Sunday, October 21, 2007

eBay In A Perfect World!

When I read Yahoo SVP Brad Garlinghouse’s “Peanut Butter Manifesto” I was struck by the many similarities I saw between Yahoo and eBay and wondered aloud when an eBay executive would write a similar memo. Much like Mr. Garlinghouse, I bled eBay Red, Green and Yellow and was proud to be known as an eBay Seller. Let me be clear, I in no way blame eBay for my business failure. At the time I shut my business down many of the problems eBay is currently facing were just starting to surface. I’m a pretty intelligent guy but I made some poor decisions and did not act quickly enough to modify my business plan. In many ways I still consider myself a part of eBay and much of the motivation behind blogging about the company comes from my deep desire to see independent online sellers grow successful businesses. I also believe eBay should be leading the charge not “standing still” in the face of many challenges.

Unfortunately, I am not an eBay insider and have no access to data, organizational structure etc. so, unlike Mr. Garlinghouse I can only observe the business and suggest solutions that may or may not be feasible. I won’t be making any far reaching suggestions on head count, corporate re-organization, spin-offs, or suggestions regarding what to do with Skype. In fact I often get a headache over my right eye just trying to decipher corporate financial statements and what I call eBay’s “voodoo accounting”. What I care passionately about is online sellers, many of these sellers have become close friends and I’ve been introduced to 1000’s more through my blog, Squidoo, and eBay’s message boards. These are real people who want their shot at the American dream and up until recently felt that eBay would help them achieve that goal.

I’ve been told (by a good friend and current eBay employee) that I tend to write reactive posts about eBay rather than constructive posts and I would have to agree. I generally look at recent news, company announcements, earnings reports and industry news to see what I can “pick on”. So after hearing eBay’s 3rd quarter earnings report I decided that I would make some suggestions and after the “Windorphins” kicked in I came up with the following:

(I will only be dealing with eBay’s Marketplace business, which is struggling so mightily. eBay Marketplaces are the main “power” in the “power of three” and the business segment that resonates most with investors and the public and though I will concentrate most on the US market, these suggestions will help the entire Global Marketplace.)

In Mr. Garlinghouse’s memo he outlined his plan beginning with this message:

“I don't pretend there is only one path forward available to us. However, at a minimum, I want to be part of the solution and thus have outlined a plan here that I believe can work. It is my strong belief that we need to act very quickly or risk going further down a slippery slope, The plan here is not perfect; it is, however, FAR better than no action at all.”

As I tried to come up with my own opening statement, I kept coming back to his. He said everything that I wanted to say and as well as I could have said it.

I have three key points to my plan to reinvigorate the eBay Marketplace business. I have often made fun of eBay’s catchy little term “Windorphins” but in reality eBay’s Marketplace business needs a monster size shot of Windorphins to get moving in the right direction. These suggestions may seem radical and some of my regular readers may suggest I seek professional help but here they are:

1. Acknowledge that Auctions have a Shelf Life!

2. eBay Should Become for Shopping what Google is for Search!

3. Spin off eBay Stores/Shops as a Separate Platform!

1. Acknowledge that Auctions Have a Shelf Life

a) Auctions are still viable but should no longer be the focus of the company. There is a reason that Amazon, Yahoo, Overstock and others have curtailed or shuttered their Auction businesses and eBay continues to see limited growth -- it is called a ceiling. I experienced it in my business and failed to adjust. eBay US and Germany are at the ceiling now and the UK and the rest of the world will soon follow.

Management needs to change the identity of eBay from an Auction company to an ecommerce company. Meg herself said “Our objective is to follow the user. This is a marketplace, and we want to do what the users want to do; what the sellers want to sell, and what the buyers want to buy.” Source 3rd Quarter 07 Conference call transcript.

b) Nothing will change until management considers Auctions to be just a slice of the ecommerce pie not the whole pie and once they've done that a whole new world will open up to them, there is a lot of pie left to eat.

eBay’s share price doesn’t struggle to get any traction because the company isn’t valuable, its because ecommerce is leaving them behind. Management needs to take off the blinders and think outside the Auction box.

2. Become for Shopping what Google is for Search!

a) Google is very simple. Users come to Google to find information and Google monetizes that activity by selling advertising. Google’s product search is poor so there is a huge opportunity here. eBay needs to become the defacto standard for Product search. They are currently building their own “finding” engine and selling sponsored search ads. Don’t stop with just the Auction marketplace, expand it to encompass all of ecommerce. Sellers are not going to like this approach unless they feel they can take part in it. (See item number 3)

b) Sellers just want to sell their product and do not mind fees when the value received is equal or greater than the amount paid. “Find IT on eBay?” will take on a whole new meaning when everybody uses eBay to find product. (No more of these Shop Victoriously ads) Let sellers sell and own their customers. eBay should facilitate the introductions and monetize the activity. They are already using sponsored search and shopping.com, stop playing around and go for the big game.

This is an enormous task but eBay is uniquely suited to accomplish it. With this approach they retain margin control in every segment of their business and open up additional revenue sources. Sellers are happy, users are happy and investors are happy. That is a “Power of Three” everyone would like to see.

