Episode IV – A New Hope (for eBay) -or- How to Fix eBay? -or- Introducing eBay 2.0

February 23, 2009

Marketplaces ChannelAdvisor By ChannelAdvisor
This is the fourth and final (phew!) episode in a four-part series:
Episode I – Q408 in-depth analysis – available here with Q+A covered in an addendum (IA) (link)
Episode II – Introducing the ChannelAdvisor Ecommerce Framework (CEF) (link)
Episode III – eBay, Amazon and the CEF (I had to split it into to parts A (eBay) and B (amazon) )
Episode IV – How to fix eBay (you are here) – A NEW HOPE – Introducing eBay 2.0
Before we get started, I wanted to make a couple of editorial comments as I am alternatively accused of being either an eBay cheerleader/shill or an eBay hater depending on phases of the moon and what-not.  eBay is a small investor in ChannelAdvisor, they have no say/control/input in what we do, what I blog, say, etc..  eBay is very important to our customers as well as represents 10-100% of their ecommerce business.  All of that being said, my goal in writing this is three-fold:
  1. Educate the thousands of eBay sellers out there to what’s going on with eBay, with real solid data and not speculation or mud-slinging.
  2. I’ve been part of the eBay world since 1997 or earlier -first as a buyer and then as an entrepreneur in the eBay ecosystem with two companies.  For us ‘old timers’, we know that eBay had something special going and now its painful to watch it fall apart, slipping through everyone’s hands like sand.  Some folks in the press have drawn the comparison of the relationship between complaining sellers and eBay to be like that of an abusive relationship.  That may be a fair criticism, but the way I look at it is if you had some ideas to turn this thing around and it was important to you that eBay not crash and burn, you should do something about it. I’m as frustrated as everyone else, because I believe the strategy outlined here has been in front of them for 5yrs and they just don’t seem to either get it or be able to execute (or both).  eBay was something special, and can be again.
  3. I have a personal policy to never criticize something unless I also have a viable solution.  I am presenting here what I believe is a very viable solution for eBay to solve all of the problems that I harp on.
The fact that if eBay does pull out of the death spiral that it would be good for ChannelAdvisor’s business is icing on the cake for me as we’re prepared for the worst and we counsel our customers to do the same.  It’s also very painful to watch a good chunk of the millions of people that make a living or considerable secondary income go down with the ship in the last year.  I sincerely hope these folks can be brought back into the fold or at least find another way to supplement their income.  Part of eBay 2.0 is bringing them back as you will see.
Finally, the ideas in this post are a mixture of inputs from hundreds of eBay sellers, buyers that I meet in my travels and lots of internal discussions we have at ChannelAdvisor.  I also stay in touch with quite a few ex-eBayers and my thoughts have been shaped by many of the things they reveal about the inner workings and culture of eBay.  Some existing eBayers will talk about these concepts off the record as well and I’ve bounced many of the ideas off of them, but not the whole enchilada.  This is the first time I’ve put pen to paper to attempt to amalgamate all of the solutions into a cohesive vision I call eBay 2.0.  I’m excited to hear what everyone thinks and to hear your ideas of where I’m right, where I’m wrong and most importantly if you think this plan would save eBay.
This eBay 2.0 post is organised into the following sub-sections:
  • Background – Some of the rationale for why we need eBay 2.0 and how I got to my approach.  If I were pitching a venture capitalist on eBay 2.0, this would be the ‘market opportunity’ section.
  • The Pitch – eBay 2.0 – Introducing eBay 2.0 – the New Hope.  If I were to meet you for 5 minutes at a trade show, this is the quick ‘elevator pitch’ I would use to describe eBay 2.0.  Some would call this the executive summary.
  • eBay 2.0 – Foundational Changes – Some foundational things eBay would need to do ASAP to start down the path of eBay 2.0 and have a high probability of both doing it quickly and successfully.
  • eBay 2.0Meat and Potatoes – The details of what eBay 2.0 would look like, fees, etc.
  • eBay 2.0 Use Cases – In engineering we always act through a couple of ‘use cases’ to illustrate who our customer is and how our software will serve them.
  • eBay 2.0 and the CEF – Here we run eBay 2.0 through the CEF quickly to see how it fares.
  • Conclusion – it’s a wrap.

