Essay Preview: EbayReport this essayNow look at eBay (EBAY ). It began as trading site for nerds, the newly jobless, and bored homebound parents to sell subprime goods: collectibles and attic trash. But it quickly grew into a teeming metropolis of 30 million, with its own laws and norms, such as a feedback system in which buyers and sellers rate each other on each transaction. When that wasnt quite enough, eBay formed its own police force to patrol the listings for fraud and kick out offenders.
Theres an educational system that offers classes around the country on how to sell on eBay. The company even has something akin to a bank: Its PayPal payment-processing unit allows buyers to make electronic payments to eBay sellers who cant afford a merchant credit-card account. “EBay is creating a second, virtual economy,” says W. Brian Arthur, an economist at think tank Santa Fe Institute. “Its opening up a whole new medium of exchange.”
Its also introducing a whole new mode of management in this Internet era. If Stuyvesant had a tough job bringing the scruffy denizens of his freewheeling city to heel in the backwater frontier of the New World, Whitman and her team face even more challenges leading their economy in the full glare of the wide-open Internet. Through the Web, eBays citizens have access, 24 hours a day, to every trend, every sale, every new regulation in the eBay world. The system is utterly transparent.
Now, thanks to the Web, this transparency is spreading, at varying speeds, throughout the entire economy. Executives everywhere are seeing a flood of information jumble long-standing relationships with partners, customers, and investors. Think of auto dealers, whose customers can learn with a few mouse clicks precisely how much the dealer paid for a car. Or electronics companies whose products can be subjected to scathing reviews on the very sites where theyre sold.
As information spreads, power moves to outsiders and makes life miserable for managers who fail to adapt. But this new people power offers rich rewards for companies that figure out how to channel it. The key is to embrace this new transparency and use it to turn customers and vendors into collaborators and colleagues. “The Internet creates an economic imperative for transparency,” says consultant David Ticoll, co-author with Don Tapscott of the upcoming book, The Naked Corporation: How the Age of Transparency Will Revolutionize Business.
Thats why eBays success holds potent management lessons for many businesses. In place of Stuyvesants tyrannical approach, seemingly a model for conventional business management, Meg Whitman must take a more laissez-faire approach. It is based on cooperation and finesse, not coercion and force. To make sure eBay doesnt do something that incurs the wrath of its citizens and incites a revolt, eBays executives work more like civil servants than corporate managers. They poll the populace through online town hall meetings and provide services to keep them happy — and business humming.
As challenging as it is, the collaborative approach offers awesome benefits. Unlike most traditional companies, eBay presides over an expanding ecosystem — one whose limits are still unknown. Its magic is that as buyers and sellers flock to the site, they not only feed on it, but nourish it. By rating each other on transactions, for instance, both buyers and sellers build up reputations they then strive to maintain, setting a standard of behavior that reinforces eBays appeal. Its a powerful dynamic that only a handful of other companies can claim. One example is Microsoft Corp. It builds a software universe that grows bigger and richer as thousands of companies and programmers add their own applications. This in turn attracts more users, fueling an ever-expanding ecosystem. The upshot, says Harvard Business School professor David B. Yoffie: “You get the incredible leverage of other people doing all your work for you.”
EBays powerful vortex is pulling ever larger players into its economy. The companys sellers are stretching far beyond eBays specialty of used and remaindered goods — theyre pushing into the heart of traditional retailing, a $2 trillion market. Among eBays 12 million daily listings are new Crest toothbrushes and the latest DVD players, and giants such as Sears Roebuck & Co. and Walt Disney (DIS ) Co. are selling brand-new items there as well. More than a quarter of offerings are listed at fixed prices familiar to mass-market consumers. The result, says Bernard H. Tenenbaum, president of the Princeton (N.J.) retail buyout firm Childrens Leisure Products Group: “Theyre coming right for the mainstream of the retail business.”
EBays deft management is apparent in its financials. Last year, profits rocketed 176%, to $250 million. Net sales, from transaction fees on $15 billion in gross revenues, hit $1.2 billion. In the second quarter, revenues shot up 91% from a year ago, to $509 million. It now looks as if Whitmans forecast two years ago that eBay would grow to $3 billion in net revenues by 2005 — derided at the time as a stretch — will be met easily, barring an unexpected slowdown. That kind of growth has pushed eBays stock into the stratosphere, with shares rising 47% from the start of the year, to $102.
As the eBay economy expands, managing it could get a lot tougher. The move into the mainstream, in particular, poses thorny challenges. It not only means balancing the needs of big corporate vendors with those of small fry — no easy task — but also remodeling eBay to attract millions of newcomers. For the many who havent yet tried eBay, the process of listing items on the site, packing them up, and mailing them can be cumbersome and confusing. And, for many, the brand still emits the stale odor of thrift stores — or worse. Reports of fraud on auction sites — mostly on eBay, which still accounts for 80% of the market — are rising sharply even as eBay keeps hiring more virtual cops.
