Is eBay on the decline?

As Groupon's business takes off, online auction giant struggles to grow revenue

GigaOm has an intriguing column by Eric Jackson contrasting the recent fortunes of discount web site start-up Groupon and longtime online auction powerhouse eBay. I've covered Groupon recently regarding its rejection of a $6 billion buyout offer from search giant Google. Started just 2 1/2 years ago, Groupon is expected to generate $2 billion in revenue this year -- four times previous estimates. It's on a huge roll. (Also see: Groupon to Google: No sale)

But the stuff Jackson has to say about eBay in new to me, mostly because I don't follow the auction site so much any more. (And that's because I just don't use it as much as I used to.) Jackson was a member of PayPal’s marketing team in the early years (1999 to 2003), serving as interim vice president following eBay’s acquisition of the company in 2002. So he has some sense of what makes -- or made -- eBay tick. He notes that, despite the common perception of eBay "as a site populated by collectors and hobbyists, small businesses have always been the backbone of its sales." Hence eBay's urgent need for an electronic payment processing service such as PayPal. However, while Groupon has successfully provided small businesses an effective (if not always lucrative) sales channel during rough economic times, eBay's Marketplaces revenue recently has stagnated, growing only 3 percent (to $1.4 billion from $1.365) in Q3 from a year ago. Here's his money quote: The reasons for eBay’s stagnation come down to leadership. During former CEO Meg Whitman’s tenure (1998-2008), the company’s culture became increasingly bureaucratic, and improvements to the site became few and far between. eBay hiked fees aggressively while doing little to improve its user experience. The company misjudged the threat posed by Google’s advertising network, which effectively decentralized ecommerce by making it viable for small businesses to sell directly from their websites. Also, as my former PayPal colleague Keith Rabois asserted, eBay started out as a fun, social ecommerce site, but it failed to grasp the advent of social networking. As sites like Facebook and YouTube offered consumers new venues for amusement, eBay failed to adapt and actually became less fun. Jackson concludes by saying he hopes "eBay can roll back the clock and recapture some of that innovation it had a decade ago." Yeah, and I hope when I wake up tomorrow I'll be 25 again. But it's no more likely to happen. Once companies go corporate, there's usually no turning back. All that being said, eBay shares (NASDAQ: EBAY) have gained 25 percent this year. However, if you go further back -- to, say, the beginning of 2006 -- you're looking at a 32 percent decline in share value. Not as bad as Yahoo (down 58 percent), but a lot worse than Microsoft, whose shares basically have tread water over the same time period. Do you think Jackson's assessment of eBay is on the mark? Let me know with a comment below.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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