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Summary:

Nearly five years into a steady buying binge, eBay is looking bloated, unfocused and schizophrenic. eBay owns well over 100 subsidiaries, some of which were built in-house. But many are acquisitions that have been crammed into the parent company like those Tokyo train conductors at rush […]

Nearly five years into a steady buying binge, eBay is looking bloated, unfocused and schizophrenic. eBay owns well over 100 subsidiaries, some of which were built in-house. But many are acquisitions that have been crammed into the parent company like those Tokyo train conductors at rush hour.

And where has it all left eBay? In a blur. eBay is an auction site painfully morphing into a direct sales site, with an online payment system that supports the e-commerce sites if you push it hard enough, a bunch of scattered classified sites, one that sells tickets, one that finds apartment rentals, and a software that lets you make phone calls online.

Got that?

It’s the same mistake Barry Diller made with IAC: Lash together a bunch of intriguing e-commerce models and hope they gel. But they never do. And so you end up spending money on building a bunch of not-quite-related brands, only without much return because none of them really stand out.

After buying Skype in 2005, then-CEO Meg Whitman said the deal put eBay at the intersection of e-commerce and communication. Three years later, it still isn’t clear what that means. eBay sellers, for example, didn’t want buyers making free, time-eating calls to discuss their orders. Skype has since grown, but what exactly is it doing in eBay? How is Rent.com helping Stubhub, or PayPal helping Kijiji? What are MeetUp and StumbleUpon doing in there at all? If there’s synergy at work, it’s awfully weak.

Diller finally realized he’d have to spin off IAC into several companies, and it’s time eBay consider the same. John Donahoe, eBay’s current CEO, said last month, “We have a powerful portfolio; one that, I frankly believe, is not fully credited in the value of the company.” He’s absolutely right. In fact, the value of the portfolio pieces would be more apparent if the portfolio was broken up.

Not all the recent acquisitions have been misfits. Some of them, like last year’s purchases of Fraud Sciences for $169 million and Bill Me Later for $820 million, both of which are being rolled into PayPal, made good sense (although it’s too bad eBay didn’t wait a little longer to get better prices).

Others need to be sold off or spun out. Om has discussed the merits of spinning off Skype. Stubhub.com would be more at home at Ticketmaster, and a company like Microsoft could make good use of StumbleUpon. But these companies, like everyone else, are in no mood to buy, so well-timed spin-offs may be the best option.

The stock market is still volatile, and likely to slump further in coming months. But breaking up eBay once it’s stabilized could leave the company with large ownership stakes in entities that are doing well even in the downturn. Stubhub’s revenue rose 54 percent last year, and classified revenue was up 57 percent (48 percent in the last quarter).

There is one way that these Balkanized subsidiaries help eBay right now — they shore up the shrinking revenue on the flagship e-commerce site, which fell 18 percent last quarter from the year-ago period. Meanwhile, revenue rose 12 percent at PayPal and 26 percent at Skype.

eBay’s shopping spree over the last several years has masked slowing growth (and now declining revenue) at the original auction and e-commerce site. So it’s clinging onto healthier business units like a life raft — but it’s also holding many of them back from their potential.

ebay_revenue_growth_year_on_year

  1. I also agree with you, either ebay should restructure their operation or follow the steps provided by you.

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  2. I disagree. The measures you propose will create short term gain for a few shareholders and a few well placed executives but long term ebay will continue to be faced by the problem it faced when it made the acquisitions in the first place (i.e. how do I grow/build the company? what acquisitions will make us stronger?) More importantly, I disagree with the argument that these subsidiaries can’t be made to make the “whole” sronger… I just question whether ebay has really succeeded in leveraging the talent it obviously has amongst all the groups.

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  3. Ebay’s auction business isn’t declining….Ebay is purposely KILLING it! Any veteran seller who has had to pick up his marbles and go elsewhere can tell you that. Ebay is slowly chasing out the smaller sellers so that it can mold itself into a cheap Amazon clone. Donahoe feels the floodgates will magically open and Amazon buyers will flood his site. I’d like to have dreams like that but I’m a realist. Ebay will not take ONE Amazon buyer away nor will it attract ONE new buyer. Its a nest of outrageous policies, a search that is narrowed down to what Ebay wants you to see and thousands upon thousands of dropshipped junk listed by the likes of buy.com….one of Ebay’s pet diamond sellers! Add to that the “noise” from irate small sellers run out of business or who are smothered in the “new” search so their wares cannot be seen…and you’ve got the “new” Ebay!!! The trouble with Ebay’s business IS EBAY! When Donahoe figures out what he wants Ebay to be when it grows up…then things might change but right now its like the funhouse at your neighborhood carnival….only it is NO LONGER FUN!

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  4. Agreed. Just what is the company’s “core competency” now? It’s certainly doesn’t stand out, which would be a concern for me if I was working for the company.

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  5. What EBay really should do (to become an actual auction site again) is to lower fees to reasonable levels, be more responsive to the non “power-sellers”, and retract some of really clueless feedback policies they’ve adopted of late. That would bring them back to their “core competency”, or what it really should be anyway.

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  6. I would agree with you, Ebay should refocus although some of the companies they acquired made sense back then, didn’t fully help Ebay to become stronger. Some of technologies have been poorly integrated to their business models. Not mentioning some of the cost they spent for it.

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  7. Whatsamatter….to true to print?

    Ebay’s auction business isn’t declining….Ebay is purposely KILLING it! Any veteran seller who has had to pick up his marbles and go elsewhere can tell you that. Ebay is slowly chasing out the smaller sellers so that it can mold itself into a cheap Amazon clone. Donahoe feels the floodgates will magically open and Amazon buyers will flood his site. I’d like to have dreams like that but I’m a realist. Ebay will not take ONE Amazon buyer away nor will it attract ONE new buyer. Its a nest of outrageous policies, a search that is narrowed down to what Ebay wants you to see and thousands upon thousands of dropshipped junk listed by the likes of buy.com….one of Ebay’s pet diamond sellers! Add to that the “noise” from irate small sellers run out of business or who are smothered in the “new” search so their wares cannot be seen…and you’ve got the “new” Ebay!!! The trouble with Ebay’s business IS EBAY! When Donahoe figures out what he wants Ebay to be when it grows up…then things might change but right now its like the funhouse at your neighborhood carnival….only it is NO LONGER FUN!

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  8. excellent article – and i completely agree….one critical bonus to a well designed dismantling: new equity and ownership incentives to retain top technical and managerial talent – if i were ebay, that’s what i’d be worried about right (mass defections, brain drain, something large enough to impede real dynamic change within the existing organization)

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  9. Each time ebay or Paypal raises its rates it knocks off another tier of sellers whose profit margins won’t cover them. Each time ebay changes introduces placement promotions that put new sellers ahead of existing sellers it knocks off another tier of veteran sellers whose patience expires. Each time ebay cavalierly suspends a seller who did nothing wrong it loses more sellers because they begin search for, and find, other outlets. AND EACH TIME EBAY MAKES A POLICY OR PRICE CHANGE IT INTRODUCES MORE UNCERTAINTY AND LOSES MORE SELLERS. In the parlance of wall street – ebay has “tipped over” because it keeps pursuing short-term fixes to its revenues and listing metrics that hurt it medium and long term prospects. What’s astonishing is that ebay and Paypal do not seem to realize who their customers are – the sellers who buy its services and pay its fees. Ebay seems to arrogantly think its customers have no other options. Reminds me of Pan Am and TWA Airlines who once had a lock on certain markets.

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  10. I completely agree with you. Where is the core competency? Are they trying to become GE of internet or a holding company?

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