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Innovation: What the problems at eBay and the success at Amazon.com can teach newsrooms

It’s easy to complain these days about the lack of innovation in newsrooms. Newspaper companies are especially lacking in this area. Many are currently being hit by a triple whammy: economic downturn, secular declines, and debt burdens. In response, managements have largely responded by choosing to cut rather than invest in new people and new ideas.

But even in an atmosphere like this, embracing innovation as a core principal is more critical than ever. There may be no better example of this than the rivalry between Amazon.com and eBay.

On Saturday, Brad Stone wrote a piece called, “Amid the Gloom, an E-Commerce War,” in the New York Times which examined the reasons behind the current decline of eBay and the rise of Amazon.com:

“Indeed, the balance of power in e-commerce seems to be shifting faster than anyone expected. Just three years ago, eBay had 30 percent more traffic than Amazon. Today, its total of 84.5 million active users is barely ahead of the 81 million active customer accounts that Amazon reported in June.”

As I read the piece, I was struck by some of the ways eBay’s problems mirror those of newspapers: They had a legacy business (auctions) that once made them dominant, but was now falling out of favor among consumers. Despite the obvious warning signs, executives repeatedly refused to fundamentally re-examine their core business model. They made a number of rash acquisitions that didn’t pan out. And the result is that they fell behind Amazon.com on a number of metrics.

Stone writes:

“More than a dozen current and former eBay executives, from all levels of management, say eBay routinely failed to reorient its core business. They say eBay avoided fiddling with its auction model because it was wary of disrupting a long-profitable equilibrium between buyers and sellers.

EBay has known for years that some Web buyers were looking for a different experience. Surveys suggested that auction participants were alienated by untrustworthy sellers and hidden shipping fees, and increasingly preferred the certainty of instantly buying items at a fixed price.

Although eBay executives recognized and routinely acknowledged the problem, they never took bold, direct steps to address it.”

Of course, in some ways, eBay’s slide has been more dramatic and faster than that of newspapers. eBay went from being the unassailable leader in e-commerce just four years ago. Of course, earlier this month, the company announced it was laying off 1,000 employees, or about 10 percent of the workforce.

So what did Amazon do right? It kept experimenting, even when many of those experiments failed or caused some dissension in the executive ranks. Stone writes:

“Mr. Bezos credits Amazon’s tolerance for risky, expensive bets like the Kindle electronic reading device. “Our willingness to be misunderstood, our long-term orientation and our willingness to repeatedly fail are the three parts of our culture that make doing this kind of thing possible,” he said.

And later:

“Conversations with Jeff Bezos of Amazon inevitably provoke two kinds of outbursts. One is that famous, barking laugh that punctuates even seemingly mundane sentences. The other is his paean to the wisdom of long-term thinking. “We are willing to plant seeds that take five to seven years to grow into reasonable things,” he said in an interview. “You can’t do big, clean-sheet invention unless you are willing to invest for long periods of time.”

The big differences as identified by Stone:

While eBay was buying into classified advertising, online payments and Internet telephony, Amazon spent hundreds of millions of dollars building its brand as a trusted retailer — hiring customer service representatives and returning money to customers when transactions went awry. As eBay took a pass on digital media, Amazon dove in and frustrated investors for years with margins that were diminished by a bulky R.& D. budget — but produced promising businesses like the MP3 store.

Compensation at the two companies also reflects core differences. Amazon evaluates its executives annually and gives performance-based stock grants. Until this year, when Mr. Donahoe became chief executive, eBay gave cash and stock bonuses based on quarterly performance, rewarding managers for meeting Wall Street’s short-term expectations.

Similarly, Amazon’s push to recruit the small sellers who orbited eBay was marked, at first, by patience and often-embarrassing experimentation.

So, the big lessons here: Constantly be questioning and re-examining. Invest in innovation. Experiment, fail, and experiment some more. If you hold on to what works today too tightly, eventually it’s going to become an anchor around your neck.

3 Responses

  1. Chris:I missed the original NYTimes article but caught your derivative. Given I was involved in the online auction industry early on, I was astounded by the changes in attitude and perception toward eBay and its place in the scheme of things.Sure, there is some competition between eBay and Amazon but the thing that is ignored in the article is the uniqueness of eBay and the social network aspects of online auctions.Chris, the two sites are as different as day and night, largely because of where they came. Oh things have changed from the days when eBay was really social but the biggest change came with the ascention of Meg to CEO … and the era of management that tended to dictate to its sellers. Those sellers are an independent lot I’ll tell you and the result was a much more contentious relationship than I ever imagined. Indeed, Meg’s management treated its sellers more like labor than independent businesses in which it was primarily a venue.I do recognize that there were a number of pressures on eBay that forced them in that direction and I sense they got better at customer relations over time but that culture – obviously the NYTimes article pointed to the frustrations of eBay execs – is the soul of the site. Regardless, it is a incorrect to believe that eBay can be managed like Amazon.This is because their audiences are vastly different. How so?The site quantcast.com offers some figures that will clarify the vast differences between the sites. According to quantcast, a full nine percent of eBay’s visitors fall into the category of ‘addicts’ … people who are there every day … one or more times. Amazon, despite the aura of its brand and its breadth of product, is credited to have fewer than one-percent of its audience in the ‘addict’ category. Amazon is just not that compelling or fun.Here are the quantcast links for the two:http://www.quantcast.com/amazon.com/traffichttp://www.quantcast.com/ebay.com/trafficSince the lynch pin of your argument is based on the presentation of the 85 million users for eBay vs. a reported 81.5 for Amazon … which is used to present some kind of near parity, let me suggest you check the above links to see that to suggest parity is a joke.Here are the eBay numbers:Monthly Traffic USVisits per Month 1,647,432,134People per Month 62,018,090Here are the Amazon number:Monthly Traffic USVisits per Month 258,393,319People per Month 48,043,840Sure this is based on a quantcast panel but eBay still has a substantial lead in visitors per month (almost 30 percent … which is the traditional difference mentioned in the article, BTW) and in terms of visits-per-shopper eBay takes the cake with an average of over 26 visits per person per month. Amazon is a comparative weak sister with 5.3 visits per month.I do have a bit of experience with ebay; particularly in the early days and frankly, this is because eBay is more of a social network than amazon and that may explain what some may feel are problematic metrics. (I’m almost certain that Amazon’s sale per visit is probably a multiple of eBay’s. )To me the issue with eBay is management. Sure they’ve been intimidated by their members … Good.As a publisher of a news/social network site, I understand the task is vastly different because social networks are vastly different – even those based on the buying and selling of goods – are at their heart much flatter in their heirarchy than any traditional business structure.It is obvious to me that the new management at ebay has needs to come to grips with that reality and not run off to the NYTimes and cry about how they can’t be competitive. They just need to understand what they have.pubby

