"Buy Now." A platform built on connecting millions of buyers and sellers, eBay is no stranger to the world of online commerce.
Once a pioneer of online auctions, eBay remains a household name. But with increasing competition from Amazon, Facebook Marketplace, and niche marketplaces, can it keep its position?
In this segment of Business Breakdowns, Jenny Rae Le Roux and Namaan Mian dissect eBay's business model and how the company makes money, highlight key challenges, and share hot takes on how the platform could evolve.
Is eBay poised for a comeback, or will it remain in the shadow of its rivals? Tune in to find out.
Disclaimer: eBay is a Management Consulted executive communication partner - learn more.
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More About eBay
Transcription:
0:05
Hello everyone.
Welcome to today's Business Breakdown.
I'm Jenny Rae Le Roux.
We're the expert consultants over at Management Consulted.
And as we think about the consulting space, one of the things that's important to us is that people don't just think about consulting businesses, but they think about the business and the business breakdowns themselves.
0:26
What does actually make a great company?
Because one of the things that we've often taught about in the seminars that we do, that we work with our large organizations on is how do you build a company for the future?
There are a lot of other industries and practice areas that think about what's happening today or that think about what happened yesterday.
0:48
That's not what today is about.
Today is about what the future of a company looks like.
And so we're going to dive into eBay.
I'm really excited to introduce eBay as we're getting started.
I just want to mention that we do have a professional training relationship with eBay.
1:06
And so you know, we always want to acknowledge when we are working with a company that we're profiling here on the platform.
However, today's conversation about eBay has absolutely nothing to do with the training that we did.
And we did not use any proprietary data to present what we're doing today.
1:24
In fact, if you wanted to create your own business, you could do exactly what we're doing, finding exactly the same public information and then applying that information through the lens of your knowledge and expertise.
Just like we're going to do today.
1:39
I'm joined by my colleague Namaan.
Namaan and I are going to fight over who has the hottest take for eBay.
Namaan, Are you ready for this?
Oh, I've been ready.
Great.
Well, what we're going to do is we're going to kick off a little bit with eBay.
Just who are they?
What do they do as a company?
1:55
We're going to talk through some key high level data.
I'll kick it over to Namaan for that.
Then I'll take it back and I'll talk about ebay's business model and then we'll do a little back and forth on some key metrics for eBay, and then we'll end with a hot take about ebay's future.
So with that, I'm going to kick it off. eBay is a fun company for me to profile.
2:16
This is one of the world's great businesses and I think we knew that it was a great business soon after it launched, but I didn't know that until it stood the test of time, we understood why it was a great business.
In fact, eBay has withstood many different onslaughts of competition.
2:37
There are people that have carved out pieces of ebay's business, yet eBay has continued to grow. eBay stands strong. eBay is a very profitable company.
So I'm going to, you know, take it over to Namaan to talk through some of the specifics of that.
But fundamentally, we all know eBay is kind of your grandma's garage sale brought to you online for treasure hunters to seek out the world's greatest treasures.
3:04
It's a platform where you can flip your old stuff.
Usually the stuff that is on eBay is used and that includes sectors that they are focusing on right now, like car parts, and they are often rare.
3:19
So there 's not necessarily a single item, not only luxury items, but for example, it could include things like a Lego set that went out of style eight years ago that someone is looking to build either in a collection or because it's no longer available in stores.
3:38
Because of that, eBay has a pretty unique carved out value proposition.
They made a very high profile purchase of PayPal early on in the day in order to support their digital transactions, which was pretty revolutionary at the time.
3:53
And we'll talk today about some of the challenges that eBay is facing as well as some of the opportunities.
So with that Namaan, I'll kick it over to you.
Thanks so much, Jenny Rae.
I think I just want to clarify for everybody that eBay is an A2 sided marketplace.
So third party sellers can list items for consumers to buy like Jenny Rae mentioned and eBay makes money through listing transactions and advertising fees.
