Meg's way for eBay

EBay's CEO minds the core — and looks to defend the online auction company from a Google attack.

At the end of a week of conferences in Boston, Meg Whitman is hoping for a few moments to recharge. The 50-year-old chief executive of eBay, dressed in golf shirt and khaki slacks, settles into a sofa in a hotel hallway and waits with her small entourage for a meeting room to be unlocked, while Will, her mop-haired son of 19, dashes off in search of a yogurt for her. He returns successful, but with no spoon; two assistants dash off to find one and come rushing back, each with cutlery in hand. After all, Whitman has to keep up her energy, and with all that's going on, time is of the essence.

The same is true for the company she runs. Now in her 10th year at the helm of one of the Internet's biggest success stories, Whitman spent the middle of June trying to revitalize the perception of eBay's auction marketplace — now showing signs of reaching a plateau, while growth relies on its divisions for e-payments (PayPal) and web communications (Skype). First at a technology developers conference, and then at eBay Live!, a three-day event for pros who make a living auctioning off items, the company announced new initiatives designed to refresh its auction platform with more current technology, and to placate its community of merchants — a vocal constituency that it can't afford to see drift away to different online venues.

A few days before the event, Google cheekily invited eBay Live! attendees to a “Let Freedom Ring” party on the site of the Boston Tea Party. The goal: to promote Google's Checkout payment system — a competitor to PayPal that eBay has banned from its marketplaces. Whitman was not amused. EBay, by far the world's leading search-engine marketer, quickly pulled all of its U.S. ads from Google. Within days of announcing the party, Google cancelled it, noting on its blog that “eBay Live! attendees have plenty of activities to keep them busy this week in Boston, and we did not want to detract from that activity.”

Officially, of course, eBay's advertising moves had nothing to do with the Checkout party. “This week, we decided to test whether or not we can still drive traffic to our site by investing more money in alternative sites,” says Whitman, now seated at the meeting room's table, yogurt consumed. “We test things all the time. It seems like the traffic is holding up, and we like that.” (A week later, eBay had started advertising on Google in the States again — although not as much as before.)

With her blond curls and unflaggingly cheerful demeanor, Whitman at times comes across as an all-American middleaged mom, her speech inflected with “you know” and “it was so cool.” But over the past decade she has earned a reputation as a power player not just in technology, but in business — period. Now worth about US$1.3 billion according to Forbes, she is one of the world's richest self-made women (just behind Oprah). She is politically connected, having this year thrown her weight behind former Massachusetts governor Mitt Romney, a leading Republican presidential candidate for 2008, as his finance committee's co-chair.

So Whitman knows a thing or two about influence and messaging. Asked directly about how Google's aborted party affects its relationship with eBay, and her assessment of the company as a competitive threat, she is pleasant but matter-offact. “I think we felt that was probably not a great strategy on their part, when we're their largest customer worldwide,” she says. “Google's an incredible company, right? You know, in the last five years they have come out of nowhere, they have a fantastic business. And in some ways, they do connect buyers and sellers just like we do. But their primary business is search, and our primary business is e-commerce and payments and communications. And so while they, I think, certainly do a good job, I think we are still the very best place to buy and sell on the Net, for both buyers and sellers. And it is our major business, our most important business, and we care a lot about it.” Whitman then adds: “So while I think Google would like to be in the payments business and maybe in the marketplace business, their primary business is something else.”

In other words, it's eBay's turf, and Google had better stay off it.

But Google is only the largest of a new wave of Internet sites, including social networking phenomena Facebook and MySpace, that are threatening to displace the likes of eBay, Amazon and Yahoo. In a medium uniquely suited to discovery and experimentation, success can quickly get washed out. Yahoo's struggles to adapt to competitive pressures, particularly from Google, forced Terry Semel to step down as CEO on June 18. (He became nonexecutive chairman; co-founder Jerry Yang was named chief executive.)

