Red Ink Diary

Doctor Foster went to Glo’ster,
In a shower of rain;
He stepped in a puddle, up to his middle,
And never went there again.

As small children, my generation, without the dubious benefits of television learned nursery rhymes.

Although the rhymes don’t always make sense, they tend to stick with you.  Occasionally something will happen to bring a rhyme to mind.

What made me think of Dr Foster?
Yesterday’s first quarter financial report from eBay. Dr Foster is like eBay’s customer base, which despite John Donohoe’s tunnel vision, consists of both buyers and sellers. ‘Glo’ster’ of course is the eBay marketplace. Who likes getting wet?

I am not going to give you a blow by blow analysis of the call, you will find that at Auctionbytes main article and updated here. I am just picking my personal highlights to share.

The quarter was about as bad as it promised to be, despite all the free listings, cheap listing days and promotional gambits. The 6% overall increase over Q1-09, which was deplorable(def. #2), and not a particularly high bar to overcome, can only be called pitiable. (def. #2) When you take into consideration PayPal’s 35% increase in net total payment and 26% revenue increase year over year, eBay’s performance is shabby, (def. #1 - 6) definitely not chic.

Wall Street appeared underwhelmed.

A question from Spencer Wang of Credit Suisse in the call places a precise finger on the pain point:

“On PayPal the decline in the take rate at PayPal . . . should we expect a similar kind of year-over-year decline for the balance of the year? ” and Robert Swan’s answer “I think we do expect take rate to come down more during the course of the year.”

This was enough, combined with the embarrassingly low Q2-10 guidance of of $0.37 to $0.39 non-GAAP EPS to produce this remarkably succinct statement from Kristina Peterson of MarketWatch :

“Shares of eBay dropped 7.7% in early trading. Late Wednesday, the online auctioneer forecast second-quarter earnings and revenue below market expectations.”

Those Moving Goalposts
SeekingAlpha has full transcripts of the post results conference call, quoted here with permission. In John Donohoe’s opening remarks he said

“Last year we set out clear three-year growth and profitability goals for 2009 to 2011″

I believe quite a few, including analysts, thought 2010, the third year of Dononoe’s reign was to be the third and final year of the turnaround. Is this a SNAD? (Seller Not As Described)

BaySpeak Abounds
“First, we are becoming a more customer focused company.” This means buyer focused, sellers are not our customers, it is not possible for eBay which is only a venue to have two sets of customers.

“Second, we are becoming a more technology driven company.” Our servers are inadequate and outdated and our search is so weighted by secret algorithms it couldn’t find it’s own “ahem” in the dark, but we did let some developers fix things so people can PayPal from their mobile phones…

“- we no longer have the store inventory format and so the fixed price items are now all in sort of core search - The timeframe, if I were to take what happened in Europe I would say it took 2-3 quarters to really fully work their way through.” Hmmm.

Opinion

I have been hearing increasing whining (there is no other word) from sellers who made a deliberate choice to remain on eBay. Some of whom jeered at those of us who were unable to continue selling profitably on the site, or simply unwilling to continue to try. “All the more for me, ha ha!” PayPal rolling reserves, payment holds contrary to stated policy. Mysterious sale patterns, strange tap on tap off visibility in search results. Many complain of a recent 80% decrease in sales volume.

• How do you feel about it now?
• Are you prepared to tough it out for the next two to three quarters of “in sort of core search” like you are now?
• Ready for the next round of changes you asked JD to make? (Read the transcript)
• Do you have a diversification plan?
• Did you think because you were loyal little cheerleaders you would escape?

Y’all come back!

An article written by Douglas MacMillan in CRM Daily, titled “eBay’s Last Minute Delivery Push” published December 24th 2009 caught my attention. CRM Daily is an e-publication delivering “Customer Relationship Management news for Pros”.

Here is the ‘hook’:

“eBay’s expansion into selling new products has brought in more customers who expect cheap, fast delivery; flexible return policies; and attentive customer support. Those have been tough demands for the company to achieve, and could be affecting the site’s popularity. In November, eBay’s online visitors dropped by eight percent.”

In my opinion eBay could use some CRM tips because their philosophy under current CEO John Donahoe is to channel Rhett Butler in Gone With The Wind; “Frankly my dear, I don’t give a damn” as seasoned sellers look for the exits. eBay is clueless and indifferent (def. #1) when it comes to Customer Relationship Management, but I digress.

Off Target

The implied frame of reference for the article is that eBay is the seller, not “only a venue” for sales by independent retailers. It posits (def.#2) buyers as eBay’s customers, and sellers as merely eBay’s suppliers. This causes a dilemma (def.#2) in that any eBay CRM program targeting the consumer will not target the customer; the one who pays fees to eBay. A sampling of key phrases that support my contention are:

• order-fulfillment problems bedeviling eBay
• eBay doesn’t have as tight a control of its supply chain as rivals
• eBay’s expansion into selling new products

Another quote in the article would appear to indicate that the perception of eBay as retailer is becoming much more widespread.

