Kellogg World Alumni Magazine, Summer 2004Kellogg School of Management
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eBay's old-school business wisdom
 
 
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eBay's old-school business wisdom
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To underscore those advantages, the company has decided to "exit" certain acquisitions that were more "land-based" Penchina explains. "From a finance perspective, we focused on higher-touch, low-margin business," he says. "There was a fair amount of work we did around deciding our financial structure."

As an online auction site with a virtually unlimited marketplace, eBay is in the unique position of being able to turn potential competitors into customers, Cobb says. "We're about trying to make inefficient markets efficient," he says. "We try to focus our industry, not outward at competition, but at enabling our community of buyers and sellers. We're about choice. We're about transparency."

During his May appearance as keynote speaker at the Kellogg Reunion Weekend, Cobb further distilled the formula for eBay's success: "one part commerce, one part entertainment, and one part town meeting all rolled together."

"eBay has eliminated barriers that have kept willing sellers and willing buyers apart. These barriers include distance, time, and an assortment of structural issues in all kinds of industries and markets," he said in May. "As our platform grows, it scales and gets significantly stronger. Every day more sellers and buyers come to eBay. And the power of large numbers is just awesome!"

While eBay's stock in trade is consumer-to-consumer sales, an increasing number of small to midsized businesses "are fairly large sellers," Cobb says. And Penchina believes using the site to purchase used equipment became more acceptable during the 2001 recession and the two years of relatively slow growth that followed.

A business falling on hard times might, for example, search for a used computer on eBay because its funds are limited and it "doesn't need the latest Pentium chip," Cobb says. eBay does not necessarily see the variety of other options such a customer might have online as a bad thing, since the combined pull helps drive people online in the first place. "To some extent, the choice that consumers have is a benefit to all of us," he says.

Spokesperson Hani Durzy notes that the dollar value of small businesses buying goods for their own use on eBay doubled from about $1 billion to $2 billion from 2002 to 2003. "Our business has strengthened during those times," Cobb says, "and it was very strong during the heady economic times of the late '90s."

Have tougher economic times helped by increasing the pool of unemployed or under-employed people looking to make an extra buck? Durzy says the company estimates that 430,000 Americans now use the site to make a part-time living. In Germany, Justus says, the challenging economic times probably have added to the base of sellers, but he thinks they'll stay involved even as times improve.

"eBay has brought a sense of relevance to them at a particularly difficult economic time," he says. "When we speak to people, yes, their initial impetus to think about eBay has something to do with the fact that they're unemployed. But eBay is so relevant" that once people start trading, they won't stop.

Indeed, the company's success has continued as the U.S. economy has begun another upswing. Cobb notes that in the first quarter of 2004, eBay recorded an 82 percent gross margin and a 37 percent operating margin, and in mid-June, the company had more than $3 billion in cash on hand.

"For an 8 1/2 year old company to put up world-class financial architecture results like that speaks to the fact that everybody here is committed to and disciplined in the way we invest our dollars," Cobb says. "For a company this young, we have some pretty amazing figures. It's reflective of the [financial discipline] that was really ingrained in everybody from our early days."

The Kellogg School MBA experience imparted certain values and knowledge that Cobb, Penchina and Justus say have proven invaluable at eBay and throughout their careers. Penchina, who formerly ran eBay's mergers-and-acquisitions group, cites classes such as financial accounting as especially helpful.

Cobb, a marketing and finance major, has spent most of his career in marketing for such companies as Colgate-Palmolive, Jeno's Inc., Fidelity Investments and, for the longest stretch, Pepsico. He says Kellogg instilled in him a "strong bent for the analytical side. As marketing has evolved, it's such a critical component. If you don't have a degree of analytical horsepower, you're not going to do well in marketing."

Justus says the school prepared him well for a general leadership role by providing a strong background in all areas of business and because of its international flavor. "For a German national, it's helped me understand what it is like working with people from all around the world and helped me understand the mindset of American companies," he says. From a finance-specific perspective, Justus says, "The Kellogg curriculum helped me appreciate a lot how the pieces in the business fit together."

For example, he says, when determining pricing, "We probably start to look at that from a marketing angle, but obviously pricing has financial implications. My Kellogg education has helped me to see these issues not simply from one angle, but from many, so that the complex implications can be understood and acted upon by our team."

©2002 Kellogg School of Management, Northwestern University