Why eBay Should Consider Breaking Itself Up

38 Comments

Nearly five years into a steady buying binge, eBay (s 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 (s iaci): 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 (s tktm), and a company like Microsoft (s msft) 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

38 Comments

Darren

As a UK powerseller, albeit on a fairly modest scale, I agree Ebay is imploding and it’s alarming downturn is completely self imposed. The obvious sideways shift towards an Amazonian style future is so powerfully felt by small “Ma & Pa” sellers such as I (although actually I’m netheir) I hardly have the strength after this weeks battles with my retailing “partner” to strike the keyboard. I used to enjoy the Ebay selling experience, my customers I believe enjoyed it too, now I suspect neither of us are itching to get jiggy with Ebay, the fun ebbed away a long time ago.

As for Ebay’s future vision, I wonder if the suits have really thought through the synergy that such recent M & A’s provide, rather just feathers in the caps of those who can say “let’s buy that one”, “no, that one, it’s more expensive, we can afford it, it must be better”. Mr. Donahoe has a huge wake-up call coming to him, becasue whilst the synergies weren’t working out “Ma & Pa” left to search for other options. He will learn but it will be too late. Never mind, when he’s gone, which will innevitably happen when the shareholders have run out of patience, he can always make a modest income selling on Ebay. Damn, no he won’t be able to by then. I wonder how his peformance feedback would read? I doubt he’ll be considered a Powerseller, do you?

Joe

Ebay has really transitioned itself into a crappy company and a crappy place to sell. As a powerseller with multiple stores and lots of sales, eBay seems to have created an ‘inconvenience the sellers for the convenience of eBay’ atmosphere. I’ve had enough of the triple dipping for fees, fee to list, fee for the sale and a fee to receive my money. We are transitioning to Bonanzle, which has not produced much for sales yet but remains hopeful. Unfortunately for eBay, they like a lot of other companies cannot see the poop on the end of their nose until its too late. As time goes on, I’m sure they will re-emerge as a smaller, better company, but they cannot ever become who they once were or want to be.

Alex

With Ebay changing it’s policies and chasing away the small sellers they are going to self destruct anyway,so yes,,break up is imminent!
Thousands upon thousands of sellers are migrating to other online auction sites like Bonanzle and they are just waiting for the buyers to realize the shift.
But it is happening,and much like a small leak in a damm it will wash away all before it.
I say it’s high time someone else took over the rains, after all,,this is the Obama era now and greed is on the run!!

Former Ebay seller

What everyone needs to be concerned with is an implosion at Ebay. At some point and time,the infrastructure is going to collapse with the weight of greed and indifference that the Company has. You cannot treat customers (both buyers & sellers) poorly and expect them to be retained. In this economy Ebay should be bending over backwards to appease sellers and help give buyers better deals through the site. It will look like a Wall Street debacle when it happens.

JMHO

ol' yeller

@monica and @kevin

thanks for the respectful responses, but i don’t think it’s a pointless public rant.

in fact, the term was invented to describe the illness. see wikipedia. i’d argue that usage for split personality is simply out of insensitivity and lack of education on the issue.

again, do you use the word ‘retarded’ in business articles? would it be appropriate to? think about it.

i actually don’t find use of the schizo-word offensive, but i do find it hypocritical that it’s OK to say ‘schizo’ while ‘retarded’ is considered offensive or insensitive.

Monica

@yeller… if we call your comment lame, is that offensive to people suffering from ambulatory handicap? if we say that the author is blind to your perspective, is that an insult to the visually-impaired? and fyi, companies are often referred to as ‘bloated’ or ‘sick’, so do you plan to take issue with all such references.

I appreciate your concern for others and I’m sorry if someone close to you is suffering from schizophrenia, but please don’t use this personal tragedy as an excuse for pointless public rants.

