eBay’s Disruptive Innovation, How’s that workin’ for ya?

by Steve on September 26, 2008 · 41 comments

John Donahoe is less popular than President George W. Bush. The President took years to get to this point, Mr. Donahoe accomplished it in just one. Exactly one year ago this weekend, Mr. Donahoe was a guest speaker at the Legg Mason Capitol Management Thought Leader Forum. The topic was "Disruptive Innovation," and Mr. Donahoe spoke about his plans for eBay. Let's see how he's done. It get's better the farther you go, as I get more frustrated and sarcastic. This is a long post, get a donut. I'll wait. The following contains actual quotes from Mr. Donahoe's speech. At the bottom of this post, I've included the "concept cards" from his presentation that can be found on the Legg Mason Capital Management website. Oh and along with my sarcasm. Feel free to add your own.

The topic of disruptive innovation and the history of eBay have a lot in common. In many ways, eBay itself was a disruptive innovation. All three of the major businesses that are a part of eBay are disruptive innovations. I'd like to spend a little bit of time talking about how eBay got to where it is and then talk about how we approach innovation going forward. Today we're dealing with phase two or phase three of disruptive innovation. We've had the disruption, now we must disrupt our own disruption. That's part of the challenge.

Okay, does he know which phase we're in? Because that seems like it would be important. And this sentence, "We've had the disruption, now we must disrupt our own disruption." reminds me of the guards in Monty Python and the search for the Holy Grail, see what you think:

Other points made by John (can I just call him John?) are found here when he talks about the idea of "disrupting" a successful business (no I'm not kidding):
We set out a year ago to think about how we could change before we are forced to change. We took a good look at ourselves in the mirror and didn't like everything that we saw. We saw a very successful business and a lot of momentum but we saw that our user experience and ability to satisfy our buyers and sellers wasn't what we wanted it to be. By using a real focus on the customer, we embarked on a series of fundamental changes that will ultimately span a three year period. We started by creating a future vision. This was critical because not everyone felt the impetus to change, given the amount of success we were experiencing. There's a real push to keep doing what you're doing because it's working. We dove deeply into an understanding of our customers, their needs, their unmet needs, and their alternatives. We had to confront some sacred cows. These are often some of the most difficult things to handle. They're perceived as values of the company. For example, we talk about the level playing field. We treat every seller the same. Now, the level playing field really means that the little player shouldn't get shut out. It was never intended to mean that we treat a bad seller the same as a good seller. Intermediation is another one. It doesn't mean that we can't intervene to make a better buying and selling experience. We also had to address some of the cultural and organizational dimensions.
Okay, looking back on a year of this "innovation," let's reflect on how things have gone. They completely admit to fixing something that wasn't broken. They just wanted to fix it before it was broken. "A very successful business and a lot of momentum" was pretty much slowed down and made not nearly as successful. He also refers to "our buyers and sellers" which is really interesting, since in this very speech he emphasizes that eBay is just a platform and not a retailer.
And I'm sorry John, those "sacred cows" are not just "perceived" as values of the company. eBay told us those are the values of the company!

Take notice of the part where he says, "We dove deeply into an understanding of our customers, their needs, their unmet needs, and their alternatives." Their unmet needs? I have been saying on this blog that eBay has turned into a company that feels they know what you need more than you do. This proves it. How's that workin' for ya?
Look at the next part, and think back over the last year. Think about how eBay is meeting your "unmet needs" with things you didn't even ask for in regards to "finding." Before you read this - ask yourself: Does this sound like a person that uses eBay? :

One of the most fundamental activities is "finding", or what most people think of as "search", on eBay. Historically, the core part of our business model started with a search and the results came back with time ending soonest-the items that are ending soonest at the top of the list. That makes sense during auctions because at the last minute you want to bid and win. Today over 40 percent of the items on eBay are fixed price. We have such volume that many of our buyers said that there was too much abundance. They just want to buy a Nike watch and instead they get 12,000 results back. That's too many. They want to get to what they want, faster. We agreed. There's a lot of talk around the Internet about relevance engines for advertising. Nobody on the Internet has more close transaction data than eBay or PayPal. We have the opportunity to build the best finding experience there is. We weren't collecting the data in a way that we could use it, so we had to change that. Tinkering with the finding experience is also tinkering with one of the core jewels of eBay. But we recognized that eBay has more product searches than any other property on the net, including Google. We convert single digits from searches to bids or buys-a fairly small percentage of those searches-and all we have to do is move that by a fraction to have a profound impact on our company. Over the last eighteen months we have set out to make a series of incremental improvements in our finding functionality. We bought Shopping.com, which is a great destination site but also brought us great finding and search technology. We experimented with eBay Express and built a separate parallel site to experiment with relevance-based search. We went completely with relevance-based search in Korea. Finally, we began layering in something called "best match" into our core site. Those of you who use eBay, if you look in your search box, you can select best match as an option which will help you get to the items you want more quickly. Finding is a core area that we're going to launch a series of improvements in during the next few months.