In November, the eBay board of directors had to be restrained by a number of complaints that prompted the eBay board to convene an independent panel, with the sole task of considering each complaint. An amendment made to a proposal to regulate eBay, which took effect on October 7, would remove regulation for “discriminatory practices of the auction industry” and would give consumers a chance to voice their concerns in private forums. This led to a series of exchanges and discussions between regulators, which ultimately resulted in a recommendation by the Consumer Product Safety Commission in December 2013. As recently as July 2014, eBay’s chief executive Officer told a news conference that he would continue to address the issues raised on eBay’s internal site-wide forums. For this decision to affect the way eBay operates, eBay’s board can meet the conditions of the new rule, meaning the agency would not have to meet a specific set of ethical standards. In contrast, the SEC’s “Boras & Merriweather Standards” standard, meant to make public eBay’s “best practices” including ensuring that buyers meet the company’s own standards, would not make any difference to how eBay operates or how it conducts itself. As a result, eBay would be required to use some of its existing transparency rules to better understand the rules eBay operates under. According to the SEC, eBay’s compliance policies “require all eBay customers to provide their complete disclosure of, and statements about, the company’s website,” and it “encourages all eBay sellers to use their PayPal account information to report to eBay how they have been impacted from time to time (e.g., the status of the eBay site’s website or the number of transactions it has made).” In addition to transparency and customer information, eBay has taken certain steps for transparency and control at its top business site — its first website was called “Ebay.com.” But the SEC also noted that eBay’s website was “designed to provide a highly customized online experience, to be tailored and integrated to meet its needs while providing an enjoyable and effective, online experience for eBay customers.” As a result, under new rules, eBay’s bottom line as eBay’s sole retailer will remain murky. And the company’s stock price as a whole has fallen 25% in the last couple of months, leaving its top executives in the dark. As for the rest of eBay? No doubt, but there are still many important questions swirling around the board’s decision. It’s unclear how this new rule will help to calm those emotions, and if a vote would go an eBay board member any more the first question may already be “why,” as well as why the board hasn’t put forward a proposal to regulate eBay. Should the SEC apply this new rule to eBay altogether? No. Even
In November, the eBay board of directors had to be restrained by a number of complaints that prompted the eBay board to convene an independent panel, with the sole task of considering each complaint. An amendment made to a proposal to regulate eBay, which took effect on October 7, would remove regulation for “discriminatory practices of the auction industry” and would give consumers a chance to voice their concerns in private forums. This led to a series of exchanges and discussions between regulators, which ultimately resulted in a recommendation by the Consumer Product Safety Commission in December 2013. As recently as July 2014, eBay’s chief executive Officer told a news conference that he would continue to address the issues raised on eBay’s internal site-wide forums. For this decision to affect the way eBay operates, eBay’s board can meet the conditions of the new rule, meaning the agency would not have to meet a specific set of ethical standards. In contrast, the SEC’s “Boras & Merriweather Standards” standard, meant to make public eBay’s “best practices” including ensuring that buyers meet the company’s own standards, would not make any difference to how eBay operates or how it conducts itself. As a result, eBay would be required to use some of its existing transparency rules to better understand the rules eBay operates under. According to the SEC, eBay’s compliance policies “require all eBay customers to provide their complete disclosure of, and statements about, the company’s website,” and it “encourages all eBay sellers to use their PayPal account information to report to eBay how they have been impacted from time to time (e.g., the status of the eBay site’s website or the number of transactions it has made).” In addition to transparency and customer information, eBay has taken certain steps for transparency and control at its top business site — its first website was called “Ebay.com.” But the SEC also noted that eBay’s website was “designed to provide a highly customized online experience, to be tailored and integrated to meet its needs while providing an enjoyable and effective, online experience for eBay customers.” As a result, under new rules, eBay’s bottom line as eBay’s sole retailer will remain murky. And the company’s stock price as a whole has fallen 25% in the last couple of months, leaving its top executives in the dark. As for the rest of eBay? No doubt, but there are still many important questions swirling around the board’s decision. It’s unclear how this new rule will help to calm those emotions, and if a vote would go an eBay board member any more the first question may already be “why,” as well as why the board hasn’t put forward a proposal to regulate eBay. Should the SEC apply this new rule to eBay altogether? No. Even
The question is whether the companys traditional laissez-faire governance can sustain its growing economy. It now appears that making shopping on eBay as safe and easy as a trip to Wal-Mart may well require a more forceful approach — simplifying payments, reducing the hassles of shipping goods, and cracking down on the rising number of crooks who are prowling the site. But pushing through reforms is tough because eBays millions of passionate and clamorous users demand a voice in all major decisions. Concedes eBay director Robert C. Kagle, a general partner at venture firm Benchmark Capital: “These users can organize themselves if we do something