eBay – A tale of creating, capturing…and losing value in platform markets

I hate to be so boringly predictable, but after seeing this prompt, I had to write about eBay, the company at which I’ve spent the majority of my career. On a personal level, I’m intellectually fascinated with marketplaces and platforms and to me, eBay is the standard-bearer of how marketplaces can be built and scaled, and also, how they can lose relevance in an ever-changing economy.

eBay successfully created one of the largest platforms in the world, and I’ve been able to see firsthand the challenges that the company has faced as it matured.

How to scale up a platform business

The biggest issue with a marketplace business is the chicken-egg conundrum of gaining liquidity – do you start with the demand or the supply side, and how do you attract the other side after that?

eBay has always considered its primary customer to be the supply side – i.e., the sellers; eBay.com shoppers are seen as are the customers of the customers. eBay’s decision, however, was simpler than it seems – the initial listings on eBay were, organically, in the antiques / collectibles space. The sellers were usually collectors themselves and after joining the platform, often became customers as well. So launching on the seller-side unintentionally created a buyer-side as well.

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I currently consult with an early-stage B2B marketplace and they’ve taken a slightly different approach. Though they also have focused on the supply-side first, they’ve spent a lot of resources on demand-gen as well – a secondary priority but still being run in parallel to supply-side tactics. Suppliers must have a reason to join the platform and an incentive to bring their current customers onto the site as well. Without the opportunity to sell to new customers, there’s little reason for suppliers to join in the first place.

How to prevent disintermediation

Perhaps the next biggest challenge with creating and sustaining a marketplace / platform is entrenching its value proposition – i.e., preventing disintermediation. The entire point of a marketplace is to profit at the point at which supply meets demand and if the two can rendezvous somewhere else, the platform loses significance.

I participate in disintermediation as a consumer constantly – I always try to poach the supply off of any marketplace / platform I use in order to get a better deal for myself / test the robustness of the business (admittedly I’m a weird person). I’m surprised with how many rejections I get though – these companies are doing something right to keep their suppliers loyal to the platform.

eBay has historically avoided disintermediation through the following:

1. Early entry – being the first to create an eCommerce marketplace, eBay has held onto market participants simply by having the strongest embedded networks (/network effects) that came into place by being the first market entrant
2. Buyer Protection Program –  eBay’s Buyer Protection locks consumers in with safety – fraudulent or unfulfilled are guaranteed to be refunded by eBay
3. PayPal / Escrow – Owning the payments portion of the business up until 2015 allowed eBay to manage transactions closely and exert pressure on sellers to perform / deliver on their promises
4. Seller ratings – verified feedback on transactions enabled buyers and sellers both to make more informed decisions than they would on new platforms

How to stay relevant

eBay, though still solidly a Fortune 500 company with billions in Gross Merchandise Value (GMV), has seen significant growth stagnation in recent years. I’ve agonized over the reasons for this over the course of my career at eBay and it’s difficult to pinpoint all the market forces at work.

There are, however, generalizable rules for marketplace / platform relevance:

1. Staying highly engaged with market participants – not a moment should go by where you stop to breathe. The platform must know everything from pain points to delights of all of its customers and those customers’ customers. Being highly synced with marketplace dynamics is the most important rule of remaining relevant as a platform
   • Should eBay have had seller account managers early in its business to temperature check behavior and pain pain points? Did eBay overestimate its relevance in retail in general vs. niche vertical plays? Did eBay miss cues from buyers who were looking for quick shipping and better return options?
2. Willing to adapt – based on seller / buyer engagement, the platform must be willing to change in order to keep both parties engaged and participatory.
   • This should also apply to business strategy – the platform by definition must be constantly changing to adapt to supply and demand pressures. Similarly, the business model should be open to change (i.e., Uber expanding beyonda black car service to UberX and Pool).
   • Should eBay have considered participating in the marketplace itself in order to increase revenues? Should it have managed the marketplace more like a retail model in order to smooth out supply / demand peaks? Should eBay have forged stronger relationships with retail players to develop an anti-Amazon consortium with breadth and value of inventory?
3. Staying focused – at some point, the platform will lose significance if its tried to be everything for everyone. Platform managers must stay focused on the most pressing issues for its most important customers in order to constantly be ahead of market forces.
   • Emergences of niche vertical marketplaces (Etsy, Poshmark, “The eBay of…”, etc), indicated insufficient coverage of particular verticals on eBay’s platform
   • Should eBay have remained in losing businesses simply for inventory breadth? Should eBay have focused on selection versus inventory depth? How could have eBay made its buying or selling experience more frictionless?

Whatever you think may be the reason eBay has seen slowing growth, there’s something to be said about the unique set of responsibilities when managing a platform. In the meantime, I’d encourage you to go treat yourself and buy something cool on eBay.com J