I KNOW!!! Here are the roots of the broken finding system on eBay. (By the way, the term "Nike watch" only pulls up 1,804 today.) "Too much abundance"? wow - sorry John, I thought you wanted us to list on the site.

He pretty much admits eBay Express was an experiment to tinker with the search technology. Then talks about relevant search. Relevant search is once again saying, "we know what you want better than you do." How would you like this? You go to Macy's and ask for the necktie section, and instead of the clerk letting you shop, she comes back with five neckties from which to choose. When you ask to see them all, she says "there's just too much abundance over there, these are the Best Match for you."

In this next quote, notice the philosophy being promoted. Would you like working at a place like eBay? Evidently, according to GlassDoor.com, only 28% like it right now... Oh, and see if you can find yourself anywhere in this equation:

Based on our experience, here's how innovation at the core worked. We had to create a mind shift at our company-we had to think bold and not just incremental. We had to create a vision of the future so people could let go of a very successful past. We had to understand that this wasn't going to just happen overnight. While we're doing this, we're running a successful business. We need to drive these principles of disruption at the same time that we're executing a very successful business. Second, we have to look at all parts of the business model-the whole end-to-end user experience. We're using our global portfolio to test and learn. We're testing ideas in Korea, France, Italy and elsewhere around the world. We're testing various pricing mechanisms. All of this requires new infrastructure, whether it's new data, testing or advertising capabilities. Finally, even I may have underestimated how important organization and culture are. Antonio [Perez] talked earlier this morning about needing to get rid of 70 percent of the people to change a culture. We don't have that luxury. We're growing at 30 percent a year. We need to build on the team we have and help shape the momentum in the right way. We had a bit of a restart with our vision. We set off on this and the senior team was all aligned. But we hadn't invested enough in the rest of the organization. So last year in the fourth quarter we took our entire organization through the process.
"Let go of a very successful past"? Wow. They're delivering on this one.
I also like the part he says about "executing a very successful business" - poor choice of words John.

And they have solved the "growing at 30% a year" problem. Now they can focus on getting rid of 70% of the people to change that pesky eBay culture. A year after this speech, is the senior team all still aligned? Well, now that some have departed, I don't think so. And besides that - aligned with whom? The other members of the senior team? or the community? employees?

Okay, here's another quote. This is the last one I'll share, because you can read the entire speech for yourself if you'd like. This one is cute. It tells how eBay is willing to churn out new products even before a business case has been made for that product. In other words, people dream stuff up, they put it on the site, and we either like it or not. Imagine what cars would look like if automakers did the same thing:

We're providing a forum to bubble-up ideas. We have a skunk works in-house. We're creating lightweight, cross-functional teams. We're giving the teams the freedom to focus on the right user experience and then worry about monetization. If we ask for too firm a business case up front, they'll never get out of the gate. We give them the space and energy to move aggressively and we use user adoption as the metrics in the early days. We talk and listen to customers, but for this kind of innovation, customers don't always know what they want. No one would have asked for a widget, but when they saw it they liked it. There's a real balance between being customer-driven and going with your intuitions. We also put the right people on the team - not everyone can do this kind of innovation. We are acting like internal venture capitalists with our resources. We give them just enough to get to the next round. We also know when to cut them off or keep them going. Finally, we involve people from the core business in these ideas, but not too early in the process. People in the core business typically want to kill these things when there's a tight quarter.
Really John? "Customers don't always know what they want?" How would you know for sure if they can't find it? So let me understand, the customers are saying what they want, not getting it, and leaving. Sellers are unhappy, buyers can't find things they are searching for, and eBay has people inventing new things that haven't been asked for yet? Brilliant! I feel so disrupted.

Does anyone know if John is speaking at the Thought Leadership Forum again this year?

UPDATE: Someone posted a link to this post on the eBay discussion boards early this weekend. Evidently, eBay has deleted the entire thread. If you'd like to see what they found so offensive, you can look at the cached version here: http://tinyurl.com/3lrgac

Here are the "Concept Cards" from the speech (click them to enlarge):

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