“They started as an auction site, but they are now seen by most people as a retailer,” says Larry Freed, CEO of market researcher ForeSee Results.

The Heart of the Issue

Mr MacMillan compares eBay’s performance as retailer with Amazon and to a lesser degree with WalMart. There are deep flaws in the comparison.

Unlike Amazon which started as a retailer before permitting third-party merchants (3P) on the site, eBay has never had product to sell, never sourced, listed, picked, packed or shipped. eBay is not a retailer, without 3Ps eBay has no product to sell.

Like eBay, Amazon claims the transaction, in other words the buyer is Amazon’s. A major difference between the platforms is that Amazon takes responsibility for the transaction, offering an A - Z guarantee to the buyer, while verifying the buyer and processing payment for the seller. All Amazon buyers are verified, there is no sale without payment, the Non Paying Buyer (NPB) does not exist.

eBay disavows any responsibility and has maintained for years that it is only a venue and is therefore not responsible for the items bought or sold on its site. Liability is passed to the seller and eBay’s role is limited to collecting fees from them at every opportunity, including for unconsummated transactions, the ones in which sellers do not get paid.

Amazon clearly delineates the expectations and obligations of a partnership, a relationship that is characterized by mutual cooperation, responsibility and benefit. eBay prefers a punishment based authoritarian and adversarial relationship with 3Ps, clearly shown by secret search algorithms and an unnecessarily complex fee to listing structure which intentionally makes it very difficult for sellers to calculate costs and predict margins.

Finally, Amazon spells out realistic time frame expectations for buyers to receive their purchases. A seller who can deliver faster has a happy customer and so does Amazon. eBay doesn’t have a clue and the result is everyone is mad at each other.

Crystal Ball Department

Salute to a master, Randy Smythe said it in 2007. So far, I would say he called it exactly right.

Has Donahoe succeeded in remaking eBay?
What is the new eBay?

Y’all come back!

Ah eBay! Where to start? This blog began almost two years ago, more or less as a rant. As the header says

“How eBay lost IT’s groove. A chronicle of eBay’s destruction of the brand & the path forward for small sellers ~”

The path forward for me in 2009 has been continuing to learn about e-commerce in the real world where success is only limited by my own shortcomings, not creative disruption imposed from above, but I have written about eBay often.

Highlights or lowlights?

Early in 2009 eBay implemented an all electronic payment policy forbidding sellers to state that they were willing to accept personal checks and money orders. In January eBay added the third ‘beard’ a carefully chosen uncompetitive payment processor to the approved list. MoneyBookers joined ProPay and PayMate, in ‘competition’ with PayPal, presumably to ward off potential legal issues in the USA.

eBay Live was formally declared dead on July 14th.

Brian Burke, currently Director of Product Marketing, Seller Experience & Pricing had three title changes in 2009. Stephanie Tilenius “decided to transition out of her current role to pursue other career ambitions, including opportunities to lead a company as CEO.” Richard Ambrose, Director of Trust and Safety for eBay UK, left eBay in July after six years “for new challenges”. Tamebay wrote the eulogy. eBay’s mostly suave and occasionally debonair spokesman Usher Lieberman had a relatively quiet year, much charm was expended on various social networks and gatherings and then, very quietly, early in November, he moved on. I wish him well in his new job.

The second bucket of platform changes in 2009 implemented tremendous change at the worst possible time of year. Introduction of Best Match II (with a ‘listing performance score’ based on the listing’s recent sales in relation to the number of recent impressions it received) and the Top Rated Seller program combined with changes to Google’s policy seriously affected ‘finding’.

eBay crowed about Black Friday in the USA, out of “200 million gift options”, a million sales, and on Cyber Monday 1.4 million. That is pitiful. Compare to one “mid-tier” ChannelAdvisor client Beadaholique on Cyber Monday.

The quarterlies

eBay has been managed quarter to quarter since going public. In the Q2-07 earnings call Meg Whitman said “We don’t ever quite know exactly what lever that we can pull” but she pulled a lot of them in her time. The annual revenue figures for eBay’s first three quarters from 2007 through 2009 give a clear picture of the cost of current CEO John Donahoe’s policy of creative disruption.

These figures represent only the first three quarters revenue for eBay Inc (the whole not just the venue) during 2007, 2008 and 2009. The 18% gain year over year from 2007 to 2008 was eaten up by a disastrous 4th quarter in 2008.

A strong Q3-09 held the decline year over year to 2%+, ominously negative despite vigorous growth from PayPal. My crystal ball tells me the 4th quarter this year can only be saved by income from the sale of Skype, despite the addition of some very big names to the seller roster. Time will tell, in about a month.

Meg Whitman bragged “A monkey could drive this train”, I think it is time to find a new monkey.

Y’all come back!