But, in today’s digital, wide-open world of warp-speed innovation, disruption and fierce competitive races to preemptively establish dominant positions, even front-runner Amazon has to be on ready alert. And the disruptive noise is coming from a recent victim of disruption itself that has since been revitalized: eBay, who is emerging as a “disruptor” in its own right.
I choose eBay, because I beIieve its relatively new CEO, John Donahoe (who took the helm in 2007), has a similar view of his business model as does Jeff Bezos for Amazon. Neither is limited to the confines of traditionally defined “retailing” (or even more so for eBay as simply an auction house). But rather each of them professes to an unlimited scope of being a “marketplace” that provides a “real estate” and distribution platform for any or all sellers and buyers around the world, providing all support services necessary to pursue and complete transactions, including the delivery of the value to the end consumer.
Of course, at roughly $12 billion in annual revenues, eBay has to be considered a distant challenger to Amazon’s nearly $50 billion. But, the real world corollary between distance and time is not in the lexicon of the cyber-world. That’s why Jeff Bezos’ Amazon mantra from “day one” has been, “get big fast” (read: preempt all competitors to the number-one position). Well, maybe he should tweak his mantra to read: “get bigger faster.”
Granted, Amazon has grown 300% since 2006, and now has an over 20% share of total worldwide e-commerce traffic. So, the question becomes: can it sustain that kind of blistering growth as it gets ever larger? And, even if Amazon slows down, eBay’s turn-around is in its embryonic phase, so it’s impossible at this point to predict any growth rate scenario that would put them within striking distance of Amazon any time soon.
From Acceleration to Deceleration to a Recession “Not Wasted”
EBay was founded in 1995 as an online auction platform, or an online “flea market” as some called it, by Pierre Omidyar, a French-born programmer who was inspired by his wife’s interest in collecting Pez candy dispensers.
Meg Whitman was hired and appointed CEO in 1998 (formerly a Disney and Bain & Co. top executive). And she stepped on the accelerator. In six months she took eBay public at an initial market value of $700 million (which sounds small by some of today’s multi-billion dollar IPO’s). By 2007, it had a value of $46 billion with revenues of close to $7 billion. Between 2000 and 2004, revenues were rising at the blistering rate of 77% a year, fueled by acquisitions and aggressive global expansion.
By 2004, the stock had soared to a high of $58 a share. And then, deceleration; in January of 2005, eBay announced the first quarter in which its revenues rose less than 50% over the prior year. By the first quarter of 2007, revenues grew a relatively meager 27%.
A big part of the decelerating growth could be attributed to the increasing competition in the online auction space: Yahoo had built a more comprehensive retail offering; of course Amazon by then no longer just a book store, was selling everything from designer apparel to electronic devices; and Google was also advancing their platform for businesses to buy ads and sell products for free. And, today, all three offer competing auction platforms and online payment services.
And on top of a decline in listings, eBay began to detect “questionable” listings. For example, a buyer might have bid and bought an item for $1, to find out they owed $200 in shipping fees. Bidders and buyers were also being targeted by sellers for fake “second chance” offers. And on the sellers’ side, they were complaining of higher fees. EBay’s rating integrity was also coming into question, and its search engine for users to sort through its more than two million products was in need of an upgrade. In fact, some experts referred to eBay’s site as chaotic.
So, by the time Whitman left in late 2007, mounting competition and maturity were pressing down on the online auction business, eBay sellers and buyers were unhappy, growth was decelerating, and its stock was in decline. Enter John Donahoe on the cusp of the Great Recession. As I was embedded in Wall Street at the time, I began to sense the telltale signs of the looming apocalypse. And whether or not John saw the signs as he took the helm at eBay, he certainly did not let the oncoming recession go to “waste.”
It was to be a time of stabilizing the decelerating growth rate, revitalizing the core businesses, including a “cleansing” and greater discipline, control and transparency in the buying and selling operation; and the development of newgrowth engines for eBay—all designed to re-accelerate eBay’s trajectory.
