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Summary:

eBay is very very worried about Google and is trying to work with either Yahoo or MSN (or both) to try and blunt Google, reports The Wall Street Journal. It is a big article about the age old saying: enemy of my enemy is a friend. […]

eBay is very very worried about Google and is trying to work with either Yahoo or MSN (or both) to try and blunt Google, reports The Wall Street Journal. It is a big article about the age old saying: enemy of my enemy is a friend. The really juicy bit is about the consulting giant McKinsey & Co’s conclusions about Google.

Few at eBay initially saw reason to fear Google, say people at the company, in part because of a 2003 study it commissioned from McKinsey & Co. McKinsey concluded that Google wouldn’t use its search capabilities to break into e-commerce. That made Google a manageable threat, say people familiar with the study. EBay’s dependence on Google increased as it shifted ad dollars to online ads from traditional media throughout 2004.

I think McKinsey reports should come with a statutory warning. Why? These are the same people who told AT&T back in the day, that mobile phones will be a niche market. And if that was not enough, I have two words for you: Jeffrey Skilling. (Of course, there is The Witch Doctors a fascinating book if there is about McKinsey blunders.)

So what are your thoughts on eBay & New Friends versus Google. It could be part of a big strategic report ;-)

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  1. eBay/PayPal has been using its monopoly position to jack up its fees with seeming impunity. I for one can’t wait for Google to give them some competition.

  2. Malcolm Gladwell addresses the McKinsey myth in his (as usual) excellent piece “The Talent Myth”:

    http://www.gladwell.com/2002/20020722atalent.htm

    as far as eBay & new friends versus google, if ebay and amazon stopped could simply stop buying traffic from google, google’s revenues would shrink by, what, 50%?

    read ebay’s and amazon’s public filings and you’ll how much they spend on marketing — billions and billions and billions. and where do they spend it? not on 30 second TV spots, that we know. not on major print campaigns, that we know (except for amazon’s occasional sunday paper couponing). no, they spend thos untold billions on the web. and where on the web? duh. on google. they obviously get great value from google, but heck, if you’re worried about google killing you, you should probably consider ceasing your own funding of their arming for war against you?

  3. not sure why the gladwell link got munged but here it is hopefully clean:

    http://www.gladwell.com/2002/20020722atalent.htm

  4. something about this blog client wont take underscores in the URL. go to gladwell.com and search for The Talent Myth and enjoy — fantastic reading

  5. steve

    thanks for the link. the best option is to post the link link . the comment system doesn’t allow long urls because in the past we have had the system abused quite badly by spammers. hopefully this explains it.

  6. fazal,

    i think you are spot on. the problem ebay has is that it has hit a natural wall in terms of traffic and customer growth. they hate to admit it.

    i think in the end, what they are scared of is customers asking – what have you done for me lately. raise prices – well that’s telco thinking. in the end you are going to have defections.

    the big point is that eBay is a 10,000 plus company. secretly most ebay employees think its too bureaucratic. alliances, meetings, ganging up on google – that’s called not outwitting the competitor in the market place.

  7. I think McKinsey blunders goes in line with how people misuse management consultants. Often times, because of political issues within the companies, they end up being a tool to forward the agenda of a particular faction rather than truly being able to provide objective recommendations.

    They are only as good as the people who engage them.

  8. Randhir Reddy Friday, April 21, 2006

    I think ebay was not really doing enough to service its customers better. Google will surely turn Base into such a huge ecommerce play. ebay has lil’ defence against the Google phenom.

    They started testing Base in the natural search reasults too. This could be the beginning of an epic battle between the two Internet giants. Once they’re done enough testing with Google Accounts and a possibility of GBuy introduction. The sheer simplicity of the UI at Google for this play is mind blowing. ebay will have to buckle up soon and take Google head on. Else, it might be too late to catch up.

  9. When I think of McKinsey, I think of the talent that left. Tom Peters, Louis Gerstner, and Harvey Golub.

    As Tom likes to say, you get bigger by being better:)

    Google works best for most of us. Hard to see that changing anytime soon.

  10. McKinsey blunders are also painted that way by the management to take the blame off of them. One of the prime examples of a McKinsey blunder – the Snapple debacle – was management’s fault. It was not painted that way though.

    It’s also stupid to highlight mistakes without successes. Of course Om has never made any wrong predictions. What happened Om? Did they snub you in the interviews?

  11. I just hope google buys/powers its OWN internet and everyone can stop picking on ole successful google…wwwwhhhhhaaaaaaa!

