When John Donahoe became CEO of eBay in 2008, he took decisive action to turn around the company's fortunes. Skype was sold in 2009, GSI Commerce was acquired in 2011, and in between, big bets were laid on mobile and local transactions. With eBay now once again positioned as the world's leading global commerce platform and payments company, that boldness has been stunningly vindicated. Donahoe offers his unique perspective on eBay's resurgence, and its next chapter.
- January 2013
When John Donahoe was appointed CEO of eBay in 2008, he told staff and shareholders it was time to face reality. "We had fallen victim to our own success," he says, sitting at his desk in the company's San Jose headquarters. "We had stopped innovating and we had become disrupted. So I said we were on a turnaround, and using the word 'turnaround' shocked people. But it also liberated us so we could take bold, aggressive action. We changed our business model, our economic model, our user experience, and our pricing."
Perhaps the most high-profile change was the sale of Skype to Microsoft — at a handsome profit. "Skype was a fantastic business which connected people," says Donahoe. "But it had no synergies with our core business, which is connecting people through commerce. Our business is connecting commerce, not connecting people. Technology innovation happens too quickly for a company to be great at multiple things. We sold Skype and invested that money in about 20 acquisitions that complement our business."
While Skype lacked the required synergy, an earlier eBay acquisition symbolizes the perfect fit. PayPal, purchased in 2002, creates an integrated shopping experience. "When you buy online, buying and paying shouldn't be two separate things," Donahoe argues. PayPal is now on the verge of outgrowing its parent company, accounting for 40 per cent of eBay's overall revenue and growing every year.
Donahoe predicts there will be a "fundamental redefinition of what shopping means" over the next few years, and that PayPal will play a major role in instigating this change. With the use of mobile devices driving more personalized services in-store, the physical wallet will soon become irrelevant. "Early on it'll be young people and early adopters," says Donahoe. "It won't happen overnight but the mobile phone — the digital wallet — will replace the physical wallet because it's safer and more convenient. Our vision for payments is that you put everything in your physical wallet in the Cloud - your credit cards, cash, debit cards, loyalty cards, etc. Then you'll access that safely and securely from any internet-connected device."
The Mobile Control System
In the case of both eBay and PayPal, Donahoe is reaping the rewards of investing early and heavily in mobile technology "eBay was there on day one of the App store in 2008. We were betting on mobile early, even though you couldn't prove positive returns," Donahoe recalls. "We understood mobile as a shift in consumer behavior that was inevitable so we embraced it regardless of whether it had a positive or negative outcome. Today, the eBay mobile apps have been downloaded over 100 million times and will do over $10 billion of commerce this year. It's been enormous and it's continuing to grow."
The dramatic rise of mobile, which currently accounts for 15-20 percent of eBay's business (and Donahoe sees this rising rapidly over the next three years) has fundamentally changed the way the company operates. "The mobile device has become the central control system in consumers' lives," Donahoe says. "Last year, in over half of retail transactions in the US, the consumer accessed the web at some point in their purchase, perhaps a Google search or a price comparison. This can happen in their living room, at work, on the street, or in the store, and it's blurred the line between online and offline to the extent that our addressable market has gone from being e-commerce, worth about $500 billion, to the $10 trillion market we call 'commerce.'"
The mobile device has become the central control system in consumers’ lives, and it’s blurred the lines between online and offline.
Big is the New Small
There has been another major change at eBay. A few years ago, two-thirds of sales were of auctioned items, usually second-hand; now two-thirds of sales are of fixed-price items, usually new and sold by retailers. This means individuals have to compete directly against major retailers rather than just against each other. A company that made its name by enabling entrepreneurship and small-scale commerce now enables all commerce at all levels — a change that prompted some users to complain that eBay has lost its soul. But Donahoe argues that there is equality of opportunity on the website, that he's enabling smaller businesses and individuals to compete against major retailers through the same platform. "If [major retailers] don't have a unique inventory or pricing they probably won't be successful," he says. "We can enable them to compete but we can't enable them to win. They have to win themselves."
As eBay has shifted from its auctioning roots, more and more major retailers have come on board. These companies like working with eBay, Donahoe says, because it's not a retailer itself so will never compete against them. Unlike, for example, Amazon, eBay doesn't hold physical stock; it's a platform that gives bricks-and-mortar sellers an expanded online presence. And through PayPal, he explains, the company offers traditional retailers something new — the potential to personalize and localize the shopping experience.
"Forty years ago our parents shopped on Main Street and everybody knew their name," says Donahoe. "But the last 30 years has been the era of big-box retailers offering lower prices and more consistent service. Now technology such as PayPal Here, which allows you to identify yourself and tell the retailer you're coming to the store, is allowing for greater personalization, which becomes a potential source of competitive experience."
The rise of mobile technology and cloud computing, he says, is changing much of what we thought we knew about commerce. "The lines have become blurred. It's no longer about local or global, online or offline, small-seller or big-seller. It's about local and global, online and offline, small-seller and big-seller. Technology offers the opportunity for a more positive sum-game commerce environment. Technology gives consumers maximum choice. It's no longer winner takes all. Now it takes all to win."
But can a company approaching its twentieth birthday — a dinosaur, in internet terms — continue to win when faced with fresh young start-ups? "Technology is changing how people shop and there'll be multiple winners," Donahoe says. "We're less focused on what our competition is doing and staying focused on driving innovative technology and platforms that allow consumers to have great shopping experiences. There will always be new start-ups, new formats, and new ideas, but we're well positioned to be one of the key leaders in this new world of commerce."
Written by Matthew Lee