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It is tough for big companies to innovate

By October 11, 2007 4 Comments

eBay is a fantastic business. It provides a great service to us all and has made great money for its shareholders (at least the early ones). There were 559 million items listed on the site in the second quarter. That is a huge number.

But the share price has struggled over the last couple of years.

They are suffering because they dominate a category that is approaching maturity and it is unclear where their growth will come from going forward.

I am sure that pressure from shareholders to find an engine of growth was part of the reason they felt compelled to overpay for Skype (see commentary on the recent writedown).

Pressure to grow in these businesses is basically pressure to innovate and the acquisition of Skype shows how difficult Ebay has found it to innovate internally (Google’s acquisition of YouTube also shows how difficult they find it).

Now eBay have launched their ‘neighbourhoods’ concept – and unsurprisingly the dominant view seems to be that it isn’t that great.

From Techdirt:

in an effort to make the shopping experience more comfortable, eBay has launched “eBay Neighborhoods,” which seeks to create communities of like minded buyers and sellers. Upon first glance, this seems like a lackluster effort. Just 600 neighborhoods were created in the initial launch — why limit this at all? ….. When posting a topic for discussion, users are asked to “Enter a comma-separated list of eBay auction numbers.” Wow, seriously? ….. Even the name “neighborhoods” seems antiquated, evoking memories of the late-90’s homepage website, Geocities.

and from Techcrunch:

what these neighborhoods are lacking is access to the outside world. What would really be smart would be if eBay allowed anyone to easily take any module on a neighborhood page—the reviews, the visual product search, the discussions, or the eBay blog posts—and embed them on other Web pages like Facebook, MySpace, or their blogs.

A big part of the reason is people – in new and fast moving markets most of the people with the best ideas want to work in places where they can make stuff happen quickly and free from pressure to fit with other corporate priorities – so they go to startups. The other side of the equation is fear – big companies like eBay have revenue streams and brands to protect which makes it much harder for them to experiment, and hence innovate. For the biggest companies there is also the problem of moving the needle – i.e. by the time a new market is clearly going to be big enough to move the needle most of the innovation has happened elsewhere – look at Microsoft and search, or any big media company and social networking.

I am generalising and there clearly are big companies that innovate well – I recently posted about IAC’s Zwinky for example – but my point holds for the majority, if not vast majority, of cases.

This is (of course) great news for entrepreneurs, their startups and their investors. Happy days!