eBay Gets a New CEO and Game Plan
By Tom Ryan
Meg Whitman last week announced plans to step down as CEO of eBay Inc., the online auction that went from wobbly startup to multibillion-dollar household name in her 10-year tenure. But the incoming CEO already has big plans to revive the company’s core auction and fixed-price e-commerce businesses.
John Donahue, who has been running eBay’s main e-commerce businesses three years ago, plans to shift eBay’s emphasis from auctions to fixed priced listing, which promises to make the experience of buying on eBay more like sites such as Amazon.com.
“Auctions will always be the core of the core of eBay, it’s what makes eBay unique,” Mr. Donahoe told The New York Times. But he noted that fixed priced sales now account for 40 percent of eBay’s marketplace revenue. “We are following our users. They like convenience so what we are simply doing is putting a more explicit focus on that.”
Other changes will include a new fee structure that will see cheaper upfront listing fees but more expensive final sale fees, paid when an item is sold. Changes in its pricing formula will cause earnings to fall about 12 percent this year.
Some analysts feel eBay’s struggles reflect growing competition from Amazon.com along with what one analyst calls “buyer fatigue” following years of revenue leaps.
“Whitman wasn’t as innovative as her counterparts at Amazon and elsewhere…They definitely need a bit of a change of direction,” Aaron Kessler, an analyst at Piper Jaffray, told CNET News. “The biggest challenge is buyer activity. There’s been buyer fatigue in the last year or so, with fewer people coming to the site and coming less often.”
Tim Boyd, an analyst at American Technology Research, told CIO Today that Ms. Whitman stood against letting sellers list auctions for free like some of eBay’s competition. But eBay is expected to make this transition under Mr. Donahoe’s watch, a huge change of a historical practice.
“Donahoe has a reputation as a doer and a fixer, and he’ll be making some changes that needed to be made a long time ago. eBay is playing catch-up,” Mr. Boyd said. “At the end of the day, eBay needs to become more like Amazon in terms of only requiring sellers to pay for performance. That’s basically where eBay is going.”
One critical measure of Mr. Donahoe’s success will be how the typically vocal members of the eBay community handle the coming changes. eBay observers said the community is likely, at least, to embrace new leadership.
“If you look at Meg Whitman’s tenure through the appropriate lens, it was an incredible success,” Scott Devitt, a managing director at Stifel, Nicolaus & Co. told The New York Times. “But as the business matured, there have been significant requests for change on the site and the constituents have not been satisfied. Getting a fresh face and a different perspective will be viewed positively I think.”
Discussion Questions: What do you think needs to be done for eBay to regain momentum? Do you think more emphasis on fixed pricing vs. auctions is a good move? What will history say of Meg Whitman’s legacy at eBay?
History (assuming it judges her at all) is likely to judge Meg Whitman highly. She did a great job at eBay (despite the occasional scandalous offering). And, her timing is impeccable. She’s leaving just at the time that eBay is going into its maturity curve, a period fraught with problems in most businesses.
As to what will help eBay in the short-term, it’s hard to say. As more buyers learn how to “game” the system and more sellers become jaded, things may slow down a bit. One thing that might help is reforming the seller rating system. As it stands, it’s very difficult to turn in a moderately pleased rating. The system all but forces you to either rate someone as perfect or go into a long description of what was wrong. Also buyers worry about being slagged by sellers they complain about so the result is that it’s sometimes difficult to tell the good sellers from the bad.
I agree with Jeff. Fixed price has ruined eBay for me. It has introduced the online dollar store selling cheap junk. I once used eBay for specific items or just shopped for impulse items. It is no longer shopable. As they change their business model there will be opportunity for an upstart to move in on their original customer base.
PayPal, eBay Motors, and non USA businesses have the greatest profit growth potential for eBay. PayPal is in the credit card business, and more aggressive lending, as well as more acceptance for non eBay transactions, would add measurably to the parent company’s profits.
eBay Motors’ listings are the most profitable listings, because the price points are many times the price points of general merchandise, yet the site operating costs are the same. It’s $90 fees versus 90 cent fees. eBay Motors needs great publicity outside the eBay community. It’s already got huge market share, but that share could be doubled. And auto financing profits could be even more lucrative.
