Archive for October, 2007

Ebay at the crossroads (part 3)

Sunday, October 28th, 2007

The last post looked at the recommendation algorithm side of how Ebay could increase its share of all purchases. This post will look at the other key way in which they could do it – viral exposure.

One of the most striking symptoms of Ebay’s strategy is its apparent passiveness. I suppose that this is a feature of its lack of a serious competitor, but it is still striking. In order for it to get revenue, it relies on people deciding to buy something, then deciding that they might buy it on Ebay, and then looking for it. Its marketing only encourages this process – it does nothing to try to gain a greater share of all sales and purchases.

One of the key components of today’s internet is the ease with which sites can be incorporated into each other. There is no greater example of this than Netvibes or Pageflakes – web aggregators that allow you to put RSS feeds alongside modules of other sites to give you your own personalised web dashboard. Sitting next to a feed of the news stories you are interested in, you can see (at a glance) your webmail accounts and your facebook account too. To the uninitiated, these modules are called widgets.

Widgets go beyond RSS feeds – they are small graphical modules that can be incorporated into any website very easily, and their look is controlled by the source website. For an example, see my Amazon book store, above. That is a widget – a potted version of another site, with limited functionality, that acts as a summary of what that site has to offer and a way of getting through to that site. They are very, very easy to create and, because they give information about the benefits of the source site, they drive more (and better quality) traffic. Ebay has some widgets – it allows Netvibes users to manage their accounts through modules. But it doesn’t appear to have any widgets that go beyond servicing, and it is missing out on the opportunities that widgets provide for driving more business.

Consider my Amazon book store as an example of this. You will all have heard of Amazon, and you probably shop there for some of your book (etc) purchases. Amazon recommends things to you every time you view something (and stores your purchases and views to recommend possibilities to you when you first enter the site). It is very good at doing this, so why would it want to let me put a widget on my website and pay me commission for anything that gets bought through it?

Because of the power of my recommendation. This site is very specific about what it covers, so it will attract a particular interest group. I probably mention some books in my posts anyway, so why not let me link to them and get the sale right away? Sites that are general will probably not have their widgets explored so deeply (oo-er missus), but even if they do Amazon might get a sale that it wouldn’t otherwise have had – so it works as a system. It is in essence a very open-ended form of affiliate marketing.

Imagine a site about rock tumbling. If you don’t believe me that there are sites about such things then look here and be pleasantly surprised. This site actually has a trading area. It doesn’t seem to be doing much trade. But imagine if Ebay could take some of this trade by creating a little widget that this site could incorporate, which would contain the latest items for this interest group and an easy listing function for sellers to use too. Not only would they earn something, but they might find that the market in tumbled rocks actually grows. Ebay wins, wins and rock tumblers everywhere win. Bear in mind that Ebay has incurred as good as zero cost in doing this. Now multiply that by every hobby site on the internet and it becomes apparent how much potential there is for Ebay to gain exposure. Not only more listings but more sales. Perhaps it could pay a commission to the widget holder, in the way that Amazon pays me, for each listing and/or sale that arises.

Very quickly there could be millions of little Ebay marketplaces sat in front of people who are interested in the items in that marketplace. Only then would Ebay be able to increase its share of overall sales.

Ebay at the crossroads (part 2)

Tuesday, October 23rd, 2007

In many ways, what ebay has achieved in the business model that it has pioneered is astounding. It has built an iconic brand that has changed our purchasing behaviour, and it has done this on a foundation of many people that it has never met. In other words, it has built trust on the back of millions of people who have bought and sold through it – a minority of whom are not trustworthy. It has done all of this as an intermediary and has relied on general honesty, to which it added a feedback system. This is an awesome achievement.

Ebay is also in a very rare position in the business world – it continues to dominate the market that it largely created, and has no significant competitors. The result of this is that it is very passive in the way that it drives sales. It relies on people coming to the site to search for items to buy. This is backed up to an extent by marketing – it used to spend a lot more on paid search and its television adverts have been visible but have not been successful (according to Marketing Week). In this way, it is missing the greatest potential of having an online trading platform – especially two things: recommendation algorithms and viral exposure.

This post will look at recommendation algorithms, the next will look at viral exposure. These algorithms drive a greater volume of sales per customer. In The Long Tail, Chris Anderson argues that there is a long tail of demand in many things. In other words, if you chart the sales volume of available variants of a product in descending order of popularity, there will always be a few products at the head that account for most of the sales, and less demand for the more niche products further down the tail. The aggregate demand for all of these niche products is significant (and frequently with less competition and better margins), but a traditional retail model cannot meet this demand easily due to the cost of shelf-space and inventory, so choice becomes limited. For online retail, the dynamic is very different – fewer physical constraints mean that it is easier to meet very niche demand. Anderson demonstrates that seemingly infinite choice results in increased overall demand. The challenge becomes how to connect this mass of pockets of supply and demand.

Everyone has seen Amazon’s solution to this problem – the recommendation algorithms. These appear in a number of different circumstances and use the combination of excellent product data, what you are looking at (and have looked at / bought), what products other people who viewed that product also viewed / bought, and amateur reviews and recommendations of those products. This creates the ability to treat people as niches of one and give them highly relevant products (people like you have also bought…).

Ebay could do something very similar. Sellers already categorize their items in order to get a much better sale (something, by the way, that they could do a lot better if they had the free-text and suggestions technology that Facebook and others have), so it wouldn’t take a lot to categorize items far more effectively. Imagine that – people would be prompted to buy far more things if the recommendations worked much, much better. Now I know that people might not be very happy with Ebay suggesting rival auctions at the bottom of the items that they are trying to sell, but it could go at the end of the bidding screen (assuming that the auction is not about to end in the next 30 minutes), or even better, after bidding has closed it could be displayed to the losing bidders. The point is that this would cost very little for them to develop, and even less to run.

Imagine the power of the Long Tail of Stuff (as Chris Anderson called Ebay) proactively recommending relevant stuff to you – it is enough to make you wonder why they have not already done this.

Ebay at the crossroads

Saturday, October 20th, 2007

Ebay has had a lot of coverage recently, prompted by the $1.4bn impairment write-down that it has had to take against its purchase of Skype. This has also brought questions about what its strategy is at the moment. I believe that ebay is at a crossroads. It has been a great company, and what it does now can move it forwards and make it a great company again. It could also act in a way that just makes it lose focus and move sideways. The worst of the outcomes is if it sits back and admires itself, in which case the decline that it appears to be facing is certain to continue.

Why do I believe this? Ebay has grown phenomenally and has been one of the cornerstones of the growth of the internet. It has also entered into popular culture in a huge way – it is one of the few companies whose name is also a verb (I’ll just ebay it). At the same time, it really doesn’t seem to have changed very much – its front page has been the same for as long as I can remember. It is certainly not the pioneer that it once was, and it has been struggling to maintain its meteoric early growth. Buying Skype has now been officially admitted to have been a lesser act than it was claimed to be. In short, it has all of the characteristics of a company that is drifting a little.

Doing nothing will only take ebay backwards, and losing focus will take it sideways. So I intend, over a few posts, to focus on what I believe will move it forward. This will principally be three things:

  1. Using the latest of the web to proactively drive more people to buy and sell through:
    1. Recommendation algorithms
    2. Viral exposure
  2. Finding new markets to which it can bring its core strengths
  3. Potential targets, or partnerships, for it to growth inorganically

The next posts will consider each of these points.