Red Ink Diary

This is not a political post. Shall I repeat that? This is not a political post, it is about karma, (def.# 2 - 4) and Auntie May’s favorite cosmic theory, “What goes around comes around.”

Meg Whitman, billionaire former CEO of eBay Inc., was rejected in her $142 million dollar bid to buy the Governorship of the State of California, but don’t feel sad for her, it’s only money and she has lots more.

I have never met Meg Whitman. I am told by those who have that she is a warm and charming, witty and very likable person. Unfortunately for Meg, this was not the message California voters absorbed in a solid year of advertising spin by the Whitman campaign.

Life before eBay

Meg Whitman did not have a particularly stellar career before eBay.

Her first CEO position was at FTD.com, it lasted two years. While Whitman was in control orders fell to a new low of 12 million, at it’s previous height FTD was taking 22 million orders a year. Next came a stint (def.#5) as head of toymaker Hasbro’s Playskool division for a year. No miracle turnaround there either, stock prices stagnated. Then came eBay, which was called AuctionWeb at the time.

Now Gimme Money (that’s what I want)

eBay made Meg Whitman rich. Her starting salary as CEO was a mere $175,000 with a $25,000 signing bonus, but the plan was to take eBay public and that opened the door to wealth.

As is standard in big business, executives get stock options as part of their compensation package. Ms Whitman’s initial option grant allowed her to buy 2,400,000 eBay shares at 20c with a January 20th 2008 expiration date and staggered vesting schedule. (eBay Inc SEC filings Form S-1/A Filed 8/19/1998 page 58)

• 30,000 shares vested immediately,
• 570,000 shares vested on February 14, 1999
• and the balance vested at the rate of 50,000 shares at the end of each month thereafter.

Spin Baby Spin

When opportunity knocked on Ms Whitman’s door she was not slow to open it. As CEO of eBay, Whitman hired Goldman Sachs to handle the company’s IPO (initial public stock offering) at $18 a share in 1998 and the second stock offering at $170 per share in April 1999. At this point Meg’s options on 650,000 shares had fully vested.

In 2001 Goldman Sachs formally became eBay’s investment banking advisor and  Meg Whitman became a director of Goldman Sachs with an honorarium (def.#2) reputed to be in the range of $475,00 a year. As this 2004 legal action filed by eBay shareholders shows, there were other benefits, nicely summarized by the Sacramento Bee. Between 2001 and 2002 Goldman Sachs made $8 million in fees from eBay.

In fairness, I should point out that the spinning sweetheart deals were not illegal at the time they occurred and Whitman settled the shareholder lawsuit for a reputed $3 million, without admission of guilt.

Shop Shop Shop

Shortly after being appointed a Director of eBay Meg Whitman embarked on a shopping spree. eBay’s acquisition of Skype in 2005 is probably the most famously puzzling of Meg Whitman’s purchases but there have been others.

In April 1999 eBay announced the purchase of Butterfield & Butterfield, at the time one of the world’s largest and most prestigious auction houses for approximately $260 million. The 135-year-old company was preparing at the time to go public at a fraction of what eBay paid for it.

“This is a profitable company with a solid business plan and a first-rate management team. Butterfield & Butterfield also has strong relationships with major auction houses around the world.” Whitman said. “We will be able to bring fine and decorative art and collectibles online allowing eBay members unprecedented access to many of the world’s outstanding collections.”

By July 2002 scores of Butterfields staff had been laid off and eBay sold the company to the venerable British auction house Bonhams for $21.8 million.

In May of 1999 eBay announced the acquisition of Billpoint, the payment processing firm and Kruse International, a high end collectible auto auction house for a total of $275 million. Based on stock prices of May 18th 1999 Kruse cost eBay approximately $18.65 million. eBay phased out Billpoint early in 2003.

Kruse International, like Butterfields was a sad story. It was a 75-employee company based in Auburn, Indiana and had a premium name in the collectible car market with about 400,000 registered collectors. It helped locate parts for out-of-stock cars, and provided other information and services to car collectors.

At the time of acquisition eBay spokesman Kevin Pursglove said “No layoffs or personnel changes are planned, and Kruse will maintain its local charitable and civic activities. We will continue our commitment to the employees and to the community.” By the time eBay divested Kruse in October 2002 it had 40 employees, it never really recovered from the eBay experience and is now owned by a Canadian corporation.

Parallels

There are parallels between the blundering Whitman campaign strategy and the way eBay was run in Meg Whitman’s final years as CEO, perhaps the foremost being  the presumption that the worker bees are too dumb to fact check the BaySpeak.

