A future for eBay that's solidly on the back burner

Yesterday, eBay discussed with investors the company's outlook for the next three years. Fulfilling statements from CEO John Donahoe made nearly a year ago, the company's growth efforts will be spearheaded by PayPal, and will include more changes to the eBay marketplace.

Donahoe said, "We are aggressively remaking and transforming our eBay Marketplace and diversifying the ways in which we compete in e-commerce."
This aggressive transformation, however, has coincided with eBay's worst year to date. During 2008, eBay's CEO of ten years departed, policy changes caused an eBay seller revolt, the economy tightened the budgets of buyers, and the trade of counterfeit goods on site brought high profile lawsuits. The end of last year's holiday season saw eBay's net income drop $163.7 million dollars from the prior year.

But the auction site hit its peak some five years ago, and has been steadily declining since then. In the first quarter of 2004, eBay's revenue was $756.2 million. In the fourth quarter of 2008, it was $367.2 million. Then at the height of its popularity, the site's operating income jumped 80% thanks to what former CEO Meg Whitman called "the power of eBay's community."

While some will hastily say the company abandoned the needs of that very community to turn eBay into a site like Amazon, others argue that it has lost traction because sellers have simply outgrown the need for its services, opting to either use free online classifieds, or to set up individual online shops.

Still others see it as a simple inability to stick to a plan. When it instituted controversial policy changes, the company was positioning eBay.com to become a place where individual re-sellers could vend new merchandise, like Amazon.com, as previously stated. Comments yesterday suggest that this goal has already changed, and eBay is now trying to be something like the e-commerce version of Big Lots, dealing in "secondary market" goods.

The secondary market includes liquidation, overstock, and out-of-season purchases sold at cut rates until stock is depleted. Rather than consistently carry items, the secondary market changes on an almost daily basis. Furthermore, it's a $500 billion dollar global industry, according to eBay.

There's a quaint irony as eBay begins the process of relegating its once pinnacle auction business to secondary status, as both Skype and PayPal move to the forefront of the company's business model. "Increasingly for online consumers, there's no paper, no plastic -- there's just PayPal," Donahoe said, "We believe this business is one of the most exciting and high-potential opportunities anywhere online today."

Therefore, the company expects PayPal's revenue to climb from $2.4 billion to $5 billion by 2011, and Skype's to more than double and break the one billion dollar mark.