This is a long post. Fixing eBay won’t be easy and it’s worthy of some verbosity to make sure we get it right 😉

Background (or Market Opportunity)
If you’ve been reading along, I hope the following position statements are mostly review for you:
  • eBay has large scale, but is declining substantially while ecommerce and competitors like Amazon are growing.  This is due to Amazon’s out-execution on 5 important dimensions: selection, value, ease of use, trust and merchandising.
  • eBay is in a dire situation. Choose your metaphor – Rome is burning, the Titanic is sinking, death spiral, wings are off the plane, etc.  eBay must do something drastic within the next 6 months or as I showed in Episode I, they not only will be surpassed by Amazon, I believe their only option as a company will be to either split into pieces or sell to Microsoft or (long shot) google, Y!, etc.  Billions of dollars of shareholder value have been lost, more could be on the way if something isn’t done.  The time to act is now.  Analysis paralysis is not an option.  Mis-execution is not an option.
  • Ecommerce is a huge market and there is room for a healthy eBay and Amazon.
  • Amazon is on the precipice of becoming as powerful in ecommerce as Google is in search.  It’s healthy for them to have strong competition and for sellers to have two healthy options. We are not on that path.
  • eBay’s strategies of 2008 are not working and if they continue down the path of further ‘amazonification’, their problems will amplify vs. improving.  In other words, eBay can not beat Amazon at their own game, they will lose this battle.  I’m reminded of a quote from Jack Ma, CEO of TaoBao/Alibaba (eBay’s competitor in China who kicked their butt left and right and then kicked them completely out of the country) – “eBay is a shark in Pacific Ocean and Alibaba is a crocodile in the Yangtze River. Competition is not the same as a battle. In battles, one has to die, only must survive.”  The eBay shark is heading to the Amazon piranha, and it ain’t gonna be pretty.
  • Many insiders have told me off the record that eBay wants to fit a niche they see ‘in-between’ Amazon and Craigslist.  There’s even a much talked about secret twitter post that I’ve gotten multiple verifications is really from a distraught eBay VP.  I’m with this VP – this is a terrible strategy.  Why would you ever want to fit ‘in between’ something.  eBay should try to crush them?!  WTH?!  In my following eBay 2.0 strategy, eBay competes with Amazon by playing a bigger game, not a smaller game.  This ‘in-between’ strategy freaks me out because it’s like Circuit City trying to fit ‘in-between’ Wal-mart on the low end of electronics and Bestbuy on the higher end.  That worked really well for them, eh?  This is like saying: “Hey my strategy is to fit between a rock and hard-place – sound good? “

Given these realities, what should the strategy be?  Well, let me walk you through two opportunity areas that I think eBay has a closing window of opportunity to execute on as they are uniquely positioned to do so.  The first is the product lifecycle.

