Games, corporatism and misaligned incentives: the internal downfall of the newsroom

You are reading Part 1 of a 3-part series on the publishing industry.

Part 1 is about the past. Specifically, the internal mechanics of publishing and the forces that defined the industry’s response to Google and Facebook. 

Part 2 is about today. How has publishing adapted to the change, what is working and what is not? 

Part 3 is about tomorrow and what sustainable news & content publishing can look like. 


If you thought Google and Facebook killed the news industry you’d be right; but only partially right. 

It is true that the internet nullified the raison d’être of buying the paper. It’s also true that these two internet behemoths robbed the publishing industry of its audience and the attention that came with it. 

Disruption is the inevitable outcome in the life of any company. It is not possible to predict the future; it is within the realm of possibility to respond to the present. And that is where news has failed; in providing no response of their own for the past 27 years.

This is a story of games, corporatism, and misaligned incentives. Let’s start at the beginning. 

The business model of news

The first colonial American newspaper was printed in 1690. The New York Times is 169 years old. The industry itself is 330 years old. 

As it often happens, the news revolution was kindled by matching idealistic founders with a technological revolution; in this case, the printing press.

In the process of distributing the news, the founders of the first newspapers were the first to capture public attention en masse.

And in doing so, in these past three centuries, newspapers have enjoyed their fair share of influence, and profits. So much so, that there is a special term for their importance in our society. “The fourth estate” was coined to denote their crucial role in regulating our society. There was no other industry that enjoyed this level of attention. 

If anyone understood the importance of how stories underpin economic value, it was news publishers.

The news was immediately entrenched in society and publishers exerted a strong influence in the public sphere. With an addictive product, the revenue model was simple. Want the paper? Pay per unit. Want to read more newspapers? Buy more units. Circulation became the core metric. And circulation skyrocketed.

At the beginning of the 20th century, advertising found its natural place within the newspaper and the combined business model exploded. Advertising had zero marginal costs from a print and editorial perspective but all the upside. The news started selling the attention it captured.

And the cherry on the top? Starting a newspaper was hard. Matched with a high barrier to entry due to fixed costs (printing press, distribution) news publishing offered a recipe for a long-term oligopoly. 

The news business model had been on an unstoppable growth trajectory that would last almost  100 years. 

New Statesman, 2012

Internally, the job of a journalist was perceived as an elite craft and the editor’s job was revered. Editors commandeered the nation’s attention and journalists instigated commercial, political and social action one word at a time. The editorial team were the superstars of their industry basking in the widespread belief that revenue and influence stemmed from their actions. This level of attention is addictive and when the individual finds themselves in the middle of change, change is not welcome.

News itself was a cornerstone of society, a part of the system. The most brilliant of the institutions. The blueprint of a corporation. 

Fast forward to the end of the 20th century.

The market had reached peak maturity.  Revenue concentration, combined with barriers to entry has led to consolidation leaving a few despots and trusts running the show. They had become part of the establishment. 

And then the internet arrived.

Going free online  (1994 – 2006) 

Today it’s clear that the orchestrators of the internet, Google and Facebook, won our attention and the advertising dollars that come with it. In hindsight this is obvious. However, it could have been different. It started with one crucial decision: posting online for free. 

The Telegraph started posting online in 1994. The Guardian in 1997. Both for free. Reading the news online for free is a given today but at that point paying for news was standard behavior. In fact, the only behavior. So why go free? 

It is true that payment technology was embryonic (PayPal didn’t exist) and people’s appetite for transacting online was nonexistent. But even then, there could have been simple ways to work around this. News publishers had tight relationships with distributors and could reach corner stores, kiosks, and off-license shops. Selling a digital subscription through print would require a passcode within the newspaper to access a site. Or one providing yearly access. Cash could be exchanged physically at the point of purchase. Technicalities were not the sticking point.  

The first reason that emboldened publishers in going online early and free was conflating the notion of readership with that of a loyal audience. This is justified as in the past circulation was the only measure of both revenue and attention. Paying for information was a good enough signal the customer cared. And so, the presumption that readers would be loyal online too was not scrutinized. Circulation online was named traffic – the new core metric that mattered.

Since traffic was important, missing out on the new way to capture the audience bred fear. Fear of missing out. Every major publisher was petrified by the “what if” scenario where the internet explodes (hint: it did) and they missed out on following their audience (online). 

The reasoning went as such:
“If we go online, we can capture a new audience. And if we go free and the competition goes paid, we could capture their audience. In the likely scenario our competition goes free as well, we find ourselves in a good position for the future. This is more important than payments for now.”

So before understanding the threat of Google and Facebook, the news publishers viewed the internet as a Zero-sum game between themselves; one in which they were compelled to participate. 

To exemplify, assume a total market of 100 readers. Then a simplistic version of the publisher’s perceived payoff of going online in 1997 would look like this: 

Going online: Publisher’s perceived payoffs

From a short-term perspective, publishers were incentivized in going free. Going paid was also tricky as no one could predict the trajectory of news monetization online. What would be the right business model and how many people would be interested in reading online was unknown. In fact, buying a paper every morning was more convenient than downloading the news via a clunky modem on a slow churning PC. 

But in fear of their competitors thriving in the new medium, going free was a “what if” inspired action, a defensive play. Assuming a static order of things, there is certain merit to this logic. 

This period lasted approximately 15 years. It was not until 2010 when it became clear that the drop in print revenues was not a blip but rather a combination of broadband penetration, Google’s search dominance, and Facebook’s 600 million friends. 

Monetization online was still a question mark albeit one thing was clear; the open web was not good for business. Print circulation and ad revenues had been in decline for the past 5 years, quickly depreciating the once most valuable assets of the corporation, the printing press.

The time to be nonchalant and experimental had run out. Still, no business innovation. The News industry decided to chase pageviews instead of long term viability. This time it was not games of fear but rather corporatism and misaligned incentives that got in the way. 

Why the publishers didn’t react: an ode to corporatism (2006 – today) 

This might not be obvious yet it’s not an overstatement; the executives were, in fact, incentivized to avoid innovation. Here’s why.

The executive team (CEO, CFO) would set a strategy. Since they are appointed by the BoD, this is who they answer to. Their career success hinges first on staying in good terms with their managers, secondarily with the City of London (or Wall Street if you’re in the US), and then and only then with their customers.

Of course, where you pay attention defines what you see. 

Inevitably a CEO who wants to maintain their position has to keep the BoD and thus the stock at a stable level. How is this going to happen? Generally, there are two options: go after the market or go after internal mechanics. The former involves increasing market share, product innovation, and revenue with customers. It assumes entrepreneurship, innovation, and taking uncomfortable bets. The latter implies cost-cutting. And it bodes well with the corporate management approach. 

See, under the corporatist view, the interrelation with large institutions is the primary driver of value rather than market competition and innovation. Customers are simply in between and disposable. And institutions want to see higher earnings per share. And so innovation was too risky. It could rock the boat.

And there was the spin. Traffic was growing rapidly and despite digital advertising margins squeezed by Google and Facebook, the digital ads revenue was growing too. So, it was easy to present a story hinged on digital ad growth as a deus ex machina somewhere in the future.  

In parallel, circulation was plummeting for every publisher and the return of the fixed assets -printing, factories & distribution- is diminishing. This means one thing: an opportunity for consolidation. Consolidate printing and distribution, reduce the number of employees, increase prices per unit, and increase operating profit in the short-term leaving the long-term business model question to the successor. Such is the corporation. 

In the UK, there’s a perfect example: Reach PLC (FKA Trinity Mirror). In 2015, Reach PLC acquires Local world, a large regional publisher. In 2017, the Guardian scraps their £80m printing facility in Manchester and outsources printing to Reach PLC. In 2018, Reach PLC acquires the Express and other core publishing assets from Northern & Shell, combining circulation and revenue. Their operating profit margin increases almost every year whilst revenue like-for-like (revenue without the contribution of the acquisitions) drops sharply.