  12. Sachin Kotwani Friday, April 21, 2006

    Anyone see Google turning into the next Microsoft?

  13. I would love to make money directing people to items I have
    purchased or items I wish I had the money to purchase. In this way, everyone is a marketer through word of mouth.

    I use Google to search for reviews not just from one site, but from many different sites. Then I usually make up my mind whether I really need it or not. I rarely click on any Adsense other than when a spark goes off in my head like hey that’s something interesting.

    When I do go to eBay, I usually already know what I am looking for and might be looking for a bargain. Usually though, I am better off just getting it from some main store without having to go through the hassle of wait time and the uncertainty of whether I am going to win in the bidding process. I guess this works for older items, but for newer items I would rather just pay the few extra bucks and have it delivered instead of the waste of time in auctioning.

    Most of the time the price that the auction is won at comes out to be the same price it would have sold at if you had purchased it outright (keeping in mind, the time you spend and the uncertainty involved in the auction process).

    So in this way, Google saves me a tremendous amount of anxiety. I usually know what I am looking for based on in-store reviews, but just to make sure I usually go to forums and such to confirm an opinion or look for any negative things that might crop up like something defective in the design.

    But if Google can ALSO help me make money (like refunds, coupons) through directing people to the item like to Amazon or eBay or any one of the online stores, and they can get all this integrated… then they surely have my vote!

  14. It is great to see eBay threatened. But, at the same time what is the guarantee that google won’t do the same. I would be great to have more than 3-4 competitors.

    Conventional wisdom of “With the great power comes the great responsibility” doesn’t applies to the corporate world. For them, “With the great power comes the great arrogance/monopoly”.

  15. I forget the name of the Bar in Bay Area where young folks sit and talk about their abstract ideas. Someone then told me that it will be the first Trillion $ company ;-)

  16. DaveMc500Hats Friday, April 21, 2006

    on the contrary, plenty of folks at eBay were aware of Google and watching their every move for several years. however, that doesn’t mean they chose to take action until relatively recently.

    specifically, several of us at PayPal tried to initiate efforts to both a) work with Google to combine AdWords & PayPal for small biz, as well as b) work on several initiatives to take PayPal in directions that Google wasn’t headed towards (yet, anyway).

    at one point i also had also suggested using eBay’s advantages in knowledge of point of transaction to develop alternative advertising options based on sales rather than clicks (more qualified, plenty of eBay impressions to monetize).

    however, awareness doesn’t always lead to action. much of eBay’s complacency came from ever-rising stock prices and seemingly unassailable market share in auctions & payments… that is, until Q1 05.

    after that correction, my understanding there was much more significant effort to come up with actionable plans.

    (as for me personally however, i left in Q4 04 ;)

    • dmc
  17. might have been on the same bandwidth today … I posted similar thoughts this morning.

    End of the day, I blame management, not McKinsey for eBay’s woes. McKinsey provided bad intel, eBay accepted and acted on it. Most consulting engagements work hand in hand with clients. McKinsey is a nice scape goat, but eBay management was the one with a finger on the button.

    Most fortune 500 companies have no idea how to use management consultants. I’ve always been a proponent of some kind of central control over all consulting engagements in a company, but very few companies have done something like that

  18. If the whole Web 2.0 means anything, it tells us there is “strength in numbers.” Google is huge, but a combination of eBay and friends can potentially isolate Google in a preemptive way. A partnership like that plays to the strenghts of both eBay and Yahoo!.

  19. Intelligence is overrated; I love it. Distinction being that companies that hire plane refuelers are probably in need of slightly different skill sets than those that write software.

    Also companies that are run like monarchies behave like monarchies. The more compliant the employees the better. I love the Southwest argument as well…tenure is a better system than performance. Wow.

  20. By the way, since this thread is about Google, Yahoo!, and ebay, we might as well point out that Google’s founders are “talents” from Stanford, Yahoo! was also founded by “talents” from Stanford, and Jeff Skoll at ebay came from Stanford GSB.

    As Stu mentioned, might be prudent to look at both sides, although that rarely makes for interesting print.

