Sunday, October 28, 2007

eBay Chaos Theory Article on Fast Company!

I came across this great article eBay Chaos Theory over the weekend and have added it to my What Am I Reading feed but I also wanted to highlight it on the blog. It is a great article on the thinking behind eBay's recent changes.

Here are some key quotes but please take the time to read the entire article because while I try to provide context with my comments it would be better to read the article in its entirety. My Comments are in bold.

In discussing the challenges eBay is facing.

EBay is responding with a whole new strategic gamble--one some company insiders say is its most ambitious ever. The mastermind is John Donahoe, 47, whom Whitman brought aboard three years ago and installed as president of eBay Marketplaces (and as her heir apparent). His bold stroke--what he calls "our number-one strategic priority"--is recasting the site to focus primarily on buyers, not sellers.

As obvious as this realignment might seem, it is a sea change for an outfit that long regarded sellers as its main customers; some 1.4 million vendors rely on the operation for their primary or secondary income.

This is truly a gamble because in many ways eBay has burned their bridges with sellers. I would guess that sellers would come back if the buyers are there but never again will eBay have their undying loyalty.

Too much Clutter!

From the beginning, the strategy was to amass an unrivaled array of goods that would attract buyers. It worked well. In fact, as Donahoe now admits, it worked too well. The site became bloated and unwieldy. At any given point, it features about 100 million items for sale, with nearly 7 million new listings every day. "EBay's abundance was one of its attractions," Donahoe says. "But if you type in 'BlackBerry' and get 23,000 search results, it's not that helpful." (His offhand math is not far off the mark: A search in September produced 3,911 phones and PDAs, and 17,771 accessories.)

I still don't know why this is a problem. Search for BlackBerry on Google and there are 59,900,000 results and Google just shows you the top 10 on the first page. Most eBay buyers just buy from the first page of results anyway. The difference is eBay listings end so each listing will appear in the prime real estate (first page)at the end of the listing giving each listing the same exposure.

In my view these changes are directly related to SIS (Stores in Search) in 2005 when eBay added store listings to regular store search. With this article eBay says why they rolled back SIS and it wasn't because of the buyer experience. It was because their auctions took a huge hit.

New CTO Matt Carey arrived in Dec of 2005

Carey inherited a catastrophe. Shortly after he arrived in San Jose in December 2005, the site's core listings, largely auctions, and those for its 600,000 individual stores were combined for the first time--a blunder no one now takes credit for. Previously when you typed in, say, "Sony PlayStation," the search engine combed through only the core listings. To see the other merchandise, you had to surf over to the eBay Stores site and do a separate search or browse the stores. The goal of combining the entries was to show a broader mix of inventory on a single search; the effect was to give more exposure to the store products. The new setup was rolled out with no customer testing.

Within weeks, nearly every measure of eBay's business was down. Bids. Return visits. The conversion rate, or percentage of listings sold. Average sales price.

In hindsight, it's hard to understand why no one at eBay foresaw what would happen. Because eBay charges less for store listings than core auction listings, once they all appeared in a single search, many sellers shifted their inventory to save on fees. Suddenly, store merchandise, which tends to be pricier, was crowding out the auctions--and the bargains. Auctions bottomed out at just 17% of total listings, yet they still accounted for 91% of sales.

The misstep triggered headlines, a falling stock price, and pointed questions from analysts. Whitman explained repeatedly that the marketplace was out of balance. In March 2006, eBay rolled back the program. Finally, in August the company used its only real lever: It raised fees for store listings.

At the time SIS was rolled back eBay said the reason was because the buyers experience was damaged. Most sellers saw an increase in their sales during SIS so have always felt "buyer experience" was a red herring. The real reason is in the quote above.

Please read the entire article, it is the most comprehensive piece I've read about the behind the scenes reasoning of eBay managers.


bonni said...

I really have to disagree that eBay considers the sellers their primary customers. All the things they did to screw sellers around was done in the name of "improved buyer experience", and 99.9% of input from sellers is just plain IGNORED. That's no way to treat ones' customers, and it makes me think that eBay never really thought of the sellers as their customers.

katiyana said...

Thank you for finding this article : I've put the link on the eBay Stores Board because I think this is the closest thing to a gameplan we've seen out of eBay.