3. Spin off eBay Stores/Shops as a separate Platform!

a) eBay currently has 520,000 eBay stores/shops worldwide, by far the largest store platform in the world but because stores do not generate the profit margin that CORE does they’ve been put on the back burner much the same as Half.com, Rent.com etc. When management doesn’t see the ROI they milk the asset instead of looking for ways to grow it. Sometimes common sense needs to be added to the ROI calculation.

b) There are over 19 million small businesses in the US and millions more around the world. EBay is uniquely positioned to grow their stores/shops business exponentially if they spin it off into its own platform with a shopping cart and search engine and facilitate multi-channel selling for its sellers.

c) Store/Shops should be the hub from which sellers list product on eBay, Half.com, Shopping.com, Kijiji, Amazon etc. eBay should be in the business of helping its customers (sellers) reach buyers and therefore maintain margin control over each segment of the business. While generating additional revenue from listing tools, customer service tools, etc.

None of these ideas can be realized over night and certainly some acquisitions would seem prudent to speed up the process. eBay management needs to change the way they view their Marketplace business and take the reigns of ecommerce 2.0 before Google figures it out.

Some additional thoughts:

I believe that if eBay moves in the direction I’ve outlined above they can embark on a completely new growth cycle. Google doesn’t worry about feedback and seller rankings they just put users in front of sellers/advertisers eBay can do the same thing.

I haven’t suggested any details because that is for the professionals to decide but it is evident to me that EBay needs to throw off the shackles of the past and forge a new ecommerce future. Sure this will cost money to accomplish and investors might complain in the short-term but what would they rather have, a stock that trades in the 30’s or one that has unlimited upside?

That’s Just my 5 cents!

6 comments:

TECKWAVE said...

Hi Randy, thanks for elevating the discussion and taking a lead on this... even though I disagree completely with your conclusion.

I totally support your efforts and firmly believe we can come up with a solution that works for eBay and buyers and sellers alike.

I agree with your main points 1 and 2, that Auctions have plateaued and given that, how does eBay become the King of Product Finding?

I would like to consider a couple additional factors here:
A) eCommerce as a whole is growing faster than Auctions.
B) Auctions increase sell-through for Fixed Price items.

I suggest eBay support their largest sellers and put Stores in CORE SEARCH. This is not the 'unbalanced marktplace' Meg has mentioned before... this is in fact the 'Ideal Marketplace' where Auctions, BIN and Store Inventory live side by side supporting each other in Finding and sell-through.

Everyone knows if there is an auction for item X with bids at $34, buyers will snap up the Fixed Price X at $38 most of the time. This is a well-known eBay 'trick'.

I believe this operates at scale when Store Inventory items are brought into Core Search. This is why Auction sell-through and ASP's fall. No auction will go above the Fixed Price for Item X, especially if X is a brand new item. eBay then has to grow Fixed-Price ASP to grow Auction ASP... which sounds hard but is also the path to grotwh.

Like it or not, we have to deal with today's realities.

I know this is turning the world on its head, but because of A above, Fixed Price GMV will eclipse Auctions in the long run anyway. eBay can choose to be on the path of growth with eCommerce or try to grow Auctions. We know the answer to this.

Spinning off eBay Stores would kill them all just as quickly as eBay Express failed. All eBay Stores would DIE without Core Search traffic from eBay.com. This should be clear and I'm surprised anyone is considering it.

With increased enforcement against non-performing sellers and higher insertion fees eBay Stores have been somewhat weeded out and most bad sellers are gone.

I think it's time to bring Store Inventory back to core and focus on growing the market as a whole.

This is the way ahead for eBay.

Randy Smythe said...

My idea around spinning off stores would be to allow sellers to put all of thie inventory in the store for a simple hosting fee and then allow them to list items in CORE that were best suited for that. They could also choose to list using SIF on those items best suited for that format. All os these items would be findable in the new eBay.com. but additional sales and return sales would be conducted in the store itself without eBay's hand in the pie other than hosting and tools for the store.

I hope that helps.

TECKWAVE said...

How would your suggestion be different from eBay increasing the Stores fee and allowing unlimited listings?

I don't think this would work.

Without stringent seller requirements and intense manual review of every seller (like Amazon) OR listing fees/item caps these stores would quickly bloat with items just like the .01 and .02 listing fees did for 2005/2006 eBay Stores (but worse because its free unlimited).

Exposing these items to CORE search would result in the same debacle that started all this... flooding the market with poorly priced junk items.

Showing Store Inventory results in CORE search (*now that Stores are weeded out by higher fees and more enforcement*) would result in a HUGE INCREASE in GMV for fixed price items at the expense of some auction listings.

The bet is that fixed-price is growing faster than auctions and the tables are turning.

Auctions will spur more fixed-price sales and simplify the eBay Finding experience.

Your thoughts?

Randy Smythe said...

EBay now has the capability of displaying results in a much more effective manor. The problem with SIS was not the buyer’s experience (do Google users complain about too many results) SIS affected CORE listings and therefore the bottom line. Don’t let anybody tell you it was a buyer experience problem. Low priced listings were selling and sellers were opting for Stores over CORE because of it.

With the new finding, eBay can control the display much more effectively and lessen the chance this would happen again.

Anonymous said...

"Google doesn’t worry about feedback and seller rankings they just put users in front of sellers/advertisers eBay can do the same thing."

Some buyers like myself won't buy from any online venue that doesn't have an independant reputation, so I think some sort of "Feedback system" will need to exist regardless of what changes take place

For example, I became a newegg.com shopper for all of my computer parts after I saw their incredible record on resellerratings.com. After dealing with them I absolutely refuse to buy from anywhere else

Randy Smythe said...

I think there are a fair number of buyers who feel the same way.

Google doesn't verify their advertisers ratings and seems to be doing fine. Feedback is an eBay user thing and would certainly be included in an eBay Product serach engine becasue eBay users have been conditioned to care about feedback.

On Amazon Feedback rarely matters because Amazon guarantees the order.