Monday, April 28, 2008

What is John Donahoe's Plan?

If you are like most eBay observers, you are anxiously awaiting the "New eBay".

Sellers want to know how it will impact their business, investors want to know how it will grow value in their holdings and bloggers want to "guess" at what it will actually be.

We may actually have a hint, in an article from John Donahoe's past.

In 2002 as the Managing Director of Bain & Company, John Donahoe wrote an article called The Last Legacy of the Dotcom Era (special thanks to permacrisis for finding this). In the article. Mr Doanhoe makes the following statement:


"When Bain & Co. analyzed 2,035 publicly held companies with annual revenues of $500 million or more in the United States, Canada, Britain, Fr ance, Germany, Italy, and Japan, we found that only 14 percent had achieved sustained, profitable growth for a decade. And we defined sustained as posting year-on-year real revenue and profit growth of at least 5.5 percent while repaying their cost of capital.

What distinguished these performers from the rest? A strong core business, or multiple cores, that dominated their industries. This rare, valuable trait primes a company to successfully pursue a broad set of corporate - venturing opportunities. For companies with a weak core ,
however, such opportunities are limited. The first priority of these companies should be to strengthen their core, not divert people and capital into new ventures."


It is clear that eBay has at least two core businesses (Marketplaces and PayPal) and a third that is a leader in their industry but doesn't fit in the corporation very well (Skype).

The Marketplace business is the weakest of the three, as far as performance and it is still the biggest eBay business. So it looks like eBay management will be doing everything in their power to stoke the Marketplace fire and is likely to divest themselves of businesses that do not make the cut -- see my "Dead Pool" post.

I would suggest you read the entire article if you want to get a feel for the direction the company is going to take. Sure, it was written in 2002 and the thinking may be slightly outdated, but it sure answers a lot of questions regarding the direction eBay is taking in this turn-around.

Just my 12%

2 comments:

Anonymous said...

Randy,

Thanks to you and permacrisis for passing this article along. I printed it out to peruse at my leasure. This is what I was thinking on what was going on, especially with the stores survey that I got today (a little more refined than the first ones that I had heard about with about a dozen or so different scenarios). I can see exactly where they are heading.

Bill

permacrisis said...

RKS-Your welcome! (not really "found" --it was posted on their InkBlog about a week ago. But "mentioned" I suppose.)

In any event I'd rather be listing than posting... but I'm not about to give it away.

Also read Rick Aster's "Shamanic Economist" and query 'ebay'; he tells it like it is, sans the vehement emotion... that's a good article to print out on the back side of the first! :-)