While both eBay and PayPal generated more mobile volume in 2013 than the company expected, it acknowledged during a conference call with analysts this week that the offline retail space has been sluggish. The significant growth in PayPal also spurred investor Carl Icahn to call for the alternative payments business to be spun off as its own company.

“In general, I’d say that offline is taking longer to become digitized than we initially thought, and I think frankly it’s happening with us and with everyone else in the digital world,” said John Donahoe, president/CEO of eBay, San Jose, CA, during the company’s fourth-quarter earnings call.

“But we’re staying with the investment, and the adjustments we’re making I would characterize as focusing more in some smaller areas to prove out the model and get viral effects, and then we’ll expand,” he said.

“So whether that’s eBay Now in a couple of cities, and the moving to a couple more cities, and then so on and so forth. The same thing with Paypal. We’re going to focus on some neighborhoods, prove things out and then expand out from there.”

Retail extension
Offline retail is an area that eBay has invested in the past couple of years as an extension of its auction-based online space. EBay has then rolled out several new initiatives that put mobile at the core of these offline retail space.

For example, same-day delivery service eBay Now in Chicago, Dallas, New York and San Francisco areas lets consumers place orders from local retailers via a mobile app that are then delivered in about one hour.

Additionally, eBay has worked with retailers including Kate Spade and Toms to roll out mobile-enabled storefronts that let consumers shop products instantly.

However, Mr. Donahue’s comment on the slow uptick on these initiatives suggests that eBay is struggling to keep up with Apple and other online heavyweights that are also investing in the offline space to capture the bigger mobile opportunity in the path to purchase.

“PayPal in-store has gotten lost in the shuffle over NFC, iBeacon, Bluetooth low energy, and anything else you can imagine,” said Paula Rosenblum, managing partner at Retail Systems Research, Miami.

“I think the fundamental issue with mobile payments is that they’re solving a problem consumers don’t believe they have,” she said. “I still like PayPal’s chances, because it allows consumers to avoid passing their credit card info to retailers and they can do it hands free using a phone number and PIN number.”

Although PayPal’s growth is strong, particularly on mobile, eBay’s statement mirrors similar challenges that the majority of merchants and retailers are having with multi-channel marketing, according to Rick Oglesby, senior analyst at Aite Group, Boston.

“I’d separate multichannel from mcommerce, so I’d say that the statement that in-store volume is growing slower than expected doesn’t mean much in terms of m-commerce,” he said. “What it does mean is that multichannel continues to be a test and learn environment across all players in the space.”

Chalking up growth to mobile
During the fourth-quarter of 2013, eBay’s revenue hit $4.5 billion, representing a 13 percent year-over-year growth for the same quarter.

Mobile sales brought in $22 billion in 2013 sales for eBay, up from the expected $20 billion that the company had expected.

Per eBay, mobile represents 40 percent of the company’s 36 million new users and accounts for the year. Mobile represented more than 14 million new users for eBay this year.

PayPal’s revenue was up 19 percent for both the fourth-quarter and 2013, bringing in $6.6 billion for the year.

Additionally, PayPal reports an increase of 5.2 million registered active accounts in the quarter, representing a 16 percent year-over-year increase. PayPal claims to now have 143 million active registered accounts.

PayPal also blew past the company’s expectations in mobile volume. The company had expected to bring in $20 billion in mobile sales in 2013 and ended the year with $27 billion.

PayPal spinoff?
During the call, it was also announced that investor Carl Icahn wants eBay to spin off PayPal into a separate company.

However, eBay’s Mr. Donahoe made it clear that he does not believe this is the right direction for the company.

PayPal is continuously rated as a top preference for consumers to pay with on mobile because of how widespread the technology has become.

EBay is leveraging PayPal and all of its other assets to build out its ecommerce roots to touch multiple points of retail, which likely is increasing consumer adoption about digital wallets and payments.

“I don’t see a strong argument for PayPal to spin off from eBay,” said Jordan McKee, analyst for Yankee Group, Boston. “From my perspective they enjoy a symbiotic relationship and owe much of their success to each other.”

However, this tight integration may not be appealing to retailers that want their services clearly distinct from the likes of Amazon or other online giants.

“Ichan sees the potential for growth, considering that online commerce, including mobile, accounts for that 10 percent share of total U.S. retail, but also with PayPal being tied to eBay competing online marketplaces and retailers are likely to be more reluctant to partner with PayPal, thus limiting its potential for growth,” said Nitesh Patel, London-based senior analyst for wireless media strategies at Strategy Analytics.