Can Devin Wenig make eBay cool again?

June 2, 2015 09:46 AM

“EBay has to stand for something unique in the world,” says Devin Wenig, CEO-designate of eBay Inc., who is set to become the e-commerce pioneer’s CEO after the company spins off PayPal later this year.

“EBay is at its best when we enable small and medium-sized brands and merchants to present unique inventory to shoppers who love to shop.”  

Wenig is sitting in his disheveled third-floor office in the low-slung, sand-colored “Jewelry” building in eBay’s San Jose, Calif., headquarters. (Campus buildings are each named for an eBay product category.) Mountains of papers and books surround his monitor and it’s a wonder he doesn’t knock one over as his forceful gesticulations accentuate his talking points.

EBay’s strength is its inventory—roughly 800 million items are for sale on eBay at any given time, including a slew of obscure, vintage, used and collectible items not easily found elsewhere—he says. Wenig wants to grow that inventory by making it easy for consumers to sell items they’re no longer using—say the KitchenAid mixer a consumer received for her wedding but never used or the handbag gathering dust in the attic. By finding new ways to highlight eBay’s unique selection, Wenig aims to turn eBay into a “discovery-based marketplace” where value-oriented shoppers stumble upon and buy items they might not have known about, or thought about buying.

That’s the vision. But Wenig acknowledges eBay has to make some big changes to turn the idea into a reality. That starts with making it easier to find products. “We need to show the spectrum of products on eBay and be able to show groupings of products that fit together. With better search and better merchandising we can drive people to browse and discover products on eBay.”

Wenig has his work cut out for him. The gross merchandise volume, or GMV, which measures the total sales dollar value for merchandise sold through eBay’s marketplace in the United States, grew 8.5% last year. That falls short of the U.S. e-commerce market’s 15.4% growth rate. And while eBay faced challenges last year—a data breach forced it to reset users’ passwords and Google Inc. changed the way it ranks eBay’s pages in a way that hurt the online marketplace—the company’s growth has only exceeded the U.S. e-commerce market’s growth rate once since 2009.

EBay’s relatively middling growth—at least in the context of the burgeoning e-commerce market—is why few retailers that work with ChannelAdvisor Corp., a vendor that helps retailers sell on eBay and other online marketplaces, are focusing much time or money on eBay, says Scot Wingo, the company’s executive chairman. “Practically none of them are making huge investments in eBay because they see more innovation and growth coming from elsewhere,” he says.

Wenig’s mission is to refocus eBay. He has broad ideas, along with a handful of specific plans. But even so, many e-commerce analysts are left asking whether they’re bold enough to transform eBay into the e-commerce leader it once was. Or, at the very least, whether he can achieve his vision of making it a robust, growing marketplace that appeals to both small and medium-sized businesses and ordinary consumers seeking to unload items they no longer want.

Wenig’s plans harken back to eBay’s roots when it was one of the first e-commerce success stories. But it’s not clear that approach will work in 2015, says Colin Sebastian, an e-commerce analyst who works for investment firm Robert W. Baird and Co. While eBay has some important strengths—most notably, its massive scale, its profitability and its $72.65 billion stock market value—it has been losing market share for some time (See Data Points, page 49). And that’s a real problem. “You can’t lose market share forever,” Sebastian says. Even if Wenig does breathe new life into a leaner, more appealing eBay, many believe that the endgame might be another company acquiring the online marketplace.

For the moment, eBay is an e-commerce empire consisting of three businesses—Marketplaces, PayPal and Enterprise, its e-commerce technology and services division. But when eBay spins off PayPal early in the second half of the year, and Enterprise sometime after that, what will be left is a single business: An online marketplace that accounted for roughly 49% of eBay Inc.’s $17.9 billion in revenue last year.

The breakup of the eBay empire comes in the wake of a heated battle with activist shareholder Carl Icahn in the first half of last year. Icahn, who wanted eBay to sell 20% of eBay’s PayPal payments division in an initial public offering, spent the first four months of 2014 releasing scathing letters that accused eBay board members and current-CEO John Donahoe of leading the company to a $4 billion loss by mishandling the acquisition and subsequent sale of video communications company Skype. By proposing a 20% spinoff rather than a full separation, Icahn wanted eBay to preserve the “secret sauce” and “flywheels” that eBay and PayPal developed together while, at the same time, giving PayPal room to grow independently.

