Leadership Lessons from Web 2.0 – eBay Fixes That Which is Not Broken

Leadership Means Knowing When Not To Act

Remember that great little restaurant you frequented a few years ago? You know the one; they had that terrifically tasty dish that kept you coming back again and again. Remember when they changed ownership and the new proprietors altered the recipes?

The way I remember it, the new owners removed a couple of labor-intensive dishes from the menu, watered down the lobster bisque, and changed meat suppliers. They fired a couple of key kitchen employees, whom they deemed were overpaid, and they saved thousands of dollars each week. In taking over a successful restaurant, they made some very interesting choices.

When you drive by the shuttered restaurant today you wonder why anyone would mess with success – why would they make these clearly risky moves that would eventually doom this great little restaurant?

Of course you know in your heart that if businesses fail to reinvent themselves – even cannibalize their older products with newer offerings – they could eventually go the way of the buggy whip makers. Given this, you might think that changing the recipe is okay… even recommended. As the new owners of that great restaurant learned, and as eBay is currently learning, little tweaks can have a huge negative impact.

eBay Screws with the Recipe

A few months ago, eBay decided the time was right to change a few of their recipes. As one of the few Dot Coms not to become Dot Bombs, you have to respect that their decisions were sound and in the best interest of shareholders. (For more information on eBay’s moves and the impact on its financial results, read the CNN Money story posted at this link.)

Unfortunately for eBay, their significant fee and feedback changes have led sellers to flee and buyers to purchase fewer items overall. In fact, they saw a 1% decline in gross merchandise volume last quarter versus last year. (A decline in sales for an Internet retailer is not a good thing.)

It’s not just that eBay is alienating sellers – if that was the only issue with these latest moves we would have nothing to write about. These latest moves by eBay signal a shift away from maximizing shareholder return (which should be their only goal) toward becoming some self-appointed savior of the little guy. eBay feels they have to protect everyone, all the time, especially from themselves.

eBay, it seems, is a Democrat.

Whatever Happened to Caveat Emptor?

As both an eBay buyer and occasional eBay seller, I understood that there was some risk with every transaction. As a buyer I was cautious not to leave unwarranted negative feedback for fear that the seller would crush my rating (which would negatively impact my ability as a seller to sell for the highest dollar).

Additionally, I knew that buying a $400 cell phone for $50 meant that, on occasion, I would get ripped off. It’s all part of the auction game: risk and reward. Without great risk, you cannot have great reward.

With eBay’s latest moves – designed both to reduce the number of auctions on the site and to protect buyers from unwarranted negative feedback – they’ve effectively helped competitive sites attract longtime eBay sellers. eBay officials tout that their site is now safer and easier to use.

Who said we wanted it to be safer or easier to use? There is a cost associated with perfect safety that, at least over the short term, even eBay buyers aren’t willing to pay. They had a great thing going and then they watered down the lobster bisque.

The Customer is not Always Right, but They are Always the Customer

eBay has forgotten who their customers really are. Hint: they’re not the buyers. Web 2.0 companies must deliver desirable content to survive; eBay gets this content from the sellers. Sellers make eBay great; and only with great sellers, can eBay attract buyers.

Because of their new feedback policies, which have cost sellers dearly, eBay is seeing many of their most successful merchants flee to sites like Amazon and others.

John Donahoe took over as eBay’s CEO on March 31 of this year and he had big shoes to fill. Donahoe followed the legendary Meg Whitman – an Internet icon who built eBay into the giant it is today.

Donahoe, like the new owners of that great little restaurant in your neighborhood, watered down the lobster bisque. Whether he was trying to make his mark on the company, or whether he simply felt this was the best move for eBay shareholders, his changes          to the site’s policies could ultimately spell disaster for the auction giant. (If you think we’re being a little melodramatic here, remember that on the World Wide Web it doesn’t take long before “the next great thing” takes hold.)

Over 100 Years with the Same Menu

Galatoire’s – an unbelievably great eatery in New Orleans – has served the same menu for more than a hundred years. Through two World Wars, the Great Depression and several hurricanes, Galatoire’s has stood the test of time. They’ve never watered down the gumbo (they don’t serve lobster bisque) and they’ve remained true to the dishes that first put them on the map.

We’re certainly not suggesting that eBay should emulate Galatoire’s; we’re merely providing an example of success without radical change. It is possible because Galatoire’s literally babies their best customers and they’ve always worked to deliver the best.

Imagine if eBay literally babied their best sellers and always worked to deliver the best… Oh yeah, they used to before Donahoe.