Did this lead the average person to wonder how much grasp Whitman has of the differences between running a corporation and a State with a Democratic Legislature and unionized workforce?

Or did the majority of California voters see the other Meg, the Meg of whom Craigslist CEO Jim Buckmaster was warned “We would be best served to know that Meg could be a monster when she got angry and frustrated”?

Either way, for now, hopefully California is safe from eBay style management and Ms Whitman will find another hobby.

Y’all come back!

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Full disclosure: I am an ex-eBay seller currently selling on my own website and Bonanza.com

Once upon a time, long long ago, eBay had a feedback system which worked. It was flawed in that it could be, (and sometimes was) abused by sellers who used automated systems, but overall it was a two-way (def. #2) frame of reference which enabled both buyer and seller to gauge (def. #2) the character of the person they were contemplating doing business with.

Under CEO John Donahoe eBay has ‘improved’ the feedback experience to the point that buyers are expected to perform the equivalent of completing a marketing survey for each purchase. Surprise! Most of them don’t bother any more, but you can bet your reputation an unhappy customer will jump through all the hoops to leave bad feedback, and enjoy the experience, that is human nature.

There is no mechanism for eBay sellers to leave feedback for eBay, other than to leave. Cheerleaders aren’t cheering or even very cheery about eBay these days. Seller disillusionment and glitches are probably the second highest growth factor on eBay, advertising being the highest.

Folk wisdom says a happy customer will tell three friends but an unhappy one will tell ten. In today’s internet society that unhappy customer is more likely to tell hundreds if not thousands.

Connections, Harvard, Bain & Co and the Old School Tie

Meg Whitman, graduate of Harvard Business School, worked for Bain & Co., a consulting firm, as a senior Vice President before moving on to other challenges. Her chosen successor John Donahoe went to Bain straight out of Stanford and became a partner in 1992.  President of eBay Marketplaces in February 2005 was his second job.  He tells the story.

“Meg rang me. She needed a successor. She said ‘everyone is rich and tired’. They knew they needed to make a transition. I just fell in love with the values of the company.”

Other HBS graduates high up in eBay management include Lorrie Norrington and former senior vice president of eBay North America and Global Product Stephanie Tilenius, now at Google. Bill Cobb who was passed over in favor of Donahoe has no connection with Harvard or Bain.

Flawed Measurements

Fred Reichheld is also a Harvard graduate & past Bain director, thus passing the old school tie presumptive credibility check for eBay.   Reichheld wrote “The Ultimate Question: Driving Good Profits and True Growth” published by Harvard Business School (HBS) Press in 2006 which touted his (disputed) Net Promoter Score theory. Quoting from the publisher’s promotional text,

“CEOs regularly announce ambitious growth targets, then fail to achieve them. The reason? Their growing addiction to bad profits. These corporate steroids boost short-term earnings but alienate customers. They undermine growth by creating legions of detractors–customers who complain loudly about the company and switch to competitors at the earliest opportunity.”

Oh exquisite irony! eBay has been dedicated to ‘bad profits’ for years, viz. Meg Whitman’s lever pulling quarter to quarter management system. Did nobody notice?

Other marketing experts say that Net Promoter scores are seriously flawed using phrases like “… poison management practices and affect the bottom line”. For example in Loyalty Myths: Hyped Strategies That Will Put You Out of Business (see the ‘I am reading’ link in the right navigation bar)

“… the concept of net promoters is a bad idea that would not likely have seen the light of day had it not come from such a respected individual.”

A further quote from the same book, (bold-ing is mine):

“The difficult truth regarding customer loyalty is that how it links to growth and profitability is far more complex than we have been led to believe. An improperly directed program can result in keeping the wrong customers and ironically deflating an organization’s profitability. A blind pursuit of customer loyalty is at best a case of misallocated resources. But at worst it is a recipe for financial disaster.“

Rebuilding eBay

eBay CEO John Donahoe is a great believer in Fred Reichheld’s  Net Promoter Score system referring to ‘net promoter’ more than once in his introduction to the analyst call for Q1-10. The entire NPS theory is predicated (def. #2a) on one single question “How likely is it that you would recommend _____ to a friend or colleague?”

For an eBay buyer this is on the level of asking a business rival to share their merchandise sources. I am sure as heck not going to tell you where I buy my good stuff!

Auntie May, (who did not attend Harvard Business School and has no association with Bain) says  “Only a foolish man builds his house on sand.”