Lastly, half the eBay volume is international. Many non USA economies are growing faster than the USA, and the competition is generally not as well capitalized.
As a Silver Level Powerseller, I definitely have some experiences to share about eBay. Here are some observations and concerns:
First, I see many positive kudos about Meg. I am not sure the eBay seller community would agree with that. Many posters on eBay’s chat boards feel that eBay is purely driven by Wall Street expectations and demands. Often they feel like the employee who is laid off due to downsizing. This has to change. Perhaps this latest move will improve the relationship.
Next issue, Change, Change, Change…I know the old saying that there has to be change to grow. Well eBay changes too much too often. In the category I sell, I have seen at least a half dozen sellers who sold over $100k per month go bust due to changes made by eBay. At first there were stores in search, which made it easier to sell items with low listing and final value fees. That got taken away. Then it was raising store fees. So they took the traffic and raised the cost. Then Feedback DSR ratings, which they still haven’t figured out how to put to use properly.
Now there are the latest fee structure changes. There is always something. It literally is like your landlord changing your lease every year. They have got to settle in and keep changes to small items.
The big problem they have is that they try to be all things to all people. Many buyers want them to be this little community flea market where they can get unique items and haggle with sellers if they don’t like the price or shipping costs.
But many sellers, at least the large ones want to be like any other retail operation where you win buy putting a fair price out there and just treating people fairly.
You don’t know how many times I have seen sellers on the chat boards who come from a retail background who complain about what they have to do to service the eBay buyer as opposed to customers on other venues.
They must decide if they are an e-commerce site or the worlds biggest online flea market.
As for feedback, I think it all balances out. Yes, there is withholding of feedback. But no other retailer is faced with the same scrutiny as an eBay seller. Picture a billboard outside Wal-Mart or Best Buy. Would they get 100% feedback? Or would any other retailer, for that matter? Most of us would have to say no. Buyers know to beware of anyone below 98% on eBay. If eBay changes to suit some, those expectations will just be lowered. We all know there are at least 3% of our customer base that you just can’t please no matter how hard you try. eBay’s current structure keeps most of them at bay. A change would probably mean good sellers operate under 95% or maybe even less expectations.
Anyway, I anxiously await these changes.
eBay’s is a fast-turning wheel. Ms. Whitman is shrewd to depart at the top of the cycle, as I believe its next, less spectacular, phase will come around just as rapidly.
From my perspective as a shopper, the bigger eBay became, the less compelling its value proposition. Early sellers of Beanie Babies and other collectibles made some nice bank, but items of connoisseur value are rarely seen, and most offerings these days seem to be from professional sellers.
Repositioning or refining eBay for the next era seems like a tough challenge to me. It built an unmatched platform for one-to-one trading, but it is what it is–a cash cow.
As an ex eBay Silver Power seller I vote with confidence. The uniqueness of eBay is the way it harnesses the Web 2.0 long tail. Sellers will not continue working for eBay if they aren’t making money. Buyers are easily distracted by novelty, indeed they’re searching for it. Their (software) service has to evolve radically and continually. So does Amazon’s. No big deal.
Personally I find the high percentage of fixed price listings makes eBay increasingly useless. It is precisely eBay’s drive toward becoming a standard retail site that I think holds the greatest peril for it. Out-Amazon Amazon? Why, when you already out-eBay the rest of the world? eBay has a long way to go to be the perfect classifieds business, but nobody else comes close.
