This is a paragraph by paragraph rewrite and summary of this weeks Economist cover page OP-ED and does not express my opinion on the subject matter therein. The intent is simply to make a legal version of premium content available to public eyes without breaking copyright law. The original article may be found here at: Anniversary lessons from eBay.
A decade ago, Pierre Omidyar, working as an engineer in Silicon Valley, began envisioning a system for generalized public auctioning over the internet – one that would allow individual buyers and sellers a place to set a market price for almost anything. One long holiday weekend he wrote a web program to do just that. At first, few people visited the site. But as the end of 1995 neared, and a few thousand transactions later, interest in ebay grew. Soon thereafter, it took off. Since then, ebay has become a global enterprise, with about 150 million users over the world who this year will buy and sell goods worth over $40 billion.
This amazing tale illustrates a critical lesson for any business operating online – which happens to be most every company today. The Internet appears to offer almost unlimited capacity for business opportunity. But the rate of change occurs at breakneck speed, and competition is harsh. Success is bred from nimble feet, open mindedness and a willingness to reinvent one’s business whenever necessary. The successful, above all, pay attention to their customers’ needs, listening carefully for those things they do and do not want.
Original Text: The remarkable tale of eBay’s growth points to some important lessons for any business trying to operate online–and today that includes, one way or another, most firms. The commercial opportunities presented by an expanding global web seem almost limitless. But the pace of change is rapid, and so is the ferocity of competition. To succeed, firms need agility, an open mind and the ability to reinvent themselves repeatedly. Most of all, they need to listen carefully to their customers, paying close attention to what they do and don’t want.
Most businesses would desire such excellent customer relations. But for a business online, good relations are not simply indulgences but necessities of survival. This is true for many reasons. The internet continues to expand rapidly, constantly changing the floor out from under any business which relies upon it. It’s still quite easy to gain entry to the market, meaning that to track one’s existing competitors is just not enough. One’s competitors today may not remain the most dangerous rivals tomorrow. Competition can come from anywhere; from an entirely different type of business to one that doesn’t even yet exist. Or even from one’s own customers. And finally, customers remain fickle. The constantly changing market allows customers to search and shop as they see fit.
Next section: “No safe havens”
Which makes the Internet a highly dangerous jungle for conducting business, and yet curiously, also one just as filled with potential. ebay’s past offers an example of both. Obviously, without the infrastructure the Internet offers, ebay simply could not have existed, nor could it have grown so quickly. Yet even though it’s growth may be slowing in the United States – its market closest to saturation – there continues to be vast potential overseas, particularly, some claim, in China. Meg Whitman, ebay’s chief executive, believes the firm has only just started realizing its potential.
Which doesn’t diminish their astonishing achievement. Similar to other online hits, Google, Yahoo!, and Amazon survived the ferocious dotcom crash. Only ten years ago, the Internet attracted less than 20 million users. In 1999, as it reached 150 million users, dotcom businesses were formed every day. But when the crash hit in 2001, thousands were dissolved in short order.
Original Text: And yet just getting as far as it has is quite an achievement. Like the other online giants, Google, Yahoo! and Amazon, eBay is the survivor of a brutal shake-out. A decade ago, the internet had less than 20m users. By 1999, when it had reached 150m users, dotcoms were being formed every day. But when the technology bubble burst in 2001, thousands of firms were swept away.
Those that remain now operate within a market of close to a billion users worldwide, and it continues to grow. But to survive, these businesses have had to change and renew their business strategies over and over again. For example, ebay, doesn’t simply offer auctions any longer; Google offers more than just search; Yahoo! adds yet more services; Amazon now sells more than just books – including even auctions. Additional features, new strategies, are adopted as everyone in the market fights everyone else for a slice of the the e-commerce pie.
Next Section: “Customers behind the wheel”
Driving everything in how these companies are reacting is the ever-changing expectations of customers. ebay, in particular, has been heavily influenced by its users’ demands. For example, second-hand automobiles account for 30% of sales on their site, something ebay had never planned for. Only when customers began listing automobiles in their section for toy cars did management take notice. Customers continue to drive the creation of new market venues: new clothes, cosmetics, expensive industrial and medical machinery. Most striking, almost 30% of its sales are at fixed prices and not auctions at the highest bidder.
Considering their potential to collect vast customer bases, could ebay and other e-commerce giants grow into monopolies like Microsoft? It’s possible. Network effects show that as ebay grows the more customers are drawn to the service in a spiral of customer aggregation. This is also true with Google, and their budding role as the Internet advertising agency of choice, as companies pay for search links so their products can be “Googled”.
Original Text: With their ability to aggregate vast audiences, could eBay and other e-commerce giants turn into semi-monopolies like Microsoft? In theory this seems possible. Network effects, for example, mean that the bigger eBay gets, the more addictive it becomes for both buyers and sellers. And much the same can be said about Google’s emerging role as the online advertising agency of choice, with firms paying for search links to ensure their products can be “Googled”.
It’s possible that a monopoly might emerge, one that could exercise true pricing power, but right now that appears unlikely. ebay’s management, for example, admits that customers’ demands shape their business more than they do, and appear cognizant that groups of customers could easily leave to launch their own specialty auction site should they become dissatisfied with ebay. This month, ebay bought shopping.com, a shopping comparison site, for $620 million, in order to offer a wider audience for its customers. That ebay, Yahoo!, Google, and Amazon continue to compete so fiercely shows that none yet feel secure in their niche, nor do they consider their competitors safe from competition.
Low barriers to entry continue to be among the most attractive features of the Internet – while remaining the greatest danger to those firms already competing in the marketplace. Millions of people have set up small web businesses, and even millions more will do so in the future – many of them using services offered by ebay, Amazon, Google, and Yahoo!. Out of these a few, most likely, will grow to become serious competitors to today’s Internet giants. For executives of any business, the lessons of ebay represent both inspiring and daunting potential: the gains out there to be grasped are amazing by any standard, but only those who can meet the ever shifting desires of customers, the true Internet sovereign, will live to enjoy their just rewards.
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Article originally posted on Daduh at this URL: http://daduh.org/node/12.
© 2005, J. Maynard Gelinas. Some Rights Reserved This work is made available with a Creative Commons license. Noncommercial duplication permitted with full attribution and without modification of the text.