Yesterday, I stumbled on an FT article detailing Shopify’s growth to more than 800,000 merchants and $40bn market cap. The article caught my eye and made me think, for a couple of reasons. To begin with, it refers to Shopify’s market capitalization in comparison to eBay, which prompts the interesting question:”what’s the relationship between the two?”. In addition, it hints at Amazon as the next target, as if the three were ever in the same race – not true -. Following that thread, the everlasting eBay – Amazon relationship deserves some clarifying comments. Also, it is worth seeing how Shopify carved its own path in the ecommerce space, a path that eBay with its $10.8bn in revenue and great positioning should have owned; but it didn’t.
Most people think that eBay’s a dud stock because it never managed to capitalize on the ecommerce revolution that Amazon brought about, but I would argue that is not the case and the two should not be compared. EBay is a dud stock because it didn’t capitalize on the discovery driven ecommerce, which itself started, when the trend expanded beyond its platform and onto social media. This is where Shopify thrived. But first, why do I say that eBay should not be compared with Amazon?
Simply because the two companies share vastly different business models. The way they create and deliver value is quite different. Which is also the case in the way they capture value, even though at first sight they might look similar (both sell products and take % from the sales).
However the difference in the experience the two companies aimed to provide was crisp, from the beginning (2006 amazon launches FBA, Prime) at least before Amazon doubled-down on 3rd Party Sellers. But first, looking at buyers here’s how the two positioned themselves:
Amazon: “The everything store”
eBay: “The bargain store”
Amazon : “Buy new stuff”
eBay: “Buy at auctions”
Amazon: “Buy commodities”
eBay: “Buy collectibles.”
Already this should be enough to showcase the stark difference in mindset, target audience of buyers and their purchasing habits.
To add to that, take a look at eBay’s mission statement: “At eBay, our mission is to provide a global online marketplace where practically anyone can trade practically anything, enabling economic opportunity around the world.”
I think the most important part in the above statement is the bit on economic opportunity. Originally, everything about eBay was around “opportunity”. The sellers that took eBay public at 1998 and brought more than $47mn in revenue and 724% increase that year came did all that via auctions. The company was already valued at >$1bn. There was still a lot of room for growth and it was already snowballing.
eBay was offering economic opportunity to buyers and sellers. It rode the wave of the transactional web (web 1.0) and absolutely dominated that space. By the time I started working at eBay, 15 years later (2014), eBay’s impact had grown so much that I personally knew of families who had bought their primary residence in London merely from trading on eBay.
And so eBay went on to make this opportunistic flea-market experience as seamless and emotionally safe as possible doing what any sane corporation would do; alleviate any issues from a business model and experience that worked really well. They started their feedback program, bought PayPal and launched eBay money back guarantee amongst other things.
For a business whose whole experience is discovery, surprise and the hunt itself, everything that comes with a traditional retail experience is secondary. Shipping, authenticity guarantees, lack of inventory standardization were all nuisances one had to live with. The user purpose was one: Discover and grab yourself a bargain.
Amazon was quite different. Amazon wanted to have and store “one of everything” making it the everything store. And Jeff Bezos was very outspoken about customer experience being the salient reason of the success to come. Amazon would not be the place to find something rare or vintage nor would it be the place to haggle. Amazon would be the place to buy everything that can be sold at a great price, in a few clicks, shipped at the greatest convenience. Till this day, when you go on Amazon, you know what you are about to buy or at least what need you’re trying to fulfil. Amazon was offering utility and delight built incrementally through consistency. Its business model initially was not very sustainable nor was it protected by network effects between buyers and sellers. Its strength was derived by careful alignment of internally owned, building blocks stacked one on top of another.
In hindsight, from 2005 onwards it was obvious that the two companies were nothing alike. Amazon launched Prime, FBA (fulfilment by Amazon) and invested in integrating services to perfect the art of the trade (literally) while eBay was focused on semi-congruent land grab strategy and acted more like a traditional business following a management consulting playbook. Acquisition of classifieds and marketplaces in other verticals (e.g. StubHub in ticketing) were a clear indication of what eBay was doing. It was hedging and whilst doing so, with a semi-conscious guilt, growing apart from helping its original sellers, the opportunists & the mom’n’pop shops. New fees, new regulations, more standardization around process and a push for onboarding bigger merchants sidelined the original batch of sellers. I didn’t see the NPS scores (which eBay invented) but I remember a general disappointment from sellers. And it was not just a feeling. It was in external forums, in eBay’s Seller hub (eBay content pages for sellers) and in water cooler chats between employees. And that was about to be reflected in the stock.
Around 2014, when I accepted my first job ever at eBay as a Product Management Intern under the European Product Development group eBay was still a single entity with PayPal. By the end of 2014, eBay had decided to split with PayPal and price per share had flatlined, trading at $21.01, or $0.02 cents less than 2013 despite eBay’s total assets still experiencing healthy growth. What was happening? The company was transitioning from its original model which while a perfect fit with customers, now exhausted, to a new one driven not by customer delight but by business case and speculation. eBay had grown to a big corporation and was acting like one.