But after calling a truce with Icahn, eBay is taking a different tack by spinning PayPal off into a separate company. The move “best positions each business for long-term success,” said Donahoe during the company’s third quarter earnings call with analysts. An independent PayPal, for example, can form alliances with retailers, even Inc., and other financial firms. Meanwhile, eBay’s Marketplaces will be free to accept other payment forms for up to 20% of its transactions (EBay will pay PayPal a penalty if the transaction percentage dips below that threshold; PayPal will hand over cash for transactions above 80%).

The cost of making eBay a more agile company is that it is shedding the fastest-growing piece of its business. While revenue for both the company’s Marketplaces and Enterprise divisions grew about 6% last year, PayPal’s jumped 19%. Because PayPal’s growth has outpaced the other two divisions, eBay will be significantly weaker without the payments unit, says Sucharita Mulpuru, Forrester Research Inc. vice president and principal analyst.

The bright spot to the move, along with its planned Enterprise spinoff, is that as eBay’s business shrinks so too will its bureaucracy, she says. “EBay got too bloated and decisions were too hard to come by,” Mulpuru says. “Over the years eBay lost its entrepreneurial spirit and this might be an attempt to bring that back.”

EBay has largely failed to develop the type of breakthrough products and ideas that can change a company, Mulpuru says. While Amazon used the Kindle e-book reader and Amazon Web Services cloud-computing service to remake itself from a large-scale e-retailer with mediocre financial results into a broadly focused technology company (that still generates middling to no profits, see Data Points on page 49), eBay has not managed such transformational pivots.  

“Unlike Amazon or Google, eBay has been slower to adapt,” Sebastian agrees. “Whether it’s because of hubris or something else, eBay has missed out on a lot of trends. I still don’t think they’ve kept up in terms of technology or innovation on a level that’s on par with larger platform companies.”

EBay’s failure to figure out its next move isn’t for lack of trying. For instance, in 2009 the online marketplace sought to reinvent itself as an outlet mall. At the 2009 Internet Retailer Conference & Exhibition, Stephanie Tilenius, then-senior vice president and general manager of eBay North America, invited major merchants to sell excess and out-of-season inventory on eBay by noting “eBay is moving upmarket. We’re becoming a distribution channel of choice for large retailers. There’s a huge opportunity for you to build your business and make money on eBay.” The plan failed to pan out.

Other initiatives have also fizzled. In 2013 eBay bought delivery firm Shutl and sought to make a business out of handling same-day delivery for large merchants under the banner of eBay Now. While it still operates in some markets, eBay has scaled it back and is now running a test in Brooklyn geared to fulfilling orders for small- and medium-sized merchants. Its 2011 acquisitions of GSI Commerce and Magento, two companies at the heart of its Enterprise division, were part of its broader push to drive more large merchants to sell on eBay, as well as to diversify into e-commerce technology and services. But eBay disclosed this spring plans to sell its Enterprise division or spin it off in an initial public offering of stock. Its 2007 purchase of StumbleUpon, an early social network and personalized search engine, was an attempt to grab a piece of the then-fledgling social media landscape. But eBay sold it two years later. And, of course, there was its 2005 Skype deal, in which it bought the then-hot Internet phone service that some believed it would use to connect eBay buyers and sellers. But that vision never materialized and eBay sold a majority stake in Skype to an investor group led by private equity firm Silver Lake in 2009.

None of eBay’s moves have been the game changer that the company has needed to transform its business, Mulpuru says. And the massive Skype deal in particular served as a sort-of corporate traumatic episode. “It was a big bomb,” she says. “It was culturally poisonous.”

These missteps, and its below-market growth, tarnished eBay’s once-glowing image. Twenty years ago, Amazon and eBay rode the same e-commerce wave to become two of the Internet’s biggest stars. But while Amazon continues to grow faster than the e-commerce market and introduces innovations at a rapid clip (even if some, ultimately, prove unsuccessful)—developing TV series, rolling out consumer electronics, testing delivery drones—eBay’s business of late has been decidedly less flashy.

“It seems like eBay has settled down to slower growth,” Mulpuru says. “It isn’t going to gun to be the fastest-growing company with the biggest technology story. It’s simply focused on profitability. That’s not the usual story out of Silicon Valley. That’s the story you hear from blue-chip stocks.”

And Wenig says his plans likely won’t change that, at least not in the short term. “I don’t mind growing at a slower rate,” he says. “We’re not chasing a rapid path for growth.”

Before eBay can thrive again, it first has to redefine who it is, says Brian Hsu, eBay’s vice president, North America business operations. “Historically eBay has been a very one-size-fits-all marketplace,” he says, noting by largely treating all buyers and all sellers alike, eBay has left nearly everyone feeling neglected. That’s a problem because as a marketplace, eBay has to find ways to make both buyers and sellers—both of whom are its customers—know that it understands their needs.

That’s required a cultural change, currently underway, that focuses around speaking to both buyers and sellers on a more personalized level, Hsu says. For sellers, that means rolling out tools and services that make it easier for small- and medium-sized businesses, as well as consumers, to sell on its platform. And for both buyers and sellers, it means personalizing the buying experience so that what a consumer sees when he visits eBay—whether on a computer or mobile device, via its website or an app—the marketplace is tailored to his interests. “We can’t be a place where everyone knows there’s a lot of stuff but that requires a shopper to have to do a lot of work to find what he’s looking for,” he says. “We have to understand who our customer is, speak to him on his terms based on his interests on the device he likes to use. In short, we need to get closer to our customers.”

EBay’s existing customer base, 157.3 million active users as of the end of the first quarter, is value-oriented, Wenig says. That’s explained, in part, by demographics: 54% earn less than $60,000, according to Millward Brown Digital. While eBay’s customer demographics are fairly consistent with Amazon (53% of Amazon’s customers earn less than $60,000), Wenig says eBay has found that the marketplace’s core customers are “treasure hunters” and “self-expressionists” who look for “value” in the products they buy. “That doesn’t mean cheap,” he emphasizes. “There’s value at every price point.” Finding ways to appeal to those shoppers by showcasing the good prices and selection eBay offers is where Wenig sees eBay’s transformation coming. “The whole focus is making a better experience for our core customers,” he says.

The first step eBay took toward that objective was with the rollout of its iPad app last December. The Pinterest-looking, image-focused design features professional-looking photographs, as well as a host of content meant to help shoppers discover items they might want to buy.

EBay’s goal for any mobile app is to use the design to get the right set of items in front of the right user at the right moment, says Dave Cheng, eBay’s director of product management, mobile and wearables. That means using a shopper’s actions—what he recently searched for, previously bought and the types of items he tends to look at—to inform what eBay presents him. For Cheng that might mean identifying him as a hockey fan and then presenting him hockey-related products and content while, at the same time, distinguishing the different ways he and most consumers navigate eBay on their phones and on tablets; it’s not unusual for Cheng to spend 10 minutes on his couch browsing eBay on his tablet in the evening, while he might only check the eBay iPhone app for a minute while at a red light in his car. That type of information informs the way his team designs eBay’s apps.

The iPad app highlights product-related content. The “today” tab, which is what a shopper sees when opening the app, showcases a featured “collection,” a social-oriented feature the marketplace introduced in 2013 that lets a shopper cull through celebrity and other shoppers’ web collections of his favorite items on eBay. The app also features tabs to let a consumer see items he’s watching or recently viewed, as well as article-like categories or guides, such as “how-to” articles that highlight items sold on eBay that both eBay’s internal teams and the various “influencers”—bloggers and content experts—create on eBay. That’s a different approach than eBay will take when it rolls out the latest iteration of its smartphone app later this year. The smartphone app will focus more directly on transactions—letting a consumer track items he’s watching, he’s searched for, looked at, as well as any items he’s selling himself—rather than aiming to draw him into engaging with content such as collections or guides. 

Similarly, eBay’s Apple Watch app, which is set to roll out this month, will simplify the marketplace experience even further. The app will feature four bubbles—activity, buying, watching and selling—that give a consumer easily digestible bits of information. The Apple Watch is a companion device to the iPhone, which means that the app doesn’t need to use its limited screen space to attempt to communicate information—for instance, searching through product listings—that would be easily understood on the smartphone, says John Tapley, eBay’s senior product manager, innovations and new ventures, who worked on the app. “We want you to be able to see everything you need to know in 2 seconds,” he says. The app also features 28 types of push notifications that can inform a user, for example, that the auction for the item she’s watching is ending soon or that she’s been outbid on the item. It makes sense for eBay to notify users of information, Tapley says, because of the time-sensitive nature of its platform.

Mobile is one area that eBay has proven successful. Its apps have been downloaded 266 million times, half of eBay’s active users interact with the online marketplace via a mobile device, and roughly $28 billion flowed through eBay last year via mobile devices. Even so, Wenig doesn’t consider mobile to be a separate channel from “We’re in a post-mobile age,” Wenig says. What he means is that most consumers have a mobile phone and mobile connectivity is now just a means to an end, another way to interact with consumers. Each mobile device a consumer uses simply presents another place eBay can make product discovery possible.

Just as he doesn’t draw sharp lines between devices, Wenig also aims to drive more buyers to sell on its platform to help erode the demarcations between the people buying and selling on eBay’s marketplace. That’s reflected in the company’s mobile apps, which provide easy entry points for both buyers and sellers. Wenig aims to drive eBay back to where it started—as a forum for what he calls “peer to peer” selling.

“There are billions of dollars worth of valuable items in people’s garages and closets,” he says; it’s a line repeated time and again by countless eBay executives when they talk about Wenig’s plans.

In order to drive non-professional sellers to sell on eBay, the online marketplace is looking for ways to streamline the selling process, says Heather Friedland, eBay’s vice president, local and seller experience. For instance, last June it launched eBay Valet, a program that lets consumers use prepaid shipping labels to send items to one of eBay’s two processing centers—one is in Los Angeles and one in Indiana. EBay is also in the midst of a test that lets consumers drop off items at designated drop-off centers, FedEx stores in Atlanta and Los Angeles. After eBay receives the items, it professionally photographs them, writes a product description and prices them based on similar items that sold within the last 90 days. Consumers then earn between 60% and 80% of the sale, based on the final purchase price.

The online marketplace is also testing whether cleaning up sellers’ photographs—by using editing tools to replace the duvet that a handbag is propped up on, for example—will boost sales. The first product line that the online marketplace is testing is Coach handbags and feedback to the test has been “overwhelming,” says Jordan Sweetnam, eBay’s vice president, seller experience, although he declined to share specific results. “Sellers love it because the images look amazing,” he says. “It’s all about simplifying the seller experience.”

While those types of efforts may make the products on eBay more engaging to consumers, driving more consumers to sell on eBay isn’t a strong path to growth, Mulpuru says. “The vision is to go back to eBay’s roots, but those roots were a humbler beginning.”

There is one major way that Wenig is shifting away from eBay’s roots—he wants to better organize the data it gathers from sellers. The idea is to make it easier for shoppers to find what they’re looking for on eBay. “We can’t do that today because we don’t understand the connections between products,” Wenig says. Amazon and most other marketplace operators group together listings for the same product so that a shopper searching for a product like a “Catching Fire DVD” will find one product page. But eBay has largely let each seller craft his own listing. That’s meant that a “Catching Fire DVD” search on eBay requires a shopper to sort through 125 listings.

Now eBay is going to try to make search results better by requiring sellers to identify products in a uniform way. Besides making eBay a more appealing place to shop, it could also help eBay solve a search engine optimization problem that developed last year. EBay’s natural search results fell heavily in 2014—various media reports suggested the reason was eBay had created and optimized pages to attempt to game Google’s search rankings (neither eBay nor Google would comment)—and the problem cost the online marketplace millions in revenue. That may be why Wenig has pegged eBay’s transition to so-called structured data, which would organize listings around product identifiers, as a “top priority.”

The first phase of the transition will come June 29, when eBay begins requiring sellers in 18 categories including baby, home and garden and pet supplies to include product identifiers when they list items. They include the item’s brand, manufacturer part number and numbers widely used to identify products, such as universal product codes (UPCs) for a wide array of consumers and international standard book numbers for books.