From “Disruptee to Disruptor”
As he waded into the daunting task, which was certainly heightened by the distraction of a recession, Donahoe was recently quoted by Bloomberg News: “One of the unique things about the Internet is a company can be a white-hot success and become a global brand and reach global scale in just a few years—that’s the good news, but then somebody can turn around and do it to you. There’s constant disruption. One of the first things I had to do here was face reality. EBay was getting disrupted.”
Well, here we are, about four years hence, with Donahoe having greatly succeeded in stabilizing, revitalizing and developing new growth engines, even as growth continued to decelerate through 2009 and their stock price dropped to $10 a share, down over 80% from its peak.
Nevertheless, Donahoe’s moves during this period resulted in revenues growing from about $7.6 billion when he took over to nearly $12 billion in 2011, with its stock price climbing back to almost $50 a share, and his new growth strategies are starting to kick in.
Of note, one of Donahoe’s first priorities in revitalizing the core business was to transform its “chaotic” website for both buyers and sellers. He developed a fee structure that favored those sellers with higher volumes and better ratings. And, for buyers, he invested in upgrading eBay’s search engine for better sorting through its 200 million products, including the ability to more quickly identify the higher rated offerings. The feature implemented a ranking system that took into account time remaining, feedback scores, quality of listing pictures, and other criteria. He also performed a complete design overhaul to provide easier access for buyers which also gave product categories a custom look, rather than its earlier more generic design. Indeed, eBay is poised once again to be a powerful disrupting force in the global marketplace.
A Snapshot in Real Time
Currently, eBay’s revenues are driven by its three main operating segments: Marketplaces, Payments and recently acquired GSI Commerce, each contribut-ing about $6.6, $4.4 and $.7 billion respectively to 2011 revenues. Market-places includes the original eBay.com auction site and some 300 million listings, along with Shopping.com, Half.com and the StubHub ticketing business. It also has a worldwide “classifieds” business, a part of which includes Craigslist. The Payments business primarily consists of the PayPal operations, including a collaboration with Discover Financial services, Bill Me Later (a deferred payments service), and recently acquired payments provider, Zong. And GSI Commerce (acquired in 2011) expands eBay’s ability to partner with major retailers (outlined below).
EBay trades about $2,000 worth of goods every second and has about 100 million active users doing transactions, millions of merchants using one or more of its platforms, and a developer community with more than 800,000 members using its API’s. While the original auction model transactions were primarily of second-hand items, today 70% of the items are new. Also, over 50% of its business is done outside of the U.S., with a major presence in 40 countries.
eBay Bets Heavy on Mobile
Perhaps the most significant win for Donahoe arising out of his growth strategies was his big bet on mobile retailing, which he stated, “… continues to be a game-changer.” The “bet” on mobile’s future dominance is focused on redesigning and adding enhancements to its website to compel mobile shoppers to make eBay their destination of choice. Perhaps more significantly, eBay’s PayPal business as the leader in facilitating safe and secure mobile payments, provided another competitive advantage to their enhanced site with its one-click payment capability. PayPal also has more active accounts than Discover and American Express and is accepted by more than 60 of the top 100 online retailers in the U.S., including Walmart, Hewlett-Packard and Home Depot, among others.
EBay is also able to offer users the ability to fund their accounts through their mobile phones, a feature made possible by eBay’s 2011 acquisition of Zong, a cell phone payments provider. And eBay’s acquisition of Critical Path in 2010 gives it mobile app development expertise. As Donahoe said: “We thought they were the best, so we bought them and got a couple hundred of the best software developers in the world working exclusively for us.” This kind of focus on innovation is bound to sustain eBay’s leadership in the mobile commerce space. For example, they have recently released a global payment system called PayPal Here that is a more flexible and comprehensive alternative to the popular Square mobile payment technology.
Donahoe largely attributes eBay’s 2012 third-quarter stellar results to his early bet on mobile. Net income surged 22% over the year earlier quarter to $597 million and revenue rose 15% to $3.4 billion. And, within those numbers, PayPal contributed $1.37 billion, a 23% increase over the year ago quarter, and Donahoe predicts at that rate PayPal will surpass its core Marketplaces revenues in three to five years.
