Revealing the truth beneath eBay's rebirth
Opinion & Analysis
My old mate Michael Dobson has just completed hand-building a custom motorcycle.
With a lifetime of doing open heart surgery on BMWs and a reputation for taking a vintage sidecar to places that would humble hardcore motocross riders half his age, Michael is what you'd call an idiosyncratic character.
It's no surprise, then, that his latest creation is eccentric in the extreme. Half chopper and half bobber, he's called it 'the bopper', and, like the singer of the same name, it's a larger-than-life beast.
On Sunday it had its maiden outing, a run up the Kapiti Coast to the Manakau Pub, flanked by 20 riders including fellow Wellington custom bike builder Bill Biber.
Dobson embraced a minimalist aesthetic with the bopper, the engine appearing to float in a beautifully simple cradle frame with the solid back-end connected through a single-sided swing arm.
I quizzed him on the forks and the frame, asking how long it took to make such beautiful components.
The answer surprised me: 'Believe it or not, it's just the normal frame, but with all the extra bits removed to show the pure form. All I did was reveal the truth that was hiding underneath.'
Four years ago, incoming eBay chief executive John Donahoe took a similar back-to-basics approach as he began the not inconsiderable job of turning around the fortunes of former shooting star eBay. At the start of 2009 it was regarded as having lost its way, a loss fully reflected in its (then) US$10 share price, down 80 per cent from its peak in 2004.
The eBay Donahoe inherited from previous boss Meg Whitman was full of diversions, making it hard to see what truth was underneath. So he set about getting rid of them.
First on the list was the reference engine StumbleUpon, a cool site but nothing to do with e-commerce, so he flicked it. Next was online video telephony company Skype, which was always an awkward fit with the e-commerce giant. Donahoe hocked it for US$2 billion, US$600 million less than the purchase price.
Next job on the list was grabbing the eBay development train (the pipeline for software builds) by the scruff of the neck and reportedly killing two-thirds of the proposed projects (along with the 12-month plus wait time). Instead he recognised that e-commerce would be extraordinarily well-suited to mobile platforms.
Influenced perhaps by Amazon's one-click customer proposition, Donahoe tasked the team with building a one-click mobile payment solution. So rather than having to clumsily enter a credit card number, all you had to do was hit one button on your phone or tablet. It turned out to be a shrewd move.
In its latest 2012 quarterly results, eBay reported that 90 million people have downloaded their mobile app and 600,000 customers had made their first mobile purchase during the last quarter. Because of the way mobile blurs the line between traditional e-commerce and offline retail, Donahoe even suggested that the 'e' be dropped from 'e-commerce'.
However, the biggest part of eBay's turnaround harks back to the 2002 acquisition of online payments facility PayPal. Ironically, it was a reluctant purchase as eBay had its own payment service, Billpoint, but it was dreadful to use. eBay members preferred the easy functionality of PayPal and the ability to use it elsewhere in the market. Consequently eBay was forced to buy PayPal in 2002 and closed Billpoint soon after.
Over the ensuing decade, PayPal has grown to be the de facto payment method on the web. And some time along the way the 'network effect' took hold.
The network effect was originally an economic concept that told us that the value of a service grows exponentially as the number of interactions grows. And the superlative distribution ability of the web delivers network effects on steroids.
Today PayPal revenue provides almost 40 per cent of eBay's total income, and in the last year delivered US$3.4b of income. Every month it adds another million active accounts, and those based outside the US now contribute half of all PayPal revenue.
Ironically for the payment mechanism that helped the rise of e-commerce, the next step for PayPal is traditional retail. PayPal has introduced a point-of-sale product and is in the middle of rolling it across Home Depot and Abercrombie & Fitch in the US. Plus there's a SME equivalent called PayPal Now, a global payment tool that allows smallish businesses to accept payment via a mobile phone.
The revival in fortunes of what was once considered a doomed internet giant has been remarkable. It has also perhaps been testament to the truth that Donahoe found buried within eBay four years ago: consumers like a payment mechanism that's easy to use and broadly accepted. And merchants want to use it because consumers like it.
Simple really, but the potential is endless - a bit like a boxer engine sitting in a cradle frame.
Mike 'MOD' O'Donnell is an ecommerce manager, professional director and author. He's OK at pulling motorcycles apart, but is pretty crap at putting them back together.
- © Fairfax NZ News
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