Opportunity – Product Lifecycle

If you recall in Episode I, I reviewed the long tail concept and how it relates to ecommerce and is strategic to driving ‘selection’.  Another way to look at ecommerce is the product lifecycle as illustrated in this graphic:
Episode4_graphic1
You can pick your favourite product and understand how it goes through this cycle.  I usually use ipods, laptops or digital cameras because most people have gotten caught up in the lifecycle in one of those categories. There are four sections to the product lifecycle:
  • Introduction/New – a product is new and just out.  When this happens, it usually pushes the predecessor product into the end of life bucket.
  • In-season – the product has been out for a while and is really hitting its stride. This is where most of the margins and sales come from.
  • End of life – The product is being replaced by a new product and is not leaving the market for the most part.
  • Liquidation/vintage – The product is liquidated or there are some left out there, but they are either kept in new condition, used or refurb because there is still demand for them.
I frequently like to marry the concepts of the product lifecycle and the long-tail. If you envision the back end of the product curve going out for miles, that’s really the long-tail.  In other words, there are many more products that have come out in the last 10-30 years than are out right now and ‘in-season’.  Also, I think an important part of the lifecycle that is often overlooked is what I call ‘local’ and what eBay calls ‘classifieds’.  At some point and for some categories, there can be a benefit to both buyer and seller to search and transact locally.  Why ship a couch when there’s one 2 miles away.  Why buy an old desktop computer from 500 miles away, when there’s one from some local business?  As the long-tail goes out, local becomes important.
Today, craigslist owns the local long-tail (for products as well as other stuff), Amazon is well on the way to owning the in-season and introduction buckets while extending into the back half of the curve (you wouldn’t believe refurbed iPods our customers sold this holiday on Amazon – trust me they are eating into that part of the curve). This graphically demonstrates to me that eBay’s rumored strategy for being ‘in-between’ Amazon and craigslist is faulty.
I think the REAL opportunity is to be the only company to cover the entire product lifecycle.  eBay is uniquely positioned to do this and that’s the foundation of eBay 2.0.
Each part of the product lifecycle has a natural fit to a couple of buying formats that is also part of the eBay 2.0 thinking:
  • Introduction – When items are in short supply, auction is the best format to extract value from that inefficiency.  Fixed price maybe the way to go later on with possibly offers.
  • In-season – Very few people want to mess around with auction for in-season products.  Fixed price is the way to go.
  • End of life – Mostly fixed-price here, but potentially some auction if someone is liquidating and a value-consumer could find a good deal by investing some time.
  • Liquidation –  Mostly auction as you have no idea what this stuff is worth.  Sometimes you do though, so maybe some fixed-price.  As for local, fixed-price may work if you just want to get rid of something, but have you ever sold something on craigslist and 40 people call you?  Hmmm, auctions would have been nice in that situation wouldn’t it?
I also believe each buying format has a natural search order:
  • Auction – Auction buyers are driven by serendipity.  Even when they are searching, it is to help them stumble up on something interesting, not because they are specifically looking for widgetX.  They like to see what’s new, what’s hot, etc.  But most importantly they want to see things in Time Ending Soonest (TES).  Ah TES, how I miss you.  I never thought your simple algorithm would be so sorely missed, but I find myself constantly fighting BestMatch, slogging through ads and featured crap to get you back to no avail.  Auctions are not the same with the vintage 05 TES.
  • Fixed-price – recent sales or popularity is important
  • Local – Local shoppers like to see what’s new – so ‘recently listed’ is the way to shop.  They also use serendipity, but are very sensitive about getting to the newest stuff before someone else has.  Ever had a garage sale start at 8am and people are at your house at 6am?
These three search orders are immutable to me – meaning that if you mess around with them, you get bit – hard.  BestMatch’s attempt to hodge-podge auction TES, seller quality and fixed price recent sales into a jumbly mess has been nothing short of a train-wreck for everyone involved.
Another important point that’s part of eBay 2.0 – I don’t think that seller performance should factor into search results ordering.  It just doesn’t work because it confuses the buyers, kills sellers and tends to reward bad behaviours.  Search is search and performance should be treated separately (more on this later). Search is for helping buyers find stuff.  If you have bad sellers, well, don’t put their items in search at all.  Does this seem like common sense to everyone or am I crazy?
In addition to the product lifecycle, brand is an important area eBay can leverage that they haven’t done ‘right’ to-date.

Opportunity – the eBay Brand

Now, I don’t have a fancy MBA from an ivy league school and I haven’t worked at any of the great brand companies out there like Mattel, P+G, etc. and I sure as heck haven’t been at McKinsey or Accenture or Bain.  But I do like to drink soda (or pop for you mid-western readers) and a great case study I want everyone to think about is New Coke.  You can read a fancy MBA paper about it here.

