ward off competitors and the profits will come in the future.