 Reach PLC, annual statement, 2019, page 2

Meanwhile, quantity over quality becomes an unspoken rule. Journalists are judged by the number of pageviews they rack up. Each journalist is required to publish multiple times per day at an average reach of 10,000 views per article, so that a stifling number of ads can be inserted and the short-term digital growth bubble won’t burst. The editorial department sees its craft slowly commoditized and finds itself ensnared in an existential crisis. A once symbiotic relationship between them and their corporate patrons becomes a balancing act ahead of a rift.

The effect on the product is also clear. Bounce rates are higher than ever, brand loyalty eroded and publishers are commoditized further, one post at a time. Editorial is not allowed to invest in what they do best; corporate is focused on margins and technology is a catch-up play. No hint or attempt for product innovation. 

The new strategy and story to stakeholders is simple: maintain a strong cash-flow position derived from the declining print revenues until digital revenue takes off. The elephant in the room is this won’t happen and it’s obvious both for strategic reasons but also by looking at the numbers. Given the digital advertising value chain, ads revenue for newspapers will never take off to cover for the loss of print revenue. 

Yet, this is a long-term problem. In the short-term these moves have a positive effect. Operating profit is increased and that is the goal. So much so, that the new CEO’s bonus is 70% influenced by operating profits and only 15% by “strategic goals” i.e. product innovation. The other 15% is revenue. However this is the same remuneration structure the previous CEO was offered. Perhaps an optimistic bet – if not naive – to replace the individual instead of the goal structure, especially since the CEO’s goals cascade over layers of the business stifling innovation. Then there’s the cynical view: pointing the finger at an individual is more convenient.

The narrative was found at last. But it was not one to inspire editorial, employees or customers. It is one of a beleaguered, ailing industry that is willing to do anything to survive. Erode its core value, destroy product integrity, and trust. A narrative suitable for Boards of Directors and investors. Publishers can keep on painting a positive picture of recovery whilst fundamentally passing the pressing question “what are we doing in the future” down to their successors. 

Financial analysts herald consolidation and cost cuts as moves to efficiency. The exec team will be deemed successful by executing on the strategy they set out and approved from the beginning. 

But in truth, at this rate, most news publishers will not make it. 

At last, startups are making shy steps towards a sustainable business model. Fake news, clickbait, and rigidity in news reporting have intensified the necessity for quality news and thus, business innovation. New organizations are embracing the world of social media and leverage niche audiences. It is still to be seen whether news publishers can ever reach their old glory and society can maintain the integrity of the fourth estate.

In the next part I examine news (and general content publishing) revenue models of today. What works, what doesn’t, and why.


Disclaimer: From 11/2016 till 6/2018 I acted as an Entrepreneur in Residence at Reach PLC working under the CTO to diversify the revenues of the business. The above post only reflects my personal beliefs.

When Managed Marketplaces Don’t Work And Why SaaS Enabled Ones Do

Sometimes a marketplace is flawed and headed for a tough time before it even begins. But it’s not unlikely that this does not become evident until £20m has been invested. So, it begs the question: how can you know if that is the case and what can you do about it?

Network effects, liquidity, TAM, are some of the many things that a marketplace needs to get right. All very aptly described by Bill Gurley here. The list in the post is informative, concise and certainly correct. But if we were to put these in a timeline, gap related to the execution in the middle emerges. For instance, you can know if you have a big market from the get-go and by the time you experience network effects it all gets easier however, everything in the middle is murky, complicated and multivariate.

In a 2018 post, Eli Chait published a very insightful piece where he correlates the fragmentation of buyers to marketplace success.

Effectively, his research reduces the complexity of the first list to one metric that’s a bit meta; he’s positing that for a marketplace to be successful there is an inherent characteristic the market needs to possess and that is a very large amount of buyers (1 million buyers for one business) and for those buyers to also be fragmented.