Kevin Kelleher

@yeller. Actually, I have known someone with schizophrenia for many years, and so I know how hard it can be for her and how devastating it can be on the people who love and care for her. I also know they wouldn’t mind my use of the word here because “schizophrenia” has two, separate meanings in English. One is the disease, and one is a synonym for “split-personality” with has little if anything to do with the disease itself. Most dictionaries acknowledge this (http://www.merriam-webster.com/dictionary/schizophrenic).

I also know some people suffering from depression, and none of them are offended by all this talk of an economic depression.

Kevin Kelleher

@Patricia: Thanks for your comment. As a contributor, I don’t choose what comments get posted and which don’t or when they are posted, but I do know that there can sometimes be a lag in the time when a comment is left and it finally shows up. It’s all managed with the best of intentions.

S Stephens

There certainly can be said to be economies of scale in making and putting together larger products
Still the beauty of the internet , ecommerce and now open source is that small startups can enter the market , quickly and nimbly
The other side of the coin is that organizations can get too big for their own good – and everyone elses
Ebay somehow took off
The management is a legend in their own mind
Somehow no real competition has emerged
Its the emperor’s clothes scenario – only worse than Vista itself
Management must play movies to the staff that we are ebay you are ebay – you and ebay can never do any harm or bad what so ever
Customers should be glad that the creator of the earth has allowed them to speak ( or at least interact ) with us
Go to the customer or security areas with a real problem or concern
There is nothing that can actually relate to any real customer except for issues of avoiding ebay fees or report seller ( those who pay the ebay fees) here for what ever or for high shipping fees
Ebay will most likely morph into a financial site – similar to the automakers becoming a reason for GMAC or whatever to finance a product
For sellers its like waking up one morning and asking yourself is it really worth the drive since the price of gas has gone up

ol' yeller

please don’t use the term schizophrenic when describing a company. it’s a serious disease, not a clever comment to make about poor leadership. how about using the word capricious instead?

last time i checked we don’t approve of publicly calling a company or a person obese, amputated, retarded, a walking heart attack, riddled by IEDs, hypertensive, alcoholic, crack-addled, midget like, downs-like intelligence, and so on do we? many people with serious conditions would be rightfully offended.

if you knew anyone with serious or even moderate schizophrenia, i don’t think you or the rest of the gigaom staff would use that word so flippantly. second time and counting…

Richard

‘please don’t use the term schizophrenic when describing a company. it’s a serious disease, not a clever comment to make about poor leadership.’ – The hand-wringing, pity party gang has arrived. Once you start off like that, the rest of what you have to say hardly matters.

Catch Up

Dave, the top managerial and technical talent left eBay a long time ago.

SpungeBOB

eBay is group of cheaters created for cheaters. It will rain good they day it is decommissioned.

John

Sure ebay’s various businesses don’t have synergy.

But that’s not any different from most other big Internet firms.

Take Google. Is there any synergy between search advertising, social network (Orkut), video hosting (YouTube), and online productivity apps (Google Apps)?? None at all.

Or Amazon. Any synergy between selling books and cloud computing? Again none whatsoever.

Yet I don’t hear youu calling for the breakup og Google or Amazon.

Art

Ebay’s fees are ridiculous and using the site is an exercise in nickel-and-dime torture. I used to run an Ebay store through them and their level of greed was embarrassing and disappointing.

I left and never looked back. Craigslist takes longer to sell stuff, but it’s free, even though partly owned by Ebay.

Arie

Well, i tend to agree with the first assumption of beg to differ with the rest your argument.
if “revenue rose 12 percent at PayPal and 26 percent at Skype.”
then why should eBay sell this money cow ?

i not sure if the details are accurate. i think that the financial details are diffrent and/or needs to be seen in deeper insight.

Thanks

Richard D.

Communication and micro-payments are the future. Let eBay fade into the backdrop and push Skype and PayPal to the forefront. Put your R&D there, buy Twitter, and build a strong business model that can support any of the other subsidiaries.

rivercity

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

John Howard

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.

dave

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)

Patricia013

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!

Jeff

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.

Screen Sleuth

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.

Nate Nead

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.

Patricia013

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!

Corrupted Mind

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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