4:13
And we're going to talk a little bit more in a minute about those key revenue drivers for eBay.
The other thing I just want to call out before I walk you through some of the high level stats is that eBay has three customer segments that you need to be aware of before we start this conversation.
They serve buyers, they serve sellers, and they serve advertisers and they have to keep all three of these customer segments happy.
4:32
That's what makes this business such a unique business to be in and sometimes a challenging business to be in.
So with that context and framing out of the way, let me walk you through for the fiscal year ending in December 31st, 2023, some of the high level stats that you need to know just to frame this conversation.
4:50
So the first thing that I want to walk you through is just ebay's annual revenue and this comes from their 2020 three 10K.
So for the fiscal year ending 2023, eBay generated 10.1 billion dollars in revenue off of $73 billion in gross merchandise volume.
5:06
So they facilitated $73 billion worth of transactions in that fiscal year on their platform, generating 10A little bit over $10 billion of revenue for themselves.
Out of that $10 billion in revenue, $7.3 billion moved down to the gross profit line.
5:23
So you can start to get a sense of how healthy the margins are in this business just from comparing revenue to gross profit.
Now when you move from gross profit to operating income, you see a little bit of a bigger drop here.
About $2 billion in annual operating income is the net profit that eBay is generating here in fiscal year 2023.
5:47
And so you can see here that $10 billion in revenue, $7.3 billion in gross margin.
This is a large business.
It has healthy margins and there's still a lot of runway and room for eBay to grow.
And we're gonna talk about that today.
6:02
So Jenny Rae, I'm gonna turn things back over to you.
Now that that context and framing is out of the way.
Let you talk about how you'd be managing eBay today and then I'll do the same.
Love it Namaan.
One of the things that I think is really fascinating is just to hark back to one of our earlier conversations when we talked about when people transfer, leaders transfer from one business to another.
6:25
We actually, specifically if I, if my memory serves me correctly, you'll have to correct me, we talked about the former leader of Starbucks who came from eBay and the leap that happened there.
It was from a fixed cost business, which eBay is and I'll elucidate that in just a minute over to a variable cost business.
6:45
But also underlying that you mentioned that their customers are multi pronged.
And I, I would actually, I would argue almost, you know, directly that their primary customers at eBay are the sellers.
Whereas at somewhere like Starbucks, the primary customer is the consumer.
7:02
It's the buyer, it's the person who's coming in to get a cup of coffee.
And so if you are trying to transfer leadership from 1 sector to another, checking somebody who operated one kind of business with a specific type of customer and then moving them over to another one, it's not that they can't transfer, it's just much more difficult to do that.
7:23
And so that's one of the reasons that these business breakdowns are fun for us because it helps us get down to the brass tacks like how, what makes this business operate.
So as Namaan mentioned, this is a business that has very healthy margins.
In fact, Namaan, I had to do a little bit of digging to figure out what the heck they're even spending money on because, you know, the fixed costs are very evident.
7:47
Those are the things like maintaining their technology, the platform, some of the customer service pieces of operating, but really mostly it's transaction fees, it's credit card transaction fees.
It's, you know, the ownership that they take over some returns or misplaced processes.
8:06
But mostly it's just transaction processing.
That's almost everything that they're spending money on, which really does give an eye to why PayPal was such an important strategic purchase for them early on.
And I also think it really highlights some of what will become incredibly important, important for eBay, eBay going forward.
8:26
So with that, eBay is a fixed cost company.
What that means is that largely they're focused on optimizing for revenue.
They're not just focusing on price.
They're definitely not worried about their variable costs, but they're really focused on optimizing for the revenue that they generate on the platform.
8:44
Back to you, Namund.
Yeah, absolutely.
So if, if ebay's optimizing for revenue and I think the way they they're doing that really is through volume, that that really kind of leads into the first metric that I would be managing to if I was a leader at eBay or the first thing I'd be thinking about if I had a case interview that had to do with ebay's future growth potential.
