Monday, August 11, 2008

How Much Time Does eBay Have Left?

Sorry for the doomsday title -- I'm getting prepared for the up-coming (late August) announcements about more changes and it has me wondering: If all of these changes do not get the eBay Marketplace business growing again, where does that leave the company?

I've said it many times before; the strategy eBay management has chosen is a big gamble. If it works, there really isn't a huge upside, IMO. If it doesn't work the downside is going to be pretty bad.

For the most part, the changes have successfully kept eBay Marketplaces running in place, but I certainly don't see any huge growth happening.

Questions affecting eBay's future (in its current form).
  • Do the changes give management enough running room to grow the non-GMV businesses and PayPal, to take the pressure off of Marketplaces?
  • Can they pull a rabbit out of a hat and sell Skype for at least $4 billion? (that would give them some running room)
  • If the "economy" is the problem with eBay Marketplaces, then what excuse will they have if Amazon has a great Q3 and even better Q4?
  • How long will investors, sit around waiting for the turn-around?
  • Will the courting of Internet Retail Top 500 merchants save eBay? Who are the next "big guys" to come to eBay and Anchor a category?
  • If eBay has a demand problem rather than a supply problem, will they need to spend more money to stoke demand?

Here's how I see it playing out; no I do not have any crystal ball. If I am wrong, you can find this post sometime next year and tell me I'm an idiot.

I'm working from the belief that the current eBay strategy is wrong, so I already believe it will fail, but I think we are in for a rocky rest of 2008:

  • The next 2 quarters for eBay will continue to show slowing growth and Amazon will continue to grow faster than everybody else - taking share.
  • Margins will be maintained, because management won't spend the money necessary to get growth moving again. If you are changing the way eBay works shouldn't you be letting the world know that this is a new eBay? I haven't heard one word about a new ad campaign.
  • Investors will get tired of all of this and start voting with their shares, as some already have. Opening the door for one more year of restructuring, under a new management team and/or the company will be acquired.

I know I'm going out on a limb about the management changes. It seems unbelievable that the management team would only get a year to turn the business around, but I just can't imagine there is that much rope for this team.

Yahoo investors were calling for Jerry Yang's head 9 months after he took charge and he's a company founder. John Donahoe took over eBay in March but he was in charge of the Marketplace business for 2 years before that.

Unfortunately, I think we are past the point of no return on this strategy, so it is just going to have to play out.

And yes, if you have read my blog in the past, I do have a strategy that I believe will work, but it is too late to implement it now. We will just have to wait until Q1 of 2009 when eBay once again re-organizes.

Just my 12%

21 comments:

Rich said...

Ok, ok, I'll pass this post on to the cake eating masses at the eBay Store's Board. "Some day I will ask you a favor [Godfather Part 1?]..."

nadine said...

Yup, I think we're just waiting for the dismal Q4 results and ensuing restructuring. My only takeaway from history is that when you're as big as Ebay, failure takes longer than you would think. Look how long it took Wang Labs to fail under even worse management. So they will still be there to try again next winter, and probably the winter after that as well.

Your point about the ad campaign is well-taken. Um, if you are making all these changes to improve the "buyer experience," wouldn't it be a good idea to inform the buyer, so that hopefully he will come back and try it out?

This management answers to The Street first. Before customers, before employees. Everything else must be sacrificed for the EPS number at the end of quarter.

So everything else is being sacrificed.

Randy Smythe said...

Nadine, "network effects" work in both directions. eBay benefitted from them to grow and ...

As I've said before, there is a fundamental disconnect with management thinking.

I want eBay to work, so I will glad to be proved wrong if they can make this work.

Tony P. said...

"I've said it many times before; the strategy eBay management has chosen is a big gamble. If it works, there really isn't a huge upside, IMO. If it doesn't work the downside is going to be pretty bad."

My simpleton brain thinks that if it does work, there'll be a downside. WHAT? A success is a failure? How is that possible? Only in ebayland, baby!

As more established retail 'diamond sellers' come on board, more regular sellers (mega or otherwise) curtail their ebay inventory, or leave altogether. These mondo-mega-sellers have their own payment systems. They may offer Paypal, but if they do, they most likely offer Google, as well. Their merchant accounts will be the main payment process, naturally.

This will be a major hit to Paypal's principal revenue source - ebay purchases. Within that particle revenue stream is the lion's share of Paypal's ENTIRE revenue-producing mechanisms. All non-CC payments.