The transition away from eBay’s traditional approach is essential to helping search engine spiders find the items on eBay, Wenig says before stressing that the process will take time. “This is a multiyear journey,” he says. “You bite off one challenge at a time, category by category.”

Some sellers are concerned about the move. For instance, John Olson, CEO Of Greystone Industries Inc., which sells pond and fountain products, says the shift to structured data will mean he’s faced with pulling some private-label items off eBay or paying several thousand dollars to a UPC distributor so that he can list products on eBay. “At some point, it won’t make sense to list more items on eBay,” he says.

Wenig counters sellers’ complaints about structured data by suggesting that the move will help organize listings on eBay. Take a consumer electronics product like a smartphone. Enabling a consumer to compare and contrast two listings—say an iPhone 6 with an iPhone 6 Plus—requires eBay to group together the various listings for the phones, Wenig says. “It hurts us the most to not be able to compare and contrast items,” he says. Structured data will change that, he says.

Sellers on eBay will benefit if shoppers can find items more easily because that’s been a problem, ChannelAdvisor’s Wingo says. That’s evidenced by the fact that when ChannelAdvisor clients sell items in eBay’s Daily Deals section, their sales typically soar—even though they often are selling the items at the same price they had been offering elsewhere on eBay. While some buyers may be bargain hunters who focus on the Daily Deals section, there are likely others who simply couldn’t find the sellers’ items.

Another way eBay aims to help sellers garner attention is by offering ad units that let them secure higher profile rankings in search results. The online marketplace plans to begin testing the ad unit, which it is calling Promoted Listings, this month in the United States, United Kingdom, Germany and Australia and plans to roll it out more broadly over the course of the year. Retailers will bid a percentage of an item’s final purchase price to win ad positions. The ads will initially appear to shoppers on eBay’s desktop site, as well as its Apple Inc. iOS mobile apps. EBay plans to expand the ad unit to its Android apps in August.

At first, the ads will appear at the bottom of the first page of search results but over the course of the test, the online marketplace will make them more prominent. The aim, a spokeswoman says, is to ensure that the ads aren’t too intrusive. Based on the test’s results, eBay says it may begin placing Promoted Listings ads elsewhere on its site.

The ads are different from eBay’s previous attempts to offer ad units that let retailers pay to promote products because they will rely on structured data that precisely identifies an item. That way a consumer searching for a Nikon camera will only see ads for cameras and complementary items, Sweetnam says. “We want to make sure relevance trumps monetization.”

As he seeks to make eBay easier to shop Wenig faces growing competition. Many big retailers have been extending their online inventory by letting other merchants sell on their e-commerce sites, creating their own eBay-like online marketplaces. Besides Amazon, shoppers can buy crafts and used goods on Etsy or browse the online shopping malls that such major retailers as Wal-Mart Stores Inc., Sears Holdings Corp., Staples Inc. and Best Buy Co. Inc. have added to their e-commerce sites as they seek to match Amazon’s selection without having to own a lot more merchandise.

Meanwhile, looming on the horizon is Alibaba Group Holdings Ltd. China’s dominant e-commerce company has yet to make a major consumer-facing e-commerce push in the United States, but it has the cash after putting into its corporate coffers $8 billion from its record-setting $25 billion IPO on the New York Stock Exchange last September. Those are all reasons why Wenig can’t waste time defining his vision for eBay, experts say.

“There still a role for eBay Marketplaces,” Sebastian says. “It fits snugly between an online retailer like Amazon on the one end and platforms like Google and Facebook on the other that drive traffic to retail websites.” While eBay’s attempts to transform itself into an outlet mall and fulfillment provider failed, he says it still can succeed by highlighting its value and product selection. “That’s its sweet spot and if it focuses on that, and if it can make the site more appealing for sellers, it can succeed.”

What success means remains up in the air. Many believe Wenig’s ultimate goal is for another company to buy eBay. “I haven’t talked to anyone who doesn’t think that eBay is going to be acquired,” Mulpuru says. “It’s breaking up the empire and selling the parts to the highest bidders.”

Wenig, for his part, doesn’t deny the possibility of an acquisition. “That’s not what I wake up thinking about. What I am thinking about is building one great business.” And that construction project is just getting underway.





Top Solution Providers