3/1/2010
Here's an extraordinary video of eBay CEO John Donahoe bragging about how the company has sidelined what was once a core competency:
Online auctions. Why solve a hard business problem when you can run away from it?
"We thought auctions were a religion," Donahoe says in the video excerpt above. "Auctions are nothing more than a format." Writes Ina Steiner of AuctionBytes, where you can find the full video: "This is a rather amazing statement for the head of eBay to say, given that auctions are such an important differentiator" for the company.
Indeed, but they're also a pain in the neck: eBay's auctions are famously a favorite playground for fraudsters and scammers and occasions for heated disputes between even legitimate buyers and sellers. Multiply those headaches across millions of users, and you can understand why the company's MBA CEOs — first Meg Whitman, now Donahoe — have decided to shift the company's focus elsewhere. Whitman pushed eBay into sales of new goods while jacking up auction fees; Donahoe has emphasized the growth potential of PayPal, as well as bulk sales from partners like Buy.com.
But solving tough problems is, ultimately, the best way for a business to protect its profits from competitors. Take, for example, PayPal, the acquisition that has become eBay's crown jewel. The company beat back rival startups as well as huge competitors like Citibank above all else on the strength of its relentless approach to combatting fraud, co-founder Max Levchin explained in the book Founders at Work:
The financial industry people understood the risk, but they weren't willing to do the sort of stuff we did... I remember all these companies announcing that they were going out of business and they expected PayPal to go out of business soon too, because the fraud numbers were so staggering they could not see anyone handling this sort of thing.
Levchin ultimately solved the fraud problem with a combination of human investigators, and computer algorithms to funnel select cases to those investigators. He eventually decided PayPal was a "security company pretending to be a financial services company." It's possible Donahoe realizes that eBay is, likewise, a security company pretending to be a retail services company; he has talked about revitalizing the core of the company and focusing on small sellers. But when he brags to a retail conference about taking auctions to 25 percent of eBay business from 80 percent, it sends the signal that eBay is retreating from his company's central lucrative challenge rather than attacking it. And who wants to bet on a quitter?
