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:
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.
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.
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.
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.
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