eBay's Turnaround Is in Jeopardy — What Now?

What happens when your turnaround takes an about-face? eBay CEO John Donahoe may find out the answer to that question if he isn’t careful. Although Donahoe has been implementing a lot of changes aimed at driving new business in the company’s core marketplace division, it’s looking like he needs to come up with some additional ways to bring consumers and sellers back to the site.

Next Wednesday, eBay is expected to report its financial results for the last three months of 2009, which includes the holiday season. The results aren’t likely to be as bad as a year ago — when Donahoe had to apologize to investors for a disappointing performance – but also aren’t likely to be as impressive as you’d expect when a turnaround is working. Analysts are looking for an incremental rise in both revenue and profit.

Perhaps eBay’s efforts to repair its business have been too focused on impressing investors. True, eBay’s stock is up 67 percent in the past year. But the company isn’t doing well with either consumers or buyers — who, unlike investors, actually contribute to its revenue. When Piper Jaffray asked consumers last month which site had the best shopping experience, only 13 percent said eBay, down from 27 percent in March 2009. Another 65 percent said Amazon was the best, up from a prior 36 percent.

Amazon is also appealing to eBay’s key customers, the PowerSellers. When JP Morgan surveyed them, 54 percent had a negative opinion of eBay, while 69 percent viewed Amazon positively. Even worse, PowerSellers sold 56 percent of their goods on eBay last year, down from 65 percent in 2008. In short, all that tinkering with eBay’s marketplace isn’t reversing the flow of buyers and sellers from eBay to Amazon.

So what’s it going to take to return an allure to eBay’s site? There aren’t a lot of appealing options. But it could start by reaching out to its most vocal critics. The comments section of many articles and blog posts concerning eBay (including some here) blossom with angry rants from disenchanted, often alienated eBay sellers.

eBay’s stance has long been to dismiss them as a vocal minority, which worked for a while. But the web is a mighty bullhorn amplifying the complaints of the disenchanted — whether you agree with their complaints or not. After a while it taints the brand in the eyes of others, as companies that have set up fire brigades to extinguish complaints on Twitter have learned all too well.

To win back more consumers, eBay can also go head-to-head with Amazon at its own game: heavy discounting. Part of the appeal of the auction-driven commerce that eBay has moved away from was that it held the promise of a bargain price. Now that eBay is pushing the fixed-price format, many consumers don’t see much of a difference between eBay and Amazon — except that Amazon has a stronger image as a trusted clearinghouse for low-priced goods.

Often, many sellers offer the same item on eBay with no difference in their buy-it-now prices. eBay could encourage deeper discounts by placing them higher in search results or in featured listings. The company could also renew its image as a low-cost e-tailer with commercials that are more focused and less baffling that its “IT” campaign.

Of course, going up against Amazon on discounts isn’t easy, as Wal-Mart well knows. And a discount strategy could disappoint the same investors that eBay has been working so hard to impress. But if the company continues to lose market share to Amazon, it will have a bigger problem than irate shareholders. It will have a failed turnaround.

In-post image courtesy of Wikimedia Commons

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