  21. Vinnie Mirchandani Friday, April 21, 2006

    on McKinsey and tech you may find this interesting

    http://dealarchitect.typepad.com/dealarchitect/2006/03/mckinseyand_te.html

  22. Francesco Cardi Sunday, April 23, 2006

    I was working for years for a top management consulting company, and I can confirm that this kind of consultancies usually fail when trying to crack down strategy issues in innovative, fast changing industries as Internet. I see two main reasons for that:

    a) General conservative attitude, no orientation to innovation

    The top management consulting approach is generally highly analytical and structured. But innovation happens in unforeseeable, not linear ways. As much as you are smart analysing the past and the present trying to forecast the future, you don’t visualize disruptive changes. This is something you grab with intuition, not with analyses.

    b) Lack of specialists in the organization

    Innovative industries don’t usually generate a stable stream of projects. That´s why you don’t find in top management consultancies people specialized in innovative industries. This is something for venture capitalists and entrepreneurs. Think as a partner of a consulting company who wants to make millions of dollars per year out of managers and consultants. Would you keep resources idle getting up to speed in a new industry, waiting for one project each x months, or staff them as much as possible in many different projects, making them generalists? Sure, today Internet is a big industry, generating many projects to consulting companies, but in 2003, after the 2000 melt down, it wasn’t clearly the case.

    I tend to discard another potential reason mentioned by other readers of the blog, that sometimes the studies commissioned to management consultants are biased by client expectations. You are a CEO or a top director of a multi-billion company, and you are not paying someone to write down what you already know, especially if you are paying millions of dollars for a 3-4 months study to McKinsey. Also, to be fair with McKinsey, I’m sure they are not easily “biasable” too.

  23. What does this mean for the end user? Nothing as far as I can tell. I only care if Ebay goes away, because there goes a way to buy neat stuff. Search != auction, guys. Google’s big, but their success rate is spotty. Bore me later…

  24. The main problem of eBay is that it never saw itself as a technology Company, but as a Community Trading Company.

    Thus product development is slow, product managers work on micro chunk features nobody cares about (à la Microsoft Word), innovation is barely exisiting (apart from PayPal) and eBay is barely using the enormous collection of data it gets (for segmentation purpose etc…).
    When you think about the lost opportunity of an easy to use eBay Mobile.
    And I am not mentionning the bozo explosion (quoting Mr Kawasaki) inside with all these MBA 5 year consulting coming to eBay to discover operational work :-)

    That said, I think ebay still has strong traction among Mom and Pop shops, low tech America, Germany, France, UK…

  25. A student of history will know:

    1. eBay would be crazy to align itself with Microsoft, because Microsoft has shown time and time again, it cannot be trusted. It has a consuming passion to look after itself, and at the appropriate time would cast eBay aside once it had achieved critical mass of its own.

    2. Microsoft attained its market dominance by anti-competitive (that means illegal) tactics.

    3. After being found guilty of anti-competitive behavior by the U.S. Government in 2001, it promised to ‘change’.

    4. We are still waiting for that change. Microsoft continues to act strenuously to kill open standards and time and time again has partnered with companies, only to later cast them aside, broken and irrelevant.

    5. eBay has done the world a great service. Sure there are areas where it can improve, but overall, it achieved what it has achieved by hard honest work. Let’s hope it chooses any future partners based on a strategic perspective (that includes knowing history).

  26. Meg Whitman, eBay CEO, was for several years a corporate strategy consultant herself, at what was then and is today one of McKinsey’s main competitors (Bain & Company).

  27. fred flinstone Sunday, May 14, 2006

    I think the major concern of all of the readers in this blog,isnt so much about McKensey factors,Ebay,or Google.
    The biggest threat of course is the telecommunications companies,such as AT&T,Time Warner,etc.
    As they currently are in possesion of most of the communications lines that transferrs all the data over the internet.
    They have also recently been testing,and planning perhapes should I say contriving the means of controlling what data is going to be processed,whether a page will be made available or not,as an example if Ebay is a good customer of AT&T,then the data associated with Ebay will be available at (should I say?)blazing speeds,while other smaller competitor’s data will either be slow,or unavailable.
    All to the benefits of the corporate giants.
    Unfortunanly what this will do is allow the companies to create censorship of the free media information,and make their parteners and themselves wealthier,while creating antio-trust in the likes weve never seen before.
    Of course all those law suites will most likely not succeed primarily because of the lack of laws that prevent the corporate giants from stopping competition.
    There has to be an equal balance in a free market place,placing a partner with an advantage over other competitors whom ultimatly cannot win the highest bid,is anti-trust,but sadly not regulated.

  28. If I hire business consultanting firm, I will only get facts from them, not the opinions.

  29. hmmm.. interesting that mckinsey is howing such blunders. come to think of it, since IBM is having its consultancy arm, how would you think it affect the business of mckinsey?

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    [...] In McKinsey We Trust.. oh oh [...]

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