This is a useful point because it identifies the principal component of success amongst many other variables and thus simplifies the problem. Can you get a million buyers? If not, then the cards are stacked against you.

Once more, if you have 400,000 buyers already this is a meaningful insight. You can approximate the value per added buyer in the network and roughly calculate if you can escape velocity through network effects.

But what if you’re just starting? What if you have 100, 1000 or even 10,000 buyers? Are the above enough to ensure that a marketplace is the right model for a given industry? How can you tell if your unit economics can mature to reflect a £1bn marketplace?

Perhaps there is a way to know what will NOT work. And there if there’s one thing to steer clear from is services with inherent repeatability of transactions between the same supplier and buyer. If that is the case, then scaling a marketplace to the 1 million buyers, 1 billion GMV will be tough.

And there is both an intuitive and analytical approach to explain why. But first, why is the lack of repeatability a benefit? Uber is a good example.

From the perspective of the supplier (driver), Ubers works like this. A driver can reach clients previously unreachable and get access to a set of value-adding services to make the job easier. In exchange Uber takes a fee per ride. Every time a new rider connects with a driver, Uber has taken care of: finding the client, navigation, safety measures and, seamless payment in the end. But since the whole CLV is (most likely) equal to the value of the ride, the next time the driver picks up a new rider, (s)he will reap the same exact benefits from Uber and Uber will receive the same fee.

In other words, supply and demand see each other as a commodity. Therefore a platform facilitates the transaction. Uber is there to ensure that a code of conduct is enforced (safety, trust, politeness etc) and enables transactions that would not be possible before (eBay, AirBnB are also good examples). This is an example of Bill Gurley’s point on “technology expanding the addressable market”.

From the supplier’s perspective, Uber’s value per ride is the same.

However, there are industries where the above hold true and still have fundamental issues in their economics, because of the loyalty repeat transactions create. Take therapy for example. The more therapists, the better the matching. A marketplace can expand the market via remote therapy, matching and also by creating the necessary privacy and trust for clients to make the first step. It’d be closer to how eBay grows the market (remove friction) than how AirBnB, Fiver or Uber do it (without them it’d be impossible).

But still, in the UK alone there are at least 2,500,000 people that will receive privately funded therapy per year. Trust is necessary initially. Structural and attitudinal barriers can both be addressed by marketplaces and therapists have a constant need for new clients as some come and some go. Yet, a therapy marketplace won’t work. Why? Because of the repeatability of transactions. A therapist is not able to see more than 25 clients (max) per week (50-75 uniques per year) and a client will only see one therapist.

That would not be a problem if the marketplace could capture a chunk of the value across the lifetime of therapy. However, the value-add of a marketplace declines after the first session because the client forges a trust relationship with their therapist. By definition, therapy is about the trusted relationship.

From the perspective of a therapist, a therapy marketplace exists for referrals.

In fact, from the perspective of the therapist, the marketplace doesn’t only stop adding value but can detract value. After the first session, a therapist will start adding notes for a client, have constant communication with them via their preferred medium (e.g. WhatsApp), receive the payment in a centralized way (e.g. PayPal) and agree on a fixed schedule which on a per-client basis at least, is simple.

Consequently, after the referral is done, the marketplace introduces a cognitive cost to use its add-on services (e.g. automated payment collection). If the therapist wants to use the marketplace they have to do extra admin on another space to keep their operations centralized.

Therefore, taking the client away from the platform is natural. Disintermediation is inevitable and thus, CLV real < CLV expected, which leads to unsustainable economics and does not allow the marketplace to scale.

Enter SaaS enabled marketplaces, or SEM

So, repeat transactions present a structural barrier for the marketplace to achieve strong unit economics and scale. Still, suppliers do need services to grow and manage a practice.

This is where a SaaS-enabled marketplace can provide a solution for a few reasons.