New_coke

eBay 2009 is New Coke.  They’ve taken the eBay brand that is 99% known for auctions and they’ve jammed fixed-price into it so much so that consumers are leaving, spitting out the vile tasting stuff and heading over to Pepsi (Amazon) because at least it hasn’t changed and you know what – it’s actually pretty good.
This affinity between eBay and auctions (or call it the flea market) with consumers is a core component of the eBay 2.0 strategy and in fact I think they can extend the eBay brand, but not to fixed-price/in-season.
You may recall an experiment eBay had called eBay Express where they tried to extend the brand with a different fixed-price site, but failed.  Ex-eBayer, Adam Nash, had a great eulogy and behind-the-scenes view of what happened that I recommend everyone read to see his perspective.
I always likened eBay Express to diet donuts.  It just isn’t an extension and you are admitting that, well, if you have an eBay express, that makes eBay – what- eBay slow and poky?  There were other problems too that Adam details, like they didn’t send it any traffic and small things like that.  Also the way the inventory worked was all jacked-up, it was a sub-set of fixed-price items on eBay (what?!).  I’ve read all of Adams thoughts on eBay Express and chatted with him before on what eBay’s doing wrong/right and many of his ideas have found their way into eBay 2.0. (BTW, eBay needs to get this guy back.)
As I’ve said, eBay is auctions in consumer’s minds.  So why fight it?  If eBay is going to be our ‘cola’, then let’s use a different brand, as Coke co does with Sprite, for our new citrusy soda (fixed-price).
While the eBay brand won’t extend to fixed-price, I do think eBay has a Coke Zero/ Diet Coke opportunity to extend the brand to local – PLUS this gives us a good reason to put a bullet in Kijiji (the Tab of the family), but I digress.  eBay has always tinkered with local, but never done it right.  By extending eBay into Local, I think they could take this segment back from craigslist (well except for all the sex stuff – craig can keep that).  I speculate one of the reasons they’ve never done this is craigslist’ revenue is very small because it’s mostly free to sell things.  While that’s a good point, by pulling in the local selection, you have a unique opportunity to out-selection even Amazon.  While you may not make direct revenue from Local, the expanded selection will bring people to the other parts of eBay 2.0.

With those opportunities in mind (and the New Coke case study), allow me to introduce you to….eBay 2.0

