[Technology Tuesday] Ebay: On the Way Out?

It’s hard to believe, but eBay has been around for almost 15 years now. Granted, most people didn’t know about eBay until it went public in 1998, and it didn’t really become a household name until a few years ago. There’s no denying that eBay has been popular successful; it’s been called the savior of direct sales, the first major consumer-to-consumer (C2C) marketplace, and even the future of business as we know it.

But if eBay’s so great, why is it struggling to convince everyone it’s still relevant?

I ran across an article in Business Week last month that’s got me thinking that eBay is not only starting to become irrelevant, but that it’s a sign of the changes in the way people are using the Internet. It’s bad news for eBay, honestly, because if I’m correct, there’s really no way out for them. They’re going to have to let their core business shrink and focus on other business units if they want to survive. According to the article, eBay has already realized that its side businesses, like Skype and Paypal, have the potential to be profitable on their own.

But chances are good those businesses are going to go down with the lumbering dinosaur that has become eBay unless changes happen, and fast.

You know we’re in an unusual time when a relatively new company has already shown signs of burning out just a few years after becoming known by the general public. And eBay’s even one of the smart companies — a firm that’s often used in case studies and profiled in business journals for its smart and savvy practices.

When eBay first began to get popular ten years ago, it was a novelty — the internet was still pretty new to most people, and the idea of being connected to millions of people at once was mind-blowing to many users. Social networking websites were still on the horizon, and chat rooms and instant messaging software still seemed like a neat idea. What these early users really needed was a spectacle — something to fix their attention on while they got their bearings, something that helped them to understand the good and bad aspects of the internet, something that went beyond surfing homepages and that really brought people together.

eBay filled that need by essentially becoming the world’s largest garage sale. The site operated on the theory that there was a buyer for virtually every product. By helping individual users to market individual transactions, eBay could operate with no inventory, low overhead, and little liability. Users enjoyed the auction process, and many thrived on the good feelings associated with winning a heated bidding war.

Fast forward to 2009, and we see that eBay’s auction service is struggling while its fixed-price business, half.com, is attracting more users. Consumers seem to be less interested in online auctions overall, and eBay’s foolish decision to try to cling to its position of leadership in a declining market has hurt the company badly over the last few years. But what happened? Did people just get tired of eBay, or was there something else at work here?

I’d argue that the rise and decline of eBay is tied into the customer adoption process. Here’s how it works. Imagine that for a product, you’ve got two groups of people: the folks who are going to latch onto a product before it reaches its critical mass and the folks who are going to latch onto it after it’s established and popular. Half of the users fall into the early majority, and half of the users fall into the latter majority. Now, within that early majority, you’ve got three groups: the innovators, who represent a very small number of people (about 1%), the early adopters, who represent about 14%, and the remainder of the early majority, who represent about 35%. On the other side, you’ve got the late majority, who represent about 35%, and the people who wait until things are winding down — the laggards — who represent about 15%.

Now, apply this process to eBay. 10 years ago, the internet was primarily populated by people who were innovators and early adopters — people who weren’t afraid to try new things, and who were seeking novel experiences and fun applications of technology. The innovators were the folks who tended to try everything, generally keeping on the cutting edge of new advancements. They were the ones who got interested in eBay initially, and who helped it to get onto the radar of other users. The early adopters picked up on the site and began using it as well, presumably using it to empty the junk out of their homes and then buy other junk they didn’t really need, but desperately wanted to have.

By the time eBay began to become a household name in 2003 or 2004, the early adopters had already given way to the early majority. Some of the early adopters were still using the site, but many had moved on. The early majority, in the meantime, swarmed the site and made it swell into the success it became. That’s also the time when you started seeing physical stores opening up and offering to sell things on eBay for people too lazy to do it themselves. It seemed like everyone was getting on eBay, so it made sense to try to list up all the junk people cared to get rid of.

But that’s where the pendulum began to swing, and I’m actually surprised that a smart and savvy company like eBay didn’t see it coming. As the early majority began to drop off and the late majority began to join the site, eBay stopped seeing the same level of growth it’d become accustomed to. This hurt the company financially, so it raised prices on the sellers, promising that it would do more marketing to bring the customers back. But what happened instead was that the site continued to decline in use, and now, it’s already becoming irrelevant. The novelty of eBay has worn off, and only the people who haven’t yet tried it — those left in the late majority and the laggards — are going to potentially become heavy users. Everyone else has figured out the pros and cons of the site already, and most people have moved on to sites like half.com and Amazon.com where purchasing is faster and more standardized.

eBay’s shortsightedness is caused by two major errors. First of all, the company viewed itself as offering a service instead of a product. After all, why should it think of what is quite obviously a service in any other terms? But sellers think of eBay as being a product that helps them to market their wares, not a service that assists them in selling. Likewise, buyers think of eBay as being a product that helps them to find items they’re looking for, not a service that makes their buying easier. Despite the fact that eBay lacks the tangibility normally associated with a product, the fact that it exists as a physical website that must be accessed for any action makes it feel like a product to the user. At best, eBay is a hybrid service product, but even in that case, the company has failed to understand the implications where consumers are concerned.

Second, eBay has done a poor job of understanding its customers. The company continues to talk about “changing tastes,” but what it doesn’t seem to realize is that the change in tastes is the end result of being an eBay user. Bidding on auctions is fun for awhile, but once users become accustomed to instant purchasing, they don’t want to wait around for an auction to resolve. They want to know what price they’re paying and when the item will arrive before they commit to buy. They also prefer a standardized description of what they’re getting instead of a spotty paragraph written in capital letters that lacks the critical details. This is entirely due to their moving through the customer adoption process; their decision to stop being customers is predicated not on their changing tastes, but rather on their lack of patience for eBay’s many flaws once the novelty has worn off. eBay cannot turn this around, and they are going to have to pump their money into services like Skype, Paypal and half.com if they want to survive, because their core business is never going to make a comeback unless the company can drastically reinvent the experience and make it seem new and exciting again.

There’s a more important implication here, too, that anyone engaged in e-business should take away: don’t take growth for granted. In bricks-and-mortar business, the customer adoption process begins anew every time a new location is opened. People have to actually go to the trouble of physically visiting the store, and the store can only service so many customers in a year. E-tailers expect the same sort of growth patterns for their own websites, but unless they’re constantly opening new sites that can draw in different users, this sort of thinking is unrealistic. Sites like Amazon.com are surviving not because they are continuing to draw in waves of new customers, but rather because they continue to expand their service offerings and product offerings so they can retain the customers they’ve already got. Retention is the only strategy that makes any sense for an e-tailer to apply once the customer adoption process reaches its critical point.

I used to be a frequent eBayer myself, but I’ve come to realize that unless I’m searching for something particularly hard to find, I can generally get a better price by simply shopping around on sites like Amazon and Half. But then, I was an early adopter when it came to using eBay, so I suppose I shouldn’t be surprised.

Writing Scraps

by Sean J. Jordan