I also agree with Max that they should either find an independent revenue model for Skype or dump it. I disagree that eBay needs some sort of social component between buyers and sellers. Quite the opposite–eBay needs to improve the trusted intermediary model, where sellers can deal with buyers with confidence without revealing too much about themselves. Seller communities make sense; sharing best practices, etc., and interest/industry groups make sense–collectibles and hobbies come to mind–but these need not be real-time communications. The great strength of the internet as a community builder is that it can be many-to-many and not real time. Skype is a telephone substitute–one to one (mostly) and real time. It may make sense for the occasional post-transaction communication, but email is better and IM equally good for that.
eBay is a wonderful service but its push for expansion has caused a number of problems.
1. There is no eBay pledge that binds sellers to deliver items they place on auction.
2. The expansion of the corporate eBay sellers has thrown the “feedback” system out of whack. The feedback system was instituted by eBay to instill trust. It is, in fact, broken as many sellers will not leave a buyer feedback until the buyer has left feedback for the seller. If a buyers service is shoddy, or his product not as described this should be pointed out via the feedback system. When it is not pointed out it leaves the seller free to continue ripping off buyers. When a seller leaves a buyer feedback based on the buyers feedback rather than the buyers performance then the system is broken.
I believe eBay could go a long way toward fixing problems by requiring sellers to place credit card numbers on file. If a product is not shipped, a penalty of 200% of the auction price of the item + freight be charged to the card and distributed to the winning bidder less a 10% administration fee. With regard to feedback, all sellers should be required to leave feedback for a buyer within 48 hours of receipt of payment. Any feedback not posted in this time frame will be automatically recorded as positive for the buyer. Any negative feedback that a buyer wants to leave for a seller should be posted to an arbitration area which would allow for resolution of disputes prior to permanent feedback being recorded. This would allow for “working out” things like the refunding of high freight charges when items are returned for legitimate reasons (non working, misrepresented, etc.)
Offering both fixed price and traditional auctions will continue to keep eBay going. However, for eBay to truly continue to grow, it needs to innovate, innovate and innovate. Without this, it will gradually become just another (albeit the largest) auction site. Innovation needs to embrace both format, products and forms. What about pushing some of the fringe areas and offering eBay for adults, eBay for wine, etc?
I think fixed price auctions are fine but should not become the major focus. Part of the eBay experience is the “thrill of the hunt” and if it becomes predominantly fixed price, it takes away the treasure hunt and excitement of “finding a deal.” The social networking aspect (or lack thereof) is noteworthy and certainly something worth much more emphasis.
While most have finally figured out that eBay is not much more than a retail convenience sight, there is much to be said for its intriguing offer to treasure hunters. There is always that chance that buyers will find desperate or determined sellers at extremely low prices and it is this experience that keeps eBay customers coming back for more.
In fact, I have seen where fixed pricing via a “Buy It Now” option actually weakens the end price of an item as opposed to giving it strength…many times a buyer is willing to pay whatever to get it.
I agree that there are some smaller items that fixed pricing works for but to expand on them, I believe, would require eBay to be in the fulfillment business where you have a high integrity process standing behind every aspect of the goods…not just any gojo with a PC in their living room.
I do believe the rating systems need an overhaul…it is almost impossible to rate either the buyer or seller negatively [if deserved] without facing wrongful mirrored responses.
Under Meg Whitman, eBay had an incredible run. As Ryan points out, it is now entering maturity and needs to adapt to the role that competition and social networking are playing on the web.
From a competitive standpoint, eBay should move towards Amazon’s model of free listings and pay for performance. This will encourage more listings, particularly at a time when 40% of its business is “buy it now.”
eBay still needs to find a way to successfully integrate Skype into its auction/sales business. If this cannot be done, they should sell Skype.
Finally, in a Web 2.0 world, eBay needs to build a social component into its business model. This is where Skype could come in, by allowing buyers and sellers to communicate more easily. Buyers should be able to communicate more easily as well to make product and seller recommendations.
eBay may be entering a mature phase of its business, but it is not going away. It will remain successful.
After seeing the new changes, you might expect a seller mutiny. They did not lower listing fees anywhere near the rumored 50%, yet dramatically raised FVF.
And if you really want some fun, stroll over to their Feedback forum tonight. I suspect their will be some interesting reading.