Analysts had figured that out and as Amazon was completely dominating the eCommerce space, eBay was looking like a company that had no exciting plans to grow.
I remember during my first days being very surprised that the words “auction” within the London HQ being almost taboo. I was struck by that; not from a business sense but from a cultural sense. Rather than turning a page, the company was abruptly rejecting its own legacy all the while not being able to completely escape from its shadow (auction is running successfully till this day of course). This was the greatest issue that plagued eBay. A bumpy culture shift that never really stuck and the community driven entrepreneurial instincts that were abandoned.
Here is how eBay worked in 2014. John Donahoe, CEO at the time, came from a management consulting background. And that was apparent. All announcements and decisions across the chain were communicated based on market opportunity. Product management was essentially product development and user centricity was inexistent. The problem was that the transition from iconic, community based internet company to corporation-pleasing-shareholders was never deeply realized. There was an ebb and flow of power, priorities and the whole company was not clear as to what was its identity, its values and how the disparate entities should operate together as a business. Strategy was nowhere near “customer-driven” and that was the non-addressed elephant in the room*.
The business “owners”, wanted first to rip out of eBay any connotation to its flea-market identity. Then using existing assets target SMBs and, at the same time large retailers to sell via eBay. This would transform eBay from an aggregator of individual sellers relying on community and word-of-mouth to grow to a series of Shops operating within the platform using the existing technology and tools, relying on corporate relationships to grow. The thinking was simple: Who can we sell our existing audience and platform to next? But the reality was that there was no coherence, no proof this was the right thing to do, nor that the new customer base wanted to sell via eBay. While it is not unlike companies to shift in their proposition in pursuit of growth, eBay was simply eroding it.
In conversations around strategy and next steps with senior executives, I remember hearing of retailer with iconic names like “Selfridges”, “House of Fraser” as targets for the eBay Large Merchant programme. Such was the pressure from the business that the self-evident brand conflict was not bothering anyone. Employees were simply executing. A few colleagues of mine from the product teams were working on individual integrations with large merchants striving to prove the new viable growth strategy for eBay. None of it happened. Months of product development was canned. The very talented individuals started fleeing eBay’s European Product teams. EBay was both confused and out of character and I am afraid, still is.
Meanwhile, Shopify was serving the customer.
Meanwhile, in 2014 and with 80,000 Sellers in its books Shopify was building the right infrastructure and positioning itself perfectly to serve a new generation of ambitious sellers.
“There was no ‘powered by Shopify’ anywhere, we built a brand behind other people’s brands.”Tobi Lütke
Already operating for 10 years and with a clear problem he faced himself, Tobi Lütke was growing Shopify according to what the market needed. Social media had already massively changed the way people bought from the internet by 2014 and ecommerce had developed a lot. Selling online could happen in different ways and non-traditional business models, including dropshipping, were gaining popularity online as the shopping became more and more linked to an “experience”.
Shopify covered all the requirements for this new breed of merchants. Businesses could focus on their brand, marketing presence and strategy while Shopify would allow them to build the e-shop of their dreams. Designed to their taste, and with pretty much everything taken care of. From some point onwards, this included shipping, making it a viable option to escape selling via Amazon.
Shopify was merely focused on pleasing its users with whom the founding team identified with. Its aim was to give small merchants the tools they needed to sell online without enforcing complicated policies, pricing or its own brand.
And that is exactly where eBay lost the battle. EBay had all the assets, capabilities and understanding of the market to pursue this strategy. The core platform could perform the marketing and transactional part of the job raking in revenues for sales. Meanwhile, instead of enforcing eBay Shops, it could outsource all of its tools to individual merchants. Having sellers run their (non-eBay) shops on the web, on their own would unlock new revenue streams, allow for higher profit margins (no owned customer support) and differentiate eBay’s positioning in the eCommerce value chain.
Not only did eBay have the technology but it also held the distribution. Had eBay proceeded to lend its core platform with lower fees to its 25 million sellers outside of eBay, it could have rode the wave of social shopping and the Pinterest – Instagram discovery led buying, making it highly relevant to a new generation of buyers as a platform. And by doing so, besides managing to reap the benefits of the social media wave which it never did, it would also have started to penetrate Amazon’s tight value chain (Shopify sellers can sell via Amazon).
The big brand and the rigidity that comes with owning the core marketplace meant EBay’s executive team was not even remotely ready to consider any new models that would jeopardize its existing position for a better outcome. No one wanted to rock the boat. The revenue numbers were/are still growing in the core business. Even when eBay bought Milo, a local shopping startup which was allowing retailers to catalogue their inventory, eBay’s idea was to onboard these sellers online. Selling outside of the eBay platform was never an option.
Shopify on the other hand, allowing full customization saw its sellers thriving and kept on assisting them with tools. As a result it grew from 40,000 stores in 2012 to more than 800,000 today.
It was corporate conservatism and the loss of vision that cost eBay its growth, not competence. EBay didn’t lose against Amazon. It lost against itself and Shopify is the winner.
** Any views expressed on this post are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated.