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Summary:

In November 2004, eBay’s stock was trading near an all-time high at $56 a share, having risen sixfold in a little less than four years. This month, shares were trading below $10. eBay needs a fix, but there aren’t a lot of easy options before it.

I have a theory about eBay. Everything was going great for the company until that grilled-cheese sandwich came along.

In November 2004, eBay’s stock was trading near an all-time high at $56 a share, having risen sixfold in a little less than four years. Then an Internet casino paid $28,000 for the sandwich — supposedly with an image of the Virgin Mary on it — and within a month the stock and the company began a slow, irreversible decline. This month, shares were trading below $10. eBay needs a fix, but there aren’t a lot of easy options before it.

For their part, eBay executives recently spent several hours telling analysts how things would be different. CEO John Donahoe was forthright with the audience, admitting the company had fallen short of expectations and that this was “unacceptable.” He got a little defensive on Skype, saying he’s tired of apologizing for that deal. At times, he sounded like the Zen detective on NBC’s Life: “The eBay you knew is not the eBay of today or the eBay of the future.”

That means its time for another makeover for eBay — or at least for the e-commerce business that has always been the heart of the company.  Over the past few years, eBay tinkered with its robust auction bazaar to focus it more on an Amazon.com-ish fixed-price model and on its top sellers. The result was slower revenues and legions of angry, smaller sellers. Now, eBay is favoring an Overstock.com-ish focus on excess inventory. eBay’s supply chain won’t rely on home attics anymore, but instead on corporate warehouses.

Will it help? It’s almost certain to further alienate small sellers, although eBay seems content to cut them loose — the new, improved eBay is geared toward even bigger sellers. But I can’t help but wonder whether the company also knows it’s simply fading as beacon of e-commerce. eBay says its 2011 revenue from its marketplace business would be between $5 billion and $7 billion. That’s compared to $5.6 billion in 2008, so over three years, revenue could rise as much as 25 percent. Or it could fall as much as 11 percent.

Now compare that to PayPal. eBay’s payments division (dominated by PayPal) saw $2.4 billion in revenue last year. By 2011, the company expects revenue to be between $4 billion and $5 billion. Think about that for a second: In a couple of years, PayPal could be as big a business for eBay as eBay.com itself.

For several years, eBay has been two separate but related businesses. One of them, e-commerce, saw meteoric growth early on but matured very quickly. The other, PayPal, took years to ferment, but is positioned to deliver strong, steady growth for some time.

One of the most telling details of eBay’s analyst presentation was that it didn’t start off discussing eBay’s e-commerce business, but with PayPal’s. It could be a matter of time before it will make sense to change the company’s name to PayPal. Maybe then, it can shake off whatever ill-effects that grilled-cheese sandwich has been having on the company.

  1. Ebay’s success came from the little people…buying, selling and becoming a community. Buyers had their favorite sellers, sellers of worth had a following of buyers….and so the cycle of buying and selling goes. Back in 2004 they began to pare down the strength of auctions. First with the deletion of “Going, Going, Gone” and then the take over of feature plus auctions that single handedly dominated some categories, electronics, art, etc. Ebay at that point had begun to move away from auctions – undoubtedly Meg’s idea. The idea of Ebay Express was a stab at fixed price listings but was so poorly executed it was bound to fail. 2008, enter John Donahoe – Meg’s handgroomed replacement who began to put into place a half-baked plan that was probably cooked up by the two of them. Since then, Donahoe set buyers against sellers with his feedback and DSR innovations. He upset the balance of buyer/seller and, with his countless outrageous policies he made Ebay a hostile place for small sellers. Thousands of small sellers left…leaving their following unable to find what they were accustomed to buying on Ebay. Sellers who left never went back to buy either….then the disastrous 4th quarter holiday season report last year where Ebay declined 16 percent. Right then….John Donahoe and his team should have been fired and a team experienced in online sales AND customer satisfaction should have been brought in to replace them. At this point Donahoe is outright fishing…first he says they’re going to be the world’s biggest retailer then at his bright and shiny Analysts Day he claims he is not a retailer. Anyone who ate that pab wasn’t worthy of their job title. Clearly the wrong man is in the wrong job and a multi-billion dollar company and its customers (the SELLERS who pay the bills) are suffering!

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  2. As to eBay as a marketplace…. One minute they were the worlds biggest online marketplace. The next minute, the new CEO wanted to turn the site into Amazon Lite…results….buyers left the site in droves, sales declined, and sellers began to abandon the marketplace. Now the same CEO wants to change course yet again, and become a liquidator haven, remaining sellers are starting to think the exit door is looking better and better.

    As to eBay growth. Last quarter, the CEO stated that with the economy in a tailspin it would not be possible to make any future looking projections…results….. eBay stocks have recently dipped to the $9.00 range. Now, to try and sell his latest reincarnation plan, Donahoe can suddenly can project 3 years ahead, despite the fact that the economy continues to be in a deep recession.

    As to eBay users; Prior to announceing drastic changes in February 09, CEO Donahoe proclaimed that buyers and sellers that had voiced unhappiness over chaange at eBay were nothing but ‘noise’. This statement which Mr Donahoe has yet to publicly apologize for, still hangs in the air as a sign of how the companies leadership has become completely disconnected form eBay’s most important resource…it’s users.

    If eBay wants to have any chance of returning to it’s former glory, the company needs to sweep this CEO and most of his current team out the door.

    eBay has squandered goodwill among its members as it has managed to destroy the sense of community which was the foundation of eBay’s past success.

    Until a management team is in place that works to restore the shattered sense of community, any predictions of restoring eBay to previous levels of volume and success are delusional at best.

    When a company that was once a household word across the country alienates it’s users to the degree that current management has achieved, and continues a course of distancing themselves from their core users, it becomes obvious that company management is clueless and needs to be replaced.

    Under John Donahoe, eBay will continue to loose marketshare, while Amazon will grow and become the sector leader and a host of smaller venues gain stronger positions.

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    1. The Wise Bard Sunday, May 10, 2009

      Learn to spell “its” when used as a possessive!

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  3. Yep, good points on ebay predicting 3 years out quite happily, but no ideas on the next year or so, and analysts’ concerns with actual execution (with that team?). You’d think that good management could have grown the company while transforming it, instead they’ve managed to build up a negative branding to die for. Folks now, far from being loyal, want ebay to fail – takes real genius to create that.
    PAYPAL is the one bright spot in Ebay’s self generated panoply of disasters, but I’m pretty sure PAYPAL has done so well because Donahoe and company have been focussing on ruining Ebay – that jobs pretty well completed now, so onto other areas! Great! The black thumbs have arrived – I suspect we’ll see a ton of well-meant but misguided decisions on PAYPAL and it’ll join EBAY in its dive. No number of colorful PowerPoint ballons will be able to keep it up.

    So sad that EBAY nows sees itself as a great big tacky Liquidation World when it was so close to being a money spinning world-wide Christies or Sothebys. What limited little world did the management come from?

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  4. ONE OF EBAYS LOSES COMES FROM THE SHOOTING AND HUNTING PIBLIC. EBAY STOPPED
    SELLING EMPTY AND USED BRASS AND OTHER SHOOTING SUPPLIES. I LIKE TO TARGET SHOOT. I BOUGHT HUNDREDS OF DOLLARS OF BRASS AND BULLETS EACH YEAR. THE AMERICAN SOOTING PUBLIC IS A VERY CLOSE GROUP.THE WORD GETS AROUND QUICK
    AS WHO IS GOING TO PICKUP WHEN EBAY DECIDED NOT SELL THESE PRODUCTS.
    PERHAPS EBAY SHOULD TAKE ANOTHER LOOK AT THEIR DECISION. THEY MIGHT WANT TO
    TAKE A LOOK AT EBANG AND SEE HOW THIS COMPANY HAS GROWN IN THE LAST YEAR.
    THEY HAVE LOST MILLIONS FROM THE AMERICAN SHOOTERS HAVING TO CHANGE DEALERS.

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  5. I use eBay / Paypal as a last resort. Using either is pretty miserable. Compare user experience with eBay/Paypal with Amazon. Holy crap – it may not be possible to be any further apart.

    I have done a fair amount of biz on eBay (270+ feedbacks) but don’t like using eBay/Paypal, here’s why:

    1. scammers, scammers, scammers. Dealing with all the people trying to rip you off stinks.
    2. unpredictable delivery times – for the old eBay (used things are things that you couldn’t find anywhere else) not knowing when things were coming was fine. Trying to get something you need / want is quite frustrating. Again, compare purchasing on Amazon vs eBay (especially if you have Amazon Prime).
    3. customer service = worst service in the entire world. Have you ever tried dealing with Paypal? So frustrating – I don’t have the words.
    4. it’s annoying – the user experience is subpar. finding what you want and blocking out all the stuff you don’t is a drag
    5. auctions are a niche – a large niche but there is no reason that eBay should be able to grow, grow, grow. If eBay stayed true to auctions and did the best job they could, they would make money, users would happy and life would be grand. the need to deliver ever increasing returns has led mgmt to keep changing things up which has led to confusion and customer/vendor alienation.

    Did I mention how bad their customer service is. eBay – Bah!

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  6. are should be or in # 2

    2. unpredictable delivery times – for the old eBay (used things OR things that you couldn’t find anywhere else)

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  7. Fees are too high, the focus has left what made the site what it was: smaller/medium sellers. Big companies dumping excess stuff isn’t going to support the site (that’s what Overstock.com is for).

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  8. A headline from today:

    Rare Superman comic sells for $317,200

    Nope, not sold on ebay. No way would anyone put something like that up for auction on ebay. Not on the ebay of today. Not Mr. Donahoe’s ebay. No sir!

    Ask yourself why that is. (no ebay user need ask, naturally, they know the answer).

    Is it because auctions are “maturing”; perhaps fallen out of favor? The fact that that comic fetched over $300K, contradicts both of those premises.

    Ebay’s viability as an auction vehicle is at an all-time low. There’s your answer. But if it “sucks” at auctions, and auctions themselves don’t apparently “suck”, why is the World’s Auction Marketplace in such straits?

    Dumb question? Everyone knows that ebay has been transforming itself. OK, fair enough. BUT.. have we settled that question about auctions “maturing”? That’s one point.

    Point Two: would you willing transform a business that could conduct $300K deals, into one that conducts $$UNKNOWN$$ deals?

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  9. What is the forward looking view on acquired sites like Stub Hub? The founders sold the company to eBay, but did not sign a non compete – and have started a competitor in UK! Another ‘doh’ for management!

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  10. prior ebay seller Saturday, March 14, 2009

    eBay was quite a lovely phenomenon when honest sellers sold to honest buyers, selling their personal but unneeded treasures. However, like any good thing, the dishonest sellers and dishonesst buyers spoiled it all. I purchased and sold over 500 items on eBay and got scammed once. As a seller, it was easy to buy a little digital scale, and use the automated features of eBay, PayPal, and UPS, which all worked together seamlessly, with automated messages, delivery verifications, etc. It also worked when dishonest sellers received honest criticism about their nefarious ways of fraudulent commerce. But now, I really don’t know if eBay can survive when it trys to be a competitor to Amazon, etc. I liked it better when it was an online flea market, not an online BigLots.

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