  2. Hey GP!Lots of great points here. Yes, eBay is definitely more of a community. And there are clearly lots of assets and strengths there for them to leverage.Often analysts and investors look only at growth rates and “momentum.” I think Yahoo is a victim of this as well. Lots of great underlying services that are hugely popular. But they’re not Google, so they get dinged hard.That said, I think that while eBay clearly has a strong loyal core (like print newspapers), the issues is in some ways is that the auction model is becoming less engaging for the rest of us casual shoppers. I long ago stopped bidding on stuff. I pay for stuff on eBay, or I don’t. And I think more and more folks are doing that, which represents a secular problem for eBay.So eBay has a big propblem, which again, I think mirrors that of newspapers. How do yo balance the need to change vs continuing to serve your loyal core community? Newspapers have handled this badly. We haven’t changed enough, and the changes we make only serve to anger long-time readers. Same at eBay: Their core is upset with them. But at the same time, Amazon is beginning to encroach by luring small businesses away.It’s not any easy puzzle to solve. So it’ll be interesting to see how they approach it.

  3. Chris:You wrote:How do you balance the need to change vs continuing to serve your loyal core community? Newspapers have handled this badly. We haven’t changed enough, and the changes we make only serve to anger long-time readers. Same at eBay: Their core is upset with them. But at the same time, Amazon is beginning to encroach by luring small businesses away.My problem is how the quality of the service is measured. It would seem the sole yardstick employed is the dollars they earn. Now, I’m all not at all averse to making money. I’m sure you would love to make more money as well, Chris … but the reality is that bean counters and stock analysts are down right obsessed with making money and generally could care less about any other factor.It has been a saw of those critical of corporate America that the decision making is driven by Wall Street and its insistence on the biggest payoff this quarter … and it rewards you (the owners and managers) with interest in your stock and punishes you if you don’t do as well as expected.This, frankly, is fundamentally at odds with providing the best service as the pressure is always on cutting costs and maximizing profit. The only countervailing force is competition and the attitude of those who work in an industry.This topic is technically about eBay and Amazon but it is really about public corporations. To make that point, consider the status of Craigs List in this discussion. Largely privately held, it is just out there filling a need in a relatively modest (technically) manner that is not pretending to be anything other than a posting board for classified ads. Its presence has cost newspapers dearly and many are upset that they do it largely at no cost to the consumer.Now you know and I know that it would change dramatically if it were publicly held. If that were the case, Craig Newmark be calling the shots and it would become graphically a lot more dynamic, we would see slick TV ads and all sorts of buzz, just as we did eBay after it became public.But instead, Craigs list keeps doing what it does and dramatic change is probably not in the works. Certainly, if Craigs List were answerable to Wall Street it would grow faster? And no doubt, it would make more money? But I don’t think it would still offer free classified ads to anyone with a free Internet connection. ( As an aside, anyone who thinks Craig’s list has not impacted eBay’s auction listings is kidding themselves, yet it was only mentioned in passing as a ‘failed’ eBay investment.)Chris, you point out that many of the changes made only served to anger long-time readers. What Wall Street doesn’t realize (and apparently few in newspaper managment) is that newspaper use is like smoking, drinking coffee and eating at the corner diner. It is a habit. Like smokes, fewer people read newspapers today than they did a decade or two ago.. For those who still have the habit, the newspaper is/was a friend who informed them, in more recent decades, in the morning. When you changed that newspaper, it seemed less their morning friend.Habits change over time but just as it would be foolish for the cigarette maker to change from tobacco to parsley, it would be foolish for eBay to go to a fixed price store or newspapers to change the nature and style of their coverage so drastically that those who read them find them cold, shallow and of little consequence.Today’s NYTimes reported that eBay will earn only $8.53 billion, down from the $8.8 to $9.03 billion forcast earlier. The same report said it would earn a net profit of about $ 500 million this year compared to a loss off about $600 million last year because of the acquisition of skype. So the logic is last year when they had all 16,000 employees they lost $600 million but this year, with profits at $500 million, they suddenly need to layoff a thousand workers. Who are those cutbacks designed to impress? The sellers who are leaving because of mediocre customer service or the analysts on Wall Street who see it as a move that will increase profit this quarter?Chris, I think it is always a good idea to improve a product to better serve the customers but a bad idea if the purpose is to so drastically alter a product that the essence of the product or service offered no longer fills the need.I think it is an exceedingly bad idea to judge whether a product is good or bad is strictly based on its profitability or especially, its perceived profitability in the eye of the so-called masters of the universe that inhabit Wall Street. See, a few folks still make a living making some pretty fine buggy whips even though the market for them has declined precipitiously since 1890.

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