Of the overall mobile business he was quoted, “We’re the largest mobile commerce and payments provider in the world.” EBay’s mobile apps have been downloaded over 90 million times around the globe, and sellers are now posting two million items per week from their smartphones, and during the quarter, over 600,000 new users made their first eBay purchase from a smartphone. According to Donahoe, “A woman’s handbag is purchased on eBay mobile every 30 seconds.” And, he went on to say, “Mobile is revolutionizing how people shop and pay.”
Amazon in the “Cross Hairs”?
In addition to Donahoe’s bet on mobile and investment in a stream of innovative enhancements, which according to many experts, moved eBay ahead of Amazon, he likely had Amazon in his “cross-hairs” with his acquisition of GSI Commerce in 2011 for an astounding $2.4 billion.
Even though a small part of eBay’s total revenues, at 5% or about $700 million in 2011, GSI Commerce provides another growth engine, ultimately scalable to a position directly competitive with Amazon.
GSI will not only enhance eBay’s Marketplaces business through its e-commerce and interactive marketing services, it also extends eBay’s relationships with major brands and retailers, including Toys “R” Us, Aeropostale, Kenneth Cole, Adidas, Calvin Klein and others. These collaborations are now possible with GSI’s capabilities in website development and maintenance, order fulfillment, customer service functions, and online marketing campaigns, among other functions.
And, by the way, another big advantage for eBay over Amazon is its highly supportive and collaborative commitment to these major brands. Amazon has a reputation of identifying hot products being sold by various of its retail and brand customers which it then sources, promotes and sells for itself at lower prices, essentially competing with its customers.
And, in another swipe at Amazon, eBay is currently testing a new mobile app called eBay Now. You got it, if you think it sounds a lot like Amazon Prime (offering unlimited free two-day shipping for $79 a year). In San Francisco, eBay’s test market, they allow customers to buy products from Target, Macy’s and Walgreens using their phones and having them delivered the very same day.
Race to Out-Apple Apple? Preemptive Distribution, a Neurologically Addictive Experience and Value Chain Control
Finally, while Amazon is rumored to be opening a physical store in Seattle to test the sales and experience of its Kindles, books, and other electronic gadgetry
(inspired by Apple’s success), eBay has been opening physical “pop-up” stores, in London, New York and San Francisco, as well as several online. So far, they have been for special occasions, holidays in 2011, and some have been “tie-ins” with celebrities and designers during fashion weeks. Recently they opened a two-day pop-up in New York called eBay Selling Style Studio, where people can list stuff they want to sell on the site with eBay’s “Chic Squad” on hand to walk them through the process. I wonder if these pop-up shops are precursors to a larger strategy to launch permanent retail stores (or “showrooms”) carrying local market product preferences that can be ordered and paid for on the spot via smartphones. Given Apple’s success as an ”e-player” crossing into the physical space, along with the proven fact that consumers who shop in both the digital and physical stores spend over 50% more than those shopping just one channel, my prediction, given Donahoe’s obvious vision for eBay, is that these pop-ups are just a warm up to the main event.
Furthermore, and as written in my co-authored book with Michael Dart: The New Rules of Retail, and in recent articles in The Robin Report, one of the “new rules” for all consumer-facing businesses is the necessity to operate on all possible distribution platforms to be able to preemptively distribute (ahead of competitors) one’s value to consumers wherever, whenever and however they want to purchase. E-commerce alone cannot achieve such preemptive distribution. Another “new rule” which favors physical stores over digital, is the necessity to provide a unique shopping experience, a compelling enough experience to neurologically connect with consumers, so that they will go out of their way to return again and again (ie. Apple, Starbuck’s, Lululemon, and others). And, the final rule, without which preemptive distribution and a neurologically “addictive” experience are impossible to achieve, is that a brand or retailer must have maximum control over their value chain.
So, with a “drum roll,” my opinion is that even though eBay is roughly “five lengths” behind Amazon, (at one-fifth its size), given John Donahoe’s strategic moves and vision, not the least of which was his “bet” on mobile (including the PayPal advantage and other innovations), all of which makes eBay the leader in that space, and now with the GSI Commerce capabilities, I believe eBay is indeed, poised to break out of the pack, accelerate its pace and to press heavily on Amazon’s lead.
In fact “getting bigger faster” may end up being eBay’s well-earned mantra, as they transform from being a “disruptee” to a “disruptor.”