9:05
And so the first metric I'd be looking at would be customer loyalty as measured by daily active users.
And so when I think about eBay, I think about a platform.
And when I think about platforms, I think about moats and a platform scale is its Moat.
The more sellers that you have, the more buyers you attract, etcetera, etcetera.
9:24
It becomes a flywheel.
So the fundamental question that I would be looking to answer if I was at eBay or if I was in a case interview dealing with eBay is how can I keep bringing customers back to the platform?
How do I increase volume?
And so maybe for buyers that looks like daily deals that are sent to their inboxes, maybe that looks like AI or machine learning driven recommendations that are sent out once a week.
9:47
Maybe for sellers, right?
eBay can take some of the technology that Sheehan has put to good use in the fast fashion world.
Sheehan is able to leverage its machine learning models to predict the next fashion trend before it happens.
And so couldn't eBay predict the next top collectible and send pricing guidance to sellers, right, telling them, hey, look like this 8 year old Lego set Jenny Rae to use your example, like like interest for this thing is on the rise.
10:13
You've got it priced too low.
And like if you can help sellers generate more income, then what are you going to be able to, you're going to be able to increase the revenue you generate from listing fees and from close fees.
And so I think that customer loyalty, right, like figuring out ways to bring users back to the platform day-to-day, week to week, month to month is going to be critical to ebay's future success.
10:36
That's the number one question I'd be looking to answer if I was at the company.
The second question I'd be looking to answer if I was at eBay is I'd be looking to leverage PayPal to provide in house financing to increase transaction volumes.
So management consulted.
10:52
We do a lot of things.
One of the things that we do is e-commerce, right?
And when we do e-commerce, we think about how we continue to optimize the site and the checkout experience in a way that facilitates more transactions and facilitates faster transactions.
What's the drop off rate on my platform from add to cart to completed purchase?
11:12
And so one of the things that can increase transaction volume and transaction amounts is financing.
You see companies like Affirm and Afterpay and others offering these interest free kinds of payment plans, if you will, to customers across all different types of e-commerce settings.
11:32
Why can't eBay offer an in house solution through the technology it has with PayPal?
It has the trust, it has the balance sheet, it has the technology to provide financing to buyers on its own, it can offer better terms to keep financing on the platform, and it can capture that incremental revenue from financing while simultaneously increasing its transaction volumes.
11:53
Seems like a win win to me.
The third thing that I'd be paying attention to and looking at if I was at eBay would be its eBay Plus subscription.
And I will be 100% honest with you, before we started digging into eBay, I had no idea that eBay even offered something called eBay Plus.
12:10
This was news to me, which I think is a problem for eBay, right?
And so for people like me who have never heard of this, eBay Plus is really ebay's version of Amazon Prime, right?
So you pay either $499 a month or $49 per year for special privileges on the platform.
12:26
And those privileges include $5 off a monthly purchase.
They include free expedited shipping, and they include free returns.
And so if I was at eBay, one of the things that I'd be thinking about is how do I grow subscription revenue and just a number of subscribers to eBay Plus because the membership fee is almost 100% margin.
12:47
If you listen to our episode on Costco, we broke down in a lot of detail, right, how membership fees at Costco drive almost like all of Costco's gross margin.
And I could see that as eBay looks to expand its margins, eBay Plus is kind of a key prong in that strategy.
13:06
It's 100% margin, those membership fees, eBay Plus members are the platform's most active users and they drive incremental revenue from listing fees, from final value fees, etcetera.
And so I really would be paying attention to growing that program if.
I was at eBay.
Jenny Rae, those are the three things I'd be looking at and paying attention to if I was at eBay.
13:26
How about you?
14:03
Namaan First of all, love the perspective and I love, I love how you said scale is the Moat.
I think that's so powerful.