The Pitch – eBay 2.0
(editorial note: I’m going to do this pitch in first person {as if I were eBay} because it helps me think through and articulate the pitch, not because I am eBay.)
Buyers want to shop how they want to shop.  Some like the instant gratification and convenience of fixed-price shopping for new, in-season items, some like auction deals, some prefer local merchandise, some want a combination of fixed-price, auction, local at different times depending on what is available when and where and at what price.  It also could depend on how urgent the buyers need is.
eBay 2.0 gives buyers what they want – unprecedented buying formats, selection and value across the entire product lifecycle and the long-tail.
Buyers get to choose the best experience for them through one of three sites:
  • eBay classic – Classic auctions that you know and love with some new enhancements and more trust via PayPal.  We hear you loud and clear – we have taken out fixed-price and stores and given you pure auctions, just the way you want.  The New Coke days are over and we’re back to Coke Classic.
  • Shopping.com 2.0 – Our fixed-price, convenience brand, with buy-it-now items from many of the sellers you already know and love, with some interesting new offers from larger retailers.  If you’ve ever used the old shopping.com, this is a much different site with an explosion of inventory at great values.
  • eBay Local – The eBay experience you know and love, but with the local flavor of a craigslist..  PayPal makes it safe, so you don’t have to worry about all the dodgy characters hanging out on a site like craigslist.
As you shop, we’ll surface different items that may help you, but we’ll always let you choose how you want to shop based primarily on the site/brand you start with.  We’ll never spam you with ads or things that aren’t relevant and helpful to what you are looking for.
To improve ease of use, we’ve enhanced PayPal to be the common payment and trust system for all three sites. With one powerful, yet simple, PayPal account, you have easy access to everything – no need to re-register or enter the same information over and over. Where appropriate, we’ve also integrated the new ‘PayPal Cart’ so if you want to add a fixed-price or local item to, say, an auction purchase, we make it easy!  We even have the new ‘PayPal FreeShip’ where with your $100 subscription, participating retailers offer free 2day shipping at no cost to you!
We realise it’s 2009 and we’ve added tons of ‘web 2.0’ enhancements that let you leverage your social networks, your mobile devices and the latest technologies to enhance your buying experience and add value.
eBay 2.0 – the only solution that brings you massive selection (intro, in-season, end-of-life and liquidation PLUS local), values (because you see everything, not just one site), formats (fp,auction, offers) with PayPal-powered trust and ease of use.
That’s the pitch. If you think this sounds good, here’s how eBay should go about implementing it.  First with some foundational items and then the meat and ‘taters as we say here in NC.
eBay 2.0 Foundational Changes
Before eBay the company can be successful with eBay 2.0 the concept, some foundational changes need to be made ASAP.  I’ll try to keep this short so we can get to the details of how I envision eBay 2.0 working.  But I do want to emphasize that I don’t think the eBay 2.0 concept would get done or work until these things foundational changes are made:
  • Culture change.  eBay has to undertake a massive culture change that includes:
    • Ditch the corporate jet(s) – In today’s world, executives look terrible drinking champagne on their corporate jets while their customers, employees and shareholders suffer.  Ask the CEO of GM how well the corporate jet went over on his last trip to DC.  Plus you always have pictures like this haunting you.   Do you really want to be jetting to Davos while Rome is burning or right after a bad quarter?  And yes sell it/them on eBay.
    • ReOrg – Today eBay is organised around buyer and seller. That is really complicated to me because every buyer interaction touches a seller.  If you want the search engine to do something with say, shoe size.  Guess where that shoe size is going to come from?  Yep, the seller.  I don’t know enough about the internal org at eBay to hazard how to org this, but in eBay 2.0, I suspect you would pick out a foundation/core team to build things used by all three sites and then have a eBay classic team, a local team and a shopping.com team.  These would look much different than the teams there are today and be lean and mean so they could execute rapidly.
    • Treat sellers like customers –  There’s been lots of lip service to this and not a lot of action.  That needs to be swapped.  Heck, I would ban the word seller and I would make everyone say customer or partner as a reminder of a new world order.
    • Streamline – It takes forever for decisions to be made and executed on at eBay. I don’t know why, but it needs to be streamlined
    • Agile – Parts of eBay’s engineering team are agile, others use a 1990’s waterfall development methodology with all kinds of old-school trains, train cars, seats and junk like that.  All that needs to be ripped out and replaced with Agile/Scrum
    • Variety in the workforce – eBay is a two class system.  There are Harvard, Stanford, Yale, etc. MBAs that call all the shots and then there are worker bees.   Many worker bees end up spending weeks on presentations that the MBAs slam and redo.  Smart people in the ranks without ivy league MBA are passed over while wet-behind-the-ears MBAs that don’t know the business are hired and pass over non-MBAs quickly and then leave for VP/CEO gigs.  There are also too many business consultant lineaged people at eBay.  You can’t throw a stick without hitting a room full of McKinsey/Bain/Accenture consultants, they have lots of great ideas, but can’t seem to execute.  eBay needs more Jeff Jordan, roll up their sleeves, and GSD, execute execute execute type of people right now.
  • Mea culpa – Like New Coke, someone at eBay (JD would be first choice), needs to admit it was a mistake to change something everyone liked, and that we all miss eBay classic and are BRINGING IT BACK – HOORAY!
  • No ads – period.  eBay should focus on one thing – GMV.  That’s the sole driver of revenue, margin and success for buyers and sellers customers.  Ads are a distraction and not in line with that goal.  I’m talking everything folks – the stupid mortgage banner ad, the irrelevant text links, the weird little things low on the page, the ads splatted in emails randomly – all of them need to go.  They take valuable buyers off the site and compete with sellers partners and MOST importantly the erode trust and value of the site.  The only time ads are acceptable are if they are for off-site products, like shopping.com’s CPC network or ProductAds from Amazon.
  • Nuke or sell lots of stuff that doesn’t fit in – Skype, StumbleUpon, Prostores,  Microplace and half.com. These are not a focus. Buy-bye.
  • Fees –  eBay doesn’t seem to ever understand that their fees are just crazy-high right now and cause the prices on the site to go up.  Thus in eBay 2.0, fees come down substantially and many that are additive, have discounts – like PayPal.  If I sell in the family of eBay 2.0 sites, I should get some benefit vs. someone not doing that.  Lower fees will actually increase revenue (counter intuitive, but it works).  Prices on the site will come down, GMV will accelerate, revenue will follow.  Overall, eBay’s take rate of 12% needs to come down to about 8% – You’ll see where each sub-site needs to be IMO.
  • Consolidate ticket category and make it 100% Stubhub – why haven’t they done this yet?!
  • Nuke travel and real estate and partner with someone instead.
  • Wall St –  I’d do a speciall call and tell Wall St. they are hitting the reset button on the entire business.  There’s risk in doing it, but the risk in not doing it is greater. I’d then outline the eBay 2.0 opportunity and a roadmap for how we’re going to deliver it quickly.  Everyone knows this needs to be done, the stock would pop 20-40% on this news alone IMO.
  • Become a platform and learn how to partner –  A big win for eBay 2.0 needs to be an open platform.  eBay has messed this up for the l