  • The positioning of the product is not necessarily around lead generation
  • Consequently, pricing is not pegged on “getting more clients”
  • Finally, the supplier might bring the clients onto the platform voluntarily which alleviates the platform from the burden of CAC but also positions it to capture value across the lifetime of the client.

From a cash flow perspective, this allows for a direct reinvestment of revenue per supplier to acquire new suppliers. Eventually, when there is a critical mass, then the platform can aggregate them and introduce a new service on lead generation but without the pressure of that being a promise. Shopify’s Shop app is a good example of that.

So, are repeat transactions intrinsic between supply and demand in a market? If so, it will erode the marketplace unit economics and pose challenges in scaling to network effects. Looking at the “come for the tool, stay for the network” approach is the more appropriate strategy for these kinds of markets and can still take to the same end point but in a more sustainable way.

The (near) future of therapy is not online

As creative disruption teaches us, innovations start small. The original concept satisfies a small use case, seemingly innocent to cast doubt over the established modus operandi, but offers distinct advantages to a few niche users.

Online commerce was like that in 2000. 

Online therapy was like that in 2010. 

And then online commerce started growing steadily. Initially it was an add on, a nice to have but eventually it has brought the high street to its knees. 

Remember, there were really good arguments for retail to begin with: “no one buys something they can’t try. No one trusts paying online. Do you know the product is genuine? Can I risk giving a stranger my credit card? On the shop, I can try the item, look at it and feel it, get advice, purchase safely and use it on the go.”

It’s not that long ago that using a credit card online was considered risqué.

And here lies the question: Is the same thing going to happen to therapy? Is online therapy, accelerated by the advent of Covid-19 going to replace the way practitioners help people? 

It is not a dissimilar conundrum. 

Traditional therapy has similar characteristics: it relies on real estate (therapy room) to be delivered, claims that for the relationship to flourish physical presence and a holistic sensory input are required and is bound by a strict and centralised code of ethics which dictates even the logistics of it (e.g. payment). 

Online therapy, indeed, still feels like the lesser good for a lot of people and therapists alike. But it is more cost efficient (or can be). It is more immediate. It’s more convenient. For few, it has been a life saver. 

So, It seems fair to draw a parallel and ask: 

Is therapy going to experience its own existential crisis?

But here’s an inherent difference: Therapy is about feelings & thoughts. Those are very often around about relationships with others. I bet > 90% of people in therapy talk about their relationship with others often.

And during Covid, which media seems to be touting as a general disruptor and propeller of online therapy, there are two categories of people locked in: Singles and non-singles.

And whilst, to my regret, I don’t have data to prove this nuanced detail here’s my assumption: For those that are forced to stay indoors with their loved ones, online therapy is not feasible.

Why? Because for all intents and purposes, the people they want to talk about are the ones they’re locked in with and they don’t feel they can maintain the necessary privacy. As a result, a new appreciation for a physical, safe space emerges. And that safe space might require a set of walls and a far-from-home location. 

And that is a fundamentally an opposing wave to “online is accessible”. 

More likely scenario is that therapy will adjust with the fitness industry. Working from home kits, courses that can be booked online have been available but the need for a dedicated space, sharing a workout with others is very much in trend. Really, it’s a different experience. 

So, prediction? If and when we go back to “normal”, online therapy’s popularity will certainly not be anywhere near traditional, in person therapy. It will keep on growing inevitably but the true revolution is yet to come. 

The true revolution will require a few things that are currently not available. 

  1. A full investment from both parties (no notifications and distractions) 
  2. A sense safety and privacy 
  3. And a sense of physically be present in a shared space.

VR covers a lot of the above but leaves one exposed to their surroundings so it requires a safe communication method which for now hints at Neuralink’s way. I hope this post ages well but… gut feel? None of that is coming soon. 

eBay’s loss was not against Amazon; it was against itself and Shopify is the winner

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.


*I guess that was acknowledged and it culminated in the hiring of a new CPO and VP of design, both from Apple.

** 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.