Archive for November, 2007

Ebay at the crossroads (part 5)

Thursday, November 8th, 2007

Having looked at the various options for Ebay to grow organically, let’s consider the final growth path: growth through acquisition.

This has been a controversial area for Ebay, as discussed in the introductory post to this series. It missed out on Paypal, then overpaid for Skype. M&A is a challenging area for Ebay due to the lack of any serious contenders in its marketplace. It could try a roll-up model buying all of the minority players, but this would not deliver anything like the growth needed to maintain its early trajectory.

This leaves Ebay in a position where M&A activity can only be about gaining capabilities or changing markets. Assuming, again, that it doesn’t want to change markets, what capabilities could it buy in?

One possibility is to buy in a site with the Amazon-style algorithms mentioned above. A more intriguing one would be to buy a web aggregator such as Netvibes or Pageflakes (it wouldn’t need to buy a widget-maker because this is relatively simple programming). It could do two things with this: firstly, it would be a very quick way to build the drag-and-drop functionality into its site, allowing users to tailor their own welcome page to the site, and therefore their own experience. This would be far more likely to make people creative in the things that they looked for in the site, and would therefore encourage people to buy more (as well as to return more). The other use would be to build web users more generally, be more creative on the widgets that it could bring out, and most importantly study how people are using the web (and what sites they are interacting with). That would be a fantastically useful facility for Ebay to build knowledge on interests and online behaviour.

If Ebay is to venture into M&A in a significant way again, it will need to ensure that there is a clear rationale for its purchase and an easily justifiable price for whatever it buys. Adding capabilities such as these would enable it to tick both of these boxes.

Ebay at the crossroads (conclusion)

This has been a long analysis of Ebay’s current position and options as I see them. I hope that it has been interesting and will present some valuable insights. Whatever happens with Ebay now will be interesting to observe. It is at a crossroads in its life – it was a pioneer and a great company. It has not pioneered for a long time. Let’s hope that the decisions that it makes now will let it become a great company again.

Ebay at the crossroads (part 4)

Tuesday, November 6th, 2007

So far, we have looked at how Ebay might increase its market organically by increasing its natural share of all purchases rather than passively awaiting buyers of auctioned (mostly used) goods. This post will consider how Ebay might expand into other markets. Let’s assume, probably accurately, that Ebay wants to keep its focus on the highly profitable market that it has to itself. So we will look at areas that it could grow around its core market and core capability.

The first that I can come up with is the online music industry. That is an industry that has grown massively over the last few years, and there are signs that it will continue to grow as people move away from physical formats onto soft copies of their music. There are two possible markets for Ebay for online music. The first is to create the same sort of market for second-hand music that exists for second hand records or CDs. There is no reason why people’s tastes would change any less for MP3s over time than for their CDs. They can sell their CDs, so why do they just have to delete their digital music (which may also be very valuable). Many downloaded tracks these days have codes embedded into them to make it difficult for them to pirate, and rightly so. How about using those codes as a way for people to sell their second-hand MP3s online? They won’t have the problem of being scratched or faded, they will still be in pristine order. It would need to rely on people deleting the track that they sell, but there is already a lot of trust needed in this industry and I’m sure that it wouldn’t be hard to create some technology to monitor this. This trade would also be future-proof: there is a prediction that as memory expands, players will eventually contain every track ever recorded, with the only download required being the activation code to unlock the track – these codes could be traded second-hand.

The second online music market that they could offer would be for amateur musicians to be able to sell tracks easily. Radiohead recently put its album on its site for download, allowing fans to decide how much to pay for the album. Ebay could offer new bands the ability to sell their music over a trusted format – linking in with MySpace or Facebook or other sites that put people in touch with acts. This would be a fantastically easy model for them to create, and could again use widgets (see previous post) on the bands’ websites to drive sales.

That covers music, but there is another way that Ebay could expand around its core market. Consider Blogger for a moment. Google’s core product is advertising. Google offers website owners the facility of placing its adverts on their sites, and it created blogger to get people to drive content for them to advertise on. Why doesn’t Ebay do something similar with hobby websites? It could create a WYSIWYG website editor for hobby sites that could have easy functionality to link in with Ebay widgets. That would build its brand, and allow it to drive content on which it could advertise its services as the best place to find private sellers of the specialised goods that relate to the site – whether equipment or collectors items or anything else hobby-related.

These are just two industries that Ebay could enter while keeping its core capability of putting buyers and sellers in touch with each other and charging a fee. What about if it wanted to keep the bidding format?

There is another market that it could enter to do this: venture capital. At the moment, VC is a very time-exhaustive process for the investor and the prospective investment. That is fine in the case of large and very complex investments in very specialised areas, but as with every market there would be a lot of mid-sized and smaller sized investments for which this structure simply isn’t efficient. Ebay could create a forum for these people to pitch their investments online – possibly even using finding (at last) an integrated use for Skype in holding an online pitch and Q&A session (over sound and/or video). The VC investors could then bid for the investment, and whoever offered the best deal would win. This would create a far more efficient transaction process for minor investments, opening up the market for the prospect and giving the investor more time back to find other investments.

This could even be expanded into financial services – what about wealthy people lending through Ebay? If people’s credit reports were loaded into their profiles, then potential lenders could set their risk appetite, and then bid on the interest rate that they were willing to offer people credit at. Understandably, this would be a far more complex market with far more sensitivities, but if people are already using Facebook to lend money to each other, there are signs that there is an appetite for it to go this way.

These options would allow Ebay to grow a portfolio of more specialised business, any of which could grow to be massive. All it takes is the imagination and a bit of web development. As we know, Ebay is not short of web developers.