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Wednesday, December 31, 2008

Wasn't It Obvious All Along? Simple Explanations for eBay's Decline

Happy New Year! At least to my friends in the Cook Islands! Welcome to 2009 y'all!

As we close out 2008 here in the Eastern Standard Time zone (GMT-5), a reflection.

Things that once seemed "complicated" in business and finance often respond very well to explanations a child -- or at least any logical adult observer with a Grade 7 reading comprehension level and a dollop of accurate data -- could understand. It's the adult motivations that make people cling to idiotic premises, even as the evidence points to the contrary.

The obvious example is the subprime mortgage mess, and related credit troubles. On an individual level, guess what's going to happen in an economic downturn when you give out 40-year, no-money-down mortgages to people with poor credit history and limited earning power? And lo and behold, it happened! But anyone could have told you that you don't just buy a half-million-dollar asset when your household's gross income is $60k... right? A child could have told you that?

Let's look at what someone might observe about eBay, without any foreknowledge of market data, financial statements, etc. (On that front, though, the picture isn't really pretty. It's 2009 tomorrow, and the stock is back to the same level it traded at in 1999-2002... and down more than 50% from its low in 2007.)

  1. Consumers openly say they're no longer into eBay because the auction concept is cumbersome and they just want to buy stuff. The hobby element is slipping away, especially on the buyer side. And straight sales, while widely available on eBay, stray from eBay's differentiator (that it's an auction). Amazon and other online retailers are better places to buy.
  2. Merchants are dissatisfied with eBay because eBay's cut is too big. This stands to affect selection and word-of-mouth going forward.
  3. eBay's brand is decaying because of the recurring problem of people using eBay to publicize grisly or tongue-in-cheek auctions for their own, personal reasons. It used to be great PR for eBay. Now it makes the brand tireder and tireder with every casket or sweat-stained tank top that goes up for auction.
eBay's strengths? Presumably, diversification is going to drive eBay's financials going forward. If they can sell off Skype for not too much of a loss, or -- mean feat but worth trying -- IPO it, they'll look pretty good on paper. Some of their other brands (particularly PayPal) have strength and don't suffer from, well, the "eBay problems" listed above.

As the eBay business declines, no one should be surprised. Even a child could read the handwriting on this wall.

Bonus complaint: eBay's name sucks. The company grew rapidly and so was forced to grow into the name, which always sounded like a sort of local "beta" moniker, but the brand's legs are affected by the poor name, IMHO.

You could say the same about the name Craigslist. Although an awesome service by many people's standards, such close association with a guy named Craig, and the image of an experiment started mainly for folks in the San Francisco Bay Area, might also reach its high water mark and begin to decay, as eBay has.

Hmm, maybe that explains why eBay has had to pin some of its hopes on a parallel brand: Kijiji.

The winner in all the confusion? It must be Amazon, a company that seems clear about its retailing mission.

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