As is, all of the CC-funded payments provides Paypal with 'diddly'. True, they do a whole chitload of Diddly (and are aggressively pursuing more diddly from airlines, etc), but the Gravy is in the paypal-funded and bank account-funded payments.

They will end up with the majority of ebay purchases, web site sales and those airline companies (et al) all contributing a massive amount of diddly. It WILL be less than current amounts and it WILL be a downside.


The above focuses on the commodity world of ebayland - the collectible world will continue to evaporate, as it is doing. The collectible buyer is actually more likely to fund from non-CC, due to the possibility that they are sellers, as well as buyers.

If the "Plan" is to actually get rid of collectibles, then a large portion of Gravy-revenue will certainly be eliminated. Either way, by plan or consequence, the collectible arena will be contributing less to the Paypal coffers.


So, how important is this Gravy revenue, versus Paypal's cut of CC-funded payments? The last figures I saw, put the gravy at 60% of total revenue. Since gravy is a multiple of 8-12, as compared to CC-funded, that means that for every gravy payment eliminated, it will take 8 to 12 regular CC-funded payments to make up the difference.

I can see where ebay can ramp-up to a point of getting 8 to 12 times the number of sellers they displace, but that will require a huge accomplishment on their part. And, at that point, they will have just "broken even".

The Paypal business portion of ebay actually has operating expense - unlike the GMV/ebay.com portion which basically just rakes in the moola. That expense rises dramatically as the payments get away from the ebay platform. That 'break even' point will be just a little farther out than the numbers, at first, appear to indicate.

As Paypal broadens its horizons outside of the ebay world, and even the web site payment market, it will end up playing with the big boys - the established retail sector. It WILL treat them differently, and it will watch its P's and Q's, but it will eventually ruffle the wrong feathers. IT is inevitable - the gorilla mentality will slip through. Then, they have Congress to contend with, unless Meg is VP. (O.M.G!)


I see all of this happening currently, just in a slow-motion train wreck sort of fashion. The paypal numbers slowed this last report - a hiccup - but helped along by the web payments portion.

I see the whole enchilada as a house of cards, just waiting on a puff. A large snowball slowly descending down Mt. Everest, on a fairly flat expanse at the moment, but nearing a major incline.

There's my predictions. In a year or so, if Randy deserves that "I'm an idiot" notation, you can leave one here for me.

Randy Smythe said...

Thanks Rich! I think!

BTW, if anyone coming from the stores board wants to discuss my history with Glacier Bay just ask me a question - I'm an open book.

And just to make things clear for all reading this post and much of what I write on this blog is my opinion, based on observation, logic, and it comes from the perspective of a seller (not all sellers)

Ask away! I'll be out for a couple of hours but will respond to every question asked. Even the mean ones.

ms.pat said...

I'm afraid we're watching the slow collapse of a business that was loved by a lot of us and that a lot of us depended upon. Small sellers are leaving to the point where there are now many posts on Ebay's discussion boards from buyers who can no longer find their favorite sellers. Donahoe plods on in his madness to make Ebay into a cheap imitation of Amazon simply because of Amazon's success and not because of what it took to gain that success. Ebay simply wants to get there by beating free shipping and pristine customer service out of its sellers while still choking them with high fees and stupid policies. Its all such a shame. Any man on the street, fed the facts, can only surmise Ebay is doomed!

The small online startups are overjoyed with this change in Ebay. There will be a couple of them that will rise to the top....especially when the sellers who left realize its necessary to get their former buyers to move along with them!

As for wall street - they need to come to their senses. Ebay's stock fell by half years ago and it STILL hasn't regained most of that loss. What in the world are they thinking? When you try to explain the inner workings of Ebay as you know and as you have experienced them - they throw meaningless numbers at you and call you "one of those whining sellers" these are exactly the people they should listen to!

So, like it or not, the ship won't turn around. Present management is really at a loss as to what good business procedure is and that in the end will kill off Ebay.

www.ACEOart.net

Henrietta said...

Almost as much food for thought in the comments as the post.

I believe if and when JD gets booted there will be a howl of joy from the masses. I don't believe it will make a whole heap of difference.

Sh*t flows downhill.

Anonymous said...

http://www.guardian.co.uk/business/2008/aug/10/ebay.efinance

Anonymous said...