Whitman is not facing the same intense scrutiny — yet. But as she approaches her 10th anniversary next March, questions will persist over whether it's time for her to move on. The strategic value of eBay's diversification over the past several years — moves to buy properties like Skype, international classified sites and, this year, StubHub and StumbleUpon — remains uncertain. But her future may hinge more on her ability to revitalize what made eBay a household name: its auctions.

Whitman has made it a priority for the rest of this year to focus on the auction business — what she calls “the core of the core” of eBay. “It is what sets the company apart,” she says. EB ay's Marketplaces division made up about 71% of revenue in the first quarter. (PayPal comprised 25%, and Skype just 4%.) But a steadily growing share of merchandise is sold through the “Buy It Now” function, rather than at auction; in the first quarter this year, Buy It Now's share of Marketplaces revenue stood at 39%. At the same time, the total number of items listed, 588 million, grew just 2% over the same period a year earlier.

Likewise, growth in both registered and active users is cresting: eBay reported a 21% increase in registered users for the first quarter this year versus the same period a year earlier, and a 10% rise in the number of active users, but in Q1 2006 it reported 31% and 25% growth in those metrics. Whitman chalks up the trend to a maturing online shopping industry — “E-commerce is no longer in hypergrowth” — but acknowledges new competition. “I think the Net has changed in many ways. There are more alternatives for people,” she adds. “And I would say that our user experience has probably not kept up with what's going on in the Net as well as — now with 20/20 hindsight — I would have liked.”

EBay has pushed out new initiatives to update its offerings, tapping into rising online trends. Video listings are now possible, and the company is updating the look and navigation of its website, integrating more visual pop-outs and dynamically interactive ways to search for items. It is trying to deepen social ties within its large community of buyers and sellers, through so-called Web 2.0 technologies like blogs, wikis and other user-generated content, including a social network of its own where eBay users create profile pages.

Change, of course, is inevitable. But it also threatens to ignite protest from longtime users, particularly the sellers who have built up substantial businesses using eBay. The company selectively tests even minor adjustments with a small fraction of users to gauge reaction before rolling them out system-wide. The trick is figuring out what complaints are valid. “Therein lies the gift of judgement,” says Whitman. “I think there will be some burn-in period to these changes, but they are still the right thing to do, because they will make for a better user experience, and more stickiness for new users and buyers.”

Keeping sellers happy is key, and executives announced myriad small concessions at the Boston conference. It's easier than ever for merchants to go it alone: the growth of Google's AdSense platform, for instance, has made it possible for a merchant who previously established its e-commerce presence within eBay to migrate business onto an outside site and buy keywords. EBay's competitive differentiator, of course, is its auction engine. And that's why the company is again pushing the auction format to the forefront of its business, with tweaks to the process that are designed to make it easier and more exciting to bid on items. It's also ramping up efforts to combat fraud and counterfeit items, and to improve the amount of information available on sellers.

At the same time as it is hoping to draw a new generation of buyers, eBay is also hoping to extend its presence outside of its core. For instance, it has launched a widget platform so people can feature a dynamically updated window into eBay listings on third-party blog pages or social networking sites. Applications now exist on Facebook that allow people to search eBay without logging out of its site.

In general, eBay is trying to embrace popular movements in software development by further opening up its back-end infrastructure to third-party developers who want to build — and sell — applications that utilize or connect to eBay's bidding engine, or Skype, or PayPal. “I think our hope is that we'll see more custom applications, more fun things that can be done by our outside community of developers,” says Whitman. “In some ways, you should have more developers outside than in.”

It's a big-tent attitude eBay has always had with buyers and sellers, and is only now applying to how it functions online. But in no industry is the ability to adapt quickly more important than the Internet. Whitman has deftly steered the powerful eBay engine at high speeds for nearly a decade now; for the moment at least, she has avoided a collision with the 18-wheeler known as Google. Whether she can shift her company into yet another gear will determine the terms under which she eventually hands over the wheel.