I just wanted to say that one more time because if y'all, if y'all don't recognize that part of why eBay even exists today is that they got an early start and that they had people that were on there.
14:22
But when I was thinking about the future of the business, I went in a slightly different direction.
Namaan I I think there's some detail with what you talked about, but I was really thinking about the future eBay, everything that is not sold on eBay is an opportunity for eBay.
14:41
And so when you think about the branding of the eBay platform, when you think about sellers usually only selling old or one time items, it's much harder to build trust on an eBay platform then if you're selling something that you're manufacturing, if it becomes a very viable channel for someone who is an artisan or a craftsperson at Namaan.
15:05
I know that you've advised a business specifically that does their own handmade jewelry.
I'm guessing they don't sell on eBay, right?
But anything that is so.
So that was the phrase that came to mind.
Anything not sold on eBay is an opportunity for eBay.
15:21
Doesn't mean that they should pursue everything on the eBay platform, but it does mean that when you think about the metrics, that's going to be my kind of guiding North Star.
And so the way that they call that is they're just at their gross merchandise volume.
The number that you mentioned earlier in the month from last year, $73 billion.
15:41
So what I put on there was the average gross merchandise volume.
I think eBay is going to want to focus on selling items that are traditionally more expensive.
And so I think what you've seen here is you see competitors like Poshmark.
15:56
In fact, over Christmas, I just bought something for the first time off of Poshmark.
I mean, Poshmark is absolutely a direct competitor to eBay in the space I spent more than I probably would have on a traditional eBay transaction.
It was a really good customer experience.
16:13
The app was easy to use, like you know, and so I think really thinking about going after specific categories that have a high ticket price per item is going to be a key important strategy for eBay and making sure that they're catering to that kind of platform.
16:32
This happened to be a piece of luggage that was out of date.
And again, it's like there, it's a Samsonite piece of luggage.
I may be one of the only people in the world that doesn't like a four wheeled luggage that sticks out at the bottom.
I like my wheels embedded inside the suitcase.
My kids have one suitcase they always fight over.
16:50
I found it on Poshmark and I was able to buy it.
So that's kind of the first thing, right?
How much do people spend on an individual transaction?
And are you pursuing categories?
Are you doing advertising inside categories?
Are you doing cross merchandising inside those categories so that you're creating an incredible seller experience?
17:10
So that if I have something that I want to sell, cars, trucks, right, like things that are much more expensive that I want to sell on those types of platforms that I'm thinking about, this is a great place to do it.
The second one that I talked about was a central source brand verification trust metrics or third party authenticators.
17:34
I, I, I think one of the things that you talked about in the month with the subscription is that eBay is trying to build trust with its buyers, right?
It's trying to basically say, like if you get a piece of junk from a seller, we're going to help you take care of that by being able to return it without friction, by being able to have not paid for shipping in, you know, on, on the way in.
17:53
So it's going to lower the barrier of risk for trying something on the platform.
I can't remember the last time I purchased something from eBay and that would be my absolute #1 concern, right?
It is because of that specific issue.
18:09
Did they build significant trust on the platform?
So I think that having for certain high value items, either a central authenticator or tools for authentication or that like very, you know, hassle free return process certainly going into Kohl's at this time of year, basically almost everyone who is at Kohl's at this time of year is returning something from Amazon through a very hassle free process, right?
18:36
So, that is kind of like a trust building mechanism.
I noticed that they actually did roll out something in Japan specifically for authenticating luxury items.
But thinking about other categories, silver, what you know, Wedgewood crystal, right?
18:53
Like where are some of the other categories that might need specific authentication and how could you do that efficiently on the platform?
And then I just really thought about category growth as my third, right?
So not just per ticket item, trying to go after things that are much more expensive, but looking for categories where eBay is a better fit and where they don't have a secondary marketplace like a Poshmark, for example.
19:21
So I was thinking about a business that I advised a few years ago, which is in the spa parts business.