Sometimes I feel like eBay is much like America - it started out with good intentions, but got too greedy, lost focus on the big picture, failed to fix pressing long-term problems in favor of short-term fixes.

It grew fast and it grew big, but became over taxed and overgoverned. It lost it's identity, tried to be everything to everyone, and ultimately lost control of itself.

But most of all, and much like the US, it suffered from abysmal leadership, not by people who truly had its best intentions at heart, and it showed...they killed it. It became too crowded, too expensive, and too controlling, with not enough reward to make it worthwhile for anyone.

Slowly but surely, eBay is dying. We all know it's true, we might as well face the facts. So is every other business, small and large, directly tied to eBay. This is a death from cancer, not from a gun. It's not going to explode like a spectacular fireworks display. No, it's going to be a much more depressing, subtle, elongated, quiet route.

Sellers will continue to leave because they can't make any money anymore, buyers will leave because they can't find what they are looking for. Investors will begin pulling out, slowly at first, then more rapidly as the stock continues to go down.

This is how eBay will end, not with a bang, but with a whimper.

Anonymous said...

Wow! Maybe we should all shoot ourselves and get it over with now.

I don't care much for Ebay's current leadership, but I think the business, with the right focus, can right itself again. It has been a bumpy ride though since JD's ordination in January. Does that guy ever talk?

Randy Smythe said...

Anonymous, they aren't doomed, just going to have to do this all again next year or be acquired.

JD talks to Wall Street.

Anonymous said...

I didn't mean to paint a doomsday scenario, I'm actually a pretty happy and positive person. I just don't know if eBay's can recover anymore.

Sorry if I was too negative. But can you honestly say that eBay is going to be around 10 years from now? This is the Internet we're talking about, here today gone tomorrow for many companies, even big ones. eBay used to be synonymous with the Internet, but nowadays people could care less. The magic is gone. And I really think it's slowly becoming a thing of the past, to be studied in future business school e-commerce classes of how exactly it failed.

Don't shoot yourself in the head just yet, but understand that there is a very good chance this negative doomsday scenario is exactly what is going to happen, and act accordingly.

God how I miss the glory days of eBay.

Randy Smythe said...

Annoymous,

Unfortunately it is too late to bring back the ole days.

Believe me management doesn't want to be know as the team that sunk eBay. Not good for career advancement, but they can't really turn back right now.

The ole eBay is pretty much dead.

Anonymous said...

I actually don't hate the new management as much as you might think. I feel a lot of the blame should be laid on Meg's crew, who basically just ignored a ton of major problems during the good old days when times were good.

They ignored really sh***y sellers growing too large and out of control, they ignored growing distrust among buyers, un freaking believably high shipping prices, and many other problems. They got lazy. They spent too much money on useless stuff (Skype). And now the new management has to clean up the mess.

The bad part is, Whitman looks good on paper. So if she does decide to run for governor of our fine state, most people would give her nothing but credit for her time at eBay.

ms.pat said...

Well, they're still ignoring the sh***y sellers. With all the bells and whistles they have in place I'm still hearing horror stories about sellers. As for shipping - that was always always a lack of educating the buyers. No seller can survive selling on ebay with incredibly high shipping if NOBODY buys from him! Educating the buyers should have been from the very beginning and shipping would never be a problem. In fact its still not a problem - because you don't have to bid on sellers who have high shipping. Sheesh... Now Ebay has turned the corner and is stepping all over sellers in favor of coddling buyers who only need to act like adults. This buyer/seller thing works both ways and Ebay cannot and should not be playing nursemaid.

Now one of the sellers said she bought a video game for her son and when she paid a sign popped up from ebay and showed her how her bid rated among other sellers selling the same item. Is this new ebay management absolutely insane?

Anonymous said...

I still make lots of money selling on ebay, as do many others around the world, so I think they are still going to be around, just not the way sellers pre-2004 or pre-1999 remember it. Or, seem to remember it...honestly, was it ever really "free and easy", after maybe 1999?

Businesses change, times change. All our lives change, it's meant to be that way.

If you have goods people want that not everybody else has, ebay still works. Sure, their fees and policies are lame, but I always thought they were lame, so my expectations were and are realistic. They haven't let me down because I never thought ebay was my buddy in the first place.

I trust ebay the same as I do banks, credit card companies, the petroleum industry, and everything else corporate in all our everyday lives. I use it for my own purposes as much as I can-but I know it can end at any time. That's just part of the deal-businesses change, life changes, Amazon isn't always going to be a bowl of cherries for 3rd party sellers either...

