What You Can Learn From eBay's Stumbles


Remember the days when eBay was a quirky place you could offload vintage jewelry from Grandma's attic or buy toys for your kids on the cheap? An Internet company so low-tech that most payments were made via post office money orders?

A lot has changed since the company's early days. High-profile CEO Meg Whitman, who grew the company into a Silicon Valley powerhouse, has left to stump for John McCain. And many longtime sellers have left the Web site, citing ever-rising fees and lower traffic.

These aren't easy times for any e-commerce site. But things seem to be coming to a head for eBay: Its stock recently hit a five-year low, and last week came news that the company may be cutting up to 1,500 jobs, or about 10% of its workforce. In its quest to be a tech power-player, eBay showed impressive growth, but now it's paying the price.

No matter what the size of your business, it's tempting to chase growth to show that you can thrive in new arenas. But not if your company's DNA gets diluted along the way. Downplaying your core competency can cost you core customers -- and once rejected, they're not easy to win back.

The original eBay was one of the great Internet success stories. The company had a catchy back story (remember how it all started with Pez dispensers?), a simple, clear concept, and a sense of community. But over the years, as the company felt pressure to boost its stock price, management began to focus more on fixed-price sales, and the site's independent spirit fizzled.

"EBay lost its soul when they tried to make it everything to everybody," says Randy Smythe, a former top eBay seller who now writes about e-commerce on My Blog Utopia. Auctions were the heart of the original company, but it was a slow-growth business. "EBay needed to become a fixed-price marketplace to stoke growth, but they killed auctions in the process."

The company's push toward more fixed-price selling was also hampered by its unfamiliarity with the world of retail. The brilliance of the original auction site was that eBay didn't have to deal with the nuts and bolts of traditional retail, such as stocking merchandise or coordinating shipping. But as eBay reinvented itself as a more standard e-commerce site, it came up against competitors with far more experience, such as Amazon.

EBay also chased growth by acquiring other companies. Some were hits, others missed the mark. Purchasing online payment system PayPal was a great move. It not only increased the efficiency and security of eBay sales, but it brought in a source of new revenue, since PayPal gets a cut of each sales transaction. The online ticket sales site StubHub was another logical purchase because it followed the model of the original eBay.

But there were stumbles as well. EBay shelled out $2.6 billion for Internet phone service Skype but never figured out how to integrate it in a meaningful way with its sales.

Ultimately, the company's current woes are tied to its core business: online sales. Long-time sellers have been driven away by rising fees. And buyers don't have an easy time finding what they want.

"Search is a mess," says Smythe. "EBay is not a technology company. They should have outsourced search." (During a recent browsing session on eBay for kids' clothes, I got twice as many listings using the phrase "twin boy outfits" as I did for "twin boy clothes." Unless you use specific keywords, it seems, you miss a significant number of listings.)

The lessons for your business? Draw in new customers by making it easy for them to find what they want. Though you may think quality control depends on keeping everything in house, sometimes outsourcing will actually improve service. And no matter how much new business you bring in, don't forget your original customers and what drew them to you in the first place.

While we all want our companies to grow, don't lose sight of what you started with. When the customers who got you off the ground start to stray, you've lost your way.

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