One of the things that was very unique about this business is that it required some additional information to utilize the thing like how do you know that this part is the right part, right?
19:43
It's kind of the, there's a customer service aspect to some of these categories.
So what they've done at that reseller is that they've taken, you know, manufacturers and they have people who you can call and talk to and say, like, my spa's broken.
19:58
I don't know what it is exactly.
Here's my model.
And and and you know, you can replicate a lot of that online, but I think that potentially some higher touch options for customer service when you're trying to figure out how to troubleshoot something for a high end electronic or something for a, a hot tub or a spa, something that's not super portable or you're where you would like to replace it, where you would like to keep it home maintenance items, etcetera.
20:26
I think that those are our opportunities to really think in categories for eBay.
When you look at their growth, it's pretty slow.
I think it was 2% last year.
So that's, that's not fast enough growth to really sustain this type of business over time.
20:42
They need to accelerate growth and they're going to have to do it in specific categories.
So those would be my 3 core metrics, all very revenue focused, all very like price optimized as well because on a per transaction basis, because eBay takes a cut, the bigger the transaction, the more I make.
21:00
Come on, are you ready for some hot takes?
Let's do it.
So I'll kick us off here in Jenny Rae.
I think in the next decade, you're gonna see a fundamental rethink of ebay's business.
And I think if we were filming this episode in 10 years, and maybe we should rerecord this in 10 years and see if this turns out to be prescient or not, I think that advertising revenue will be like a larger share of overall revenue and perhaps even larger than some of the other categories we're talking about today. eBay has an incredibly large user base. eBay has incredibly detailed data on that user base.
21:31
And that should lead to more targeted and more lucrative advertising opportunities.
And so I think that in the next 10 years, advertiser services like, for example, e-mail marketing will become ebay's primary growth driver.
Like it is not going to be able to help but monetize this large and active user base in new ways because it's stuck in this low single digits growth.
21:51
And I think advertiser services are the way out for eBay.
That's awesome.
I couldn't agree more.
And I actually have a, my hot take is around the method that they're going to do that.
So my hot take for eBay is that they're going to acquire businesses.
22:07
I think you're going to see a bigger portfolio of eBay owned companies once they recognize that their main focus is this transaction category volume.
I think you're going to see them roll up these small category areas that are doing better than they are. eBay is not a great user experience and it's almost impossible to remake it.
22:30
I wouldn't take the cash at eBay and spend it on myself.
I would go spend it on the Poshmarks of the world.
I'd go spend it on these, you know, spa parts suppliers and auto parts suppliers.
I'd go spend it on these category platforms where people can build trust and one of the things that is a key hallmark for those platforms.
22:52
Guess how I found Poshmark?
I searched for Samsung Luggage and the Poshmark listing showed up.
They are doing a better job of advertising their own listings now using core channels.
So not just I think you're talking about advertising inside the user base, but Poshmark got me by going outside the user base.
23:11
I wasn't already a Poshmark subscriber.
And so I see them using their cash to acquire companies that are doing an optimal job of bringing new users in new categories into the platform.
And then using the data and the algorithms that they have to cross pollinate those customers with the data that they have across the business.
23:33
So, so love, love the hot takes 10 years and where are we going to be in 10 years?
I'm hoping for some private island in the Caribbean.
We'll see.
I think you're still gonna be wearing that shirt, if I'm honest.
Absolutely.
I'm not a Poshmark guy, so I'm gonna keep my wardrobe the way it is.
23:52
Here's hoping.
Here's hoping.
Great.
Well, I'm really excited to get some user feedback on eBay, but I just wanted to say that everybody listening, thank you so much for listening to this episode on eBay.
We hope that you enjoyed it.
24:07
We hope that your hot takes will add a little spice to our life and we're looking forward to hearing back.
So please, now you can drop a comment.
You can drop a comment directly, and you can also always just reach out to us.
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24:26
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24:44
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