Keep up the great blog!

Randy Smythe said...

Anonymous - I can't disagree with anything you said. If eBay works for you and your business, that is fantastic and keep working it until it doesn't.

And yes, Amazon is just another marketplace that will in time go through its own issues. Thought they seem to have a different mode of operating over there.

3P Sellers need to get their own websites, if controlling their own destiny is a high priority, but they are still going to have to rely on Google to bring customers.

It is all about what works best for your business.

Its different for hobby sellers, but hobby sellers sometimes turn into big sellers.

Tony P. said...

People that talk about the good ol' days of ebay are typically misunderstood. They are sometimes labeled as dreamers, idealists or simply, wishful thinkers. It's easy to believe that wishful thinking is at work, when looking at the "not so rosy picture" of those good ol' days.

I remember it taking 40 minutes or longer just to get one listing posted. Many times, I'd get right up to the Submit Button, click it and after 4 minutes get that dreaded "Timeout" message. Clicking on BACK would (sometimes) produce the previous screen, but my description would be wiped out. DAMN!

I'd get maybe 12 listed and my nerves would be ready to strangle somebody. Then I'd look at My Ebay and see one or two bids. That made everything AOK. Nerves settled back to just a jittery state.

Checking into ebay the next day, I'd discover that ebay didn't exist. No sign of them on the 'net. DAMN! I'd check on some discussion boards and, sure enough, they are down. Wait. Wait. Wait. They're back up - yippee! That's 15 hours shot to hell.

On Day 5 of those 12 seven-day auctions, I noticed that one auction already had 23 bids. It was a small luncheon plate from the White Star Line (steamship company, maker of the Titanic). I'd started it at $2.99 and it was up to $235.

Day 7 was a Sunday (of course) and those auctions were set to end from 8pm to about 11pm. By that afternoon, around 2 pm, The Plate was up to $388 and it had received 37 bids. I had finally achieved a milestone that was on my wish list.

I did a quick search just to see my plate show up within the results. There, sitting beside my listing's title was that "oh so neat" little HOT icon. My item had gotten more than 30 bids - I was frickin' ecstatic!! A PrintScreen naturally followed.

(I did several printscreens of that auction. i've still got them, along with a printscreen of my very first auction, when it ended. that's why these dollar amounts are accurate. this isn't made-up. that plate was part of a $5 box lot i got at an estate auction. no chit! in total, i must have made $1200 off that box. the plate ended at $486)

---------------------------------------------------

Since that time, I have used several listing programs that allow me to bypass the SYI form. Currently, I use one that is capable of submitting, through ebay's API, thousands of auctions with a single mouse-click.

Ebay's technology has improved, as well, with advances like the API. However, their technology has also created confusion, discontent and deceit. Somewhere along the way they forgot to simply make improvements and leave the rest to us - the sellers and the buyers.

All I ever wanted was to be able to list an auction in something less than 45 minutes. That's all. BUT, I did want to keep the bidders - I want to see another HOT icon. The bidders are still out there, just not cruising onto ebay like they used to do.

Some would say that those bidders aren't as many, or as eager to bid, as back in those good ol' days of ebay. That is somewhat true, but this is my business and I've done it for a few decades - believe me, they are "out there". Ebay simply made it too much of a hassle.

I'd trade that ebay-created hassle, for my hassle of it taking 45 minutes to get a listing posted, any day! Give me back the bidders you drove off, ebay, and you can subject me to timeouts and 404's all day long!

When I say that I want the good ol' days, that's what I'm talking about. I want what I know is STILL possible and I'm willing to take the warts and all with it.

Anonymous said...

Skype for 4 billion! Please clue me in as to what brand of garbage bag you are smoking. It must give off some really special fumes.

I doubt if 4 billion will even pass thru Skype's hands, much less wind up in their coffers, between now and their day of comeuppance.

The Radio Shacks in my area have all been DUMPING their $49.99 Skype ethernet/phone adapters for a measly $3.99 which to me speaks volumes about public perception.

Ah, the irony of now seeing them appear on ebay!

Randy Smythe said...

Anonymous, should I have out a smiley face next to my Skype bullet point.

The point is that Skype would need to be sold for $4 billion in order to give them some running room with investors -- not that I thought Skype could be sold for $4 billion.

Anonymous said...

Oh... WHEW !