Has John Donahoe rebuilt eBay on sand? Or, is he just trying to remodel Meg Whitman’s work using the same defective foundation?

On the Street

Wall Street that is. The second financial quarter ends June 30th. eBay will announce results July 21st. Today eBay shares closed at $19.69, after dipping to $19.54  the share price reflects an 11% decline for the year.

On CNBC’s Options Action Carter Worth of Oppenheimer said eBay’s 150-day moving average has turned down, and the stock has gaps and drops. “eBay’s relative strength is a disaster. It is under performing retailers, tech and the market.” Mike Khouw of Cantor Fitzgerald added that the only area of real growth for EBAY is its advertising business, and this segment is not EBAY’s core business.

Jeetil Patel of Deutsche Bank repeats his Sell rating on the stock, trimming his target to $16, from $18. “We remain sellers of shares of eBay, as a combination of U.S. dollar strength, weak U.S. sales activity and discontinuation of the Microsoft Bing Cash Back program, which drove extra traffic to the site, will likely result in lowered earnings guidance for 2010,” he writes.

In the Marketplace

A quote from Scot Wingo, who, as CEO of ChannelAdvisor is uniquely better placed for access to raw data than any non eBay observer of the marketplace.

“eBay declined in May to -4% y/y vs. April which was flat at 0%.”

It is important to note that Scot is comparing CA seller’s data on eBay for April and May 2009; which was arguably the weakest year in eCommerce to date; to the same months in 2010, not to eBay as a whole.

In conclusion

I anticipate Q2-10 results with interest! Given eBay’s historical confusion as to who their customers are, (as opposed to the buyers who visit the site) I wonder if eBay are blindly pursuing and measuring loyalties of the wrong group of users. What do you think?

Y’all come back!

Further reading:

GigaOm.com :: eBay’s Crossroads: Turn Around or Break Up, Kevin Kelleher June 26th 2010
AuctionBytes.com :: eBay Survey Measures Perceptions about Top Rated Sellers, Ina Steiner June 28th 2010

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!

In the news recently, the State of California has chosen to sell surplus property on eBay and Craigslist to raise money in what the Governator, Arnold Schwarzenegger has called the Great California Garage Sale.

As of Saturday 29th August 2009 the Great California Garage Sale has sold $57,849.09 on eBay in the last fifteen days, mostly vehicles but some small pieces of seized jewelry too.

Click the thumbnail to enlarge. As a long time eBay user I can see some serious policy violations in this successfully sold listing shown at left. I understand that not all eBay sellers are equal, but I do have some questions one of which has already been non-answered in a sublime (def. #2) display of BaySpeak by that silver-tongued devil, eBay’s mostly suave and occasionally debonair spokesman Usher Lieberman.

1. In the 207 word description 37 pertain to the item being sold. The balance describe a live sale at another location and include a link to an off eBay website. The specific eBay rule violated may be seen here. It says “You may not include: Links to websites or pages that offer to trade, sell, or purchase goods or services outside of eBay  . . . . Violations of this policy may result in a range of actions, including: Listing cancellation, Limits on account privileges, Account suspension, Forfeit of eBay fees on cancelled (sic) listings, etc.”
   Why was the listing not canceled?

   Usher Lieberman, an eBay spokesman, said that referring customers to a sale off the site is indeed a policy violation, but “we’re sensitive to the position the state finds itself in, and we’re happy to be helping them to raise the profiles of some items that they have for sale.”
   
   Lieberman also said the state’s return policy notwithstanding, if a customer purchased an item that was not as described, eBay would refund the money and pursue the issue with the state.

2. The listing states clearly, in 18pt bold red “If you are the winning bidder, please contact us first to arrange payment. For accounting purposes, we prefer not to accept PayPal.” The specific eBay rule violated may be seen here. It says “Sellers aren’t allowed to make statements like: Contact us for payment information.” . . . . Violations of this policy may result in a range of actions, including: Listing cancellation, Limits on account privileges, Account suspension, Forfeit of eBay fees on cancelled (sic) listings, etc.”
   Why was the listing not canceled?
3. The State of California is known to have serious fiscal problems, so serious that since July 2, the state has issued 327,000 IOUs totaling $1.95 billion. Will eBay accept an IOU for payment of fees?
4. Did former eBay CEO and prominent Republican gubernatorial candidate Meg Whitman’s political ambitions have any influence on the special treatment seller great-ca-garage-sale received in immunity from the stated consequences of proven listing violations?
5. Did eBay simply not notice the listing violations?
6. Do eBay employees who format the eBay help pages have access to a spell checker?

Y’all come back!