The power of community in action – eBay

I have often remarked on this blog that the fact many web companies are based on community has profound implications for their strategies. Firstly they have to put the long term interests of the community above all else (including in the case of Digg risks to short term survival), and secondly they are vulnerable to waves of negative sentiment flowing through the community and causing people to leave the service. The good news, of course, is that managed well a strong community is a fantastic asset that nobody can take away from you.

Yesterday I wrote
about eBay putting short term profits ahead of the needs of their
community by dealing with buy.com. The post precipitated this reaction
from Patricia013, a constant seller on eBay for 10 years with 100% feedback and over 3,500 transactions:

The concept of auctions was a good one and it was exciting – the sniping at last minute and the hunt to find those vintage or unique items was overpowering – Ebay should have built on that instead of ignoring it! Also with sellers milked dry at every turn their profit margin became less and less and they could offer their buyers less of a good deal than in the past. You can’t feed ebay/paypal’s vociferous appetites for revenue and still turn enough of a profit to make selling on Ebay worthwhile. The simple example: Buy it Now – in return for getting instant sales (which Ebay/Paypal profits from) they have a nerve to charge a fee for buy it now!!! Such an option should be free, encouraging their sellers to use it! Also, international selling now costs yet another fee where it was free to be brought up in search in the past. I can go on and on,  unfortunately, every new fee has caused more sellers to leave – more sellers to list less and the remaining sellers forced to charge more. Now, I see most of my seller friends in the chatrooms and forums of other venues! Ebay is dying – bringing on buy.com with no listing fees and a miserable sell-thru rate of less than 3 percent is not even a bandaid on the gaping wound. With the proper expertise (and Ebay can certainly afford it) this whole situation could have been  avoided – the site tweaked and purged of a lot of fraud – and proper advertising and incentives put in place to lure buyers back.

I love it! Feel the passion. Thanks again for the comment Patricia.

Also, note the serial errors eBay is making, each of which makes the site incrementally less attractive as a place to do business for their community of buyers and sellers. Small increases in fees hurt the sellers, which force prices up thereby hurting the buyers. Additionally they failed to address the issues of fraud – remember when everyone was lauding eBay for it’s reputation system? Something they seem to have forgotten.

All of this is a great example of what happens when a company is run by people with an obsolete set of management techniques. eBay CEO Donnoghue and his team are still looking for orthodox sources of value and have failed to grasp what it is that is good about eBay, as described above. Umair would call this bad corporate DNA, or corporate DNA in decay – a notion which is amorphous but very important. I won’t attempt a definition but symptoms of companies that are in trouble from this perspective include lack of integrity, failure to respect stakeholders, failure to recognise that significant power now resides outside the boardroom (i.e. in the community) and possibly absence of a purpose other than making money.

This notion of DNA has wide reaching implications – this is a link to some of Umair’s writings on the subject.

  • There is such an awful lot to say about “communities dominate brands” and “good vs evil”, etc., but as someone who studied Transaction and Interaction economics, there is an awful lot of deep change to be enacted in the very theory of the firm itself. Umair attracts some swipes for being “too naive” about the way google realy competes, but people don’t seem to be addressing the key issues of “what are companies for”, “what role to they perform in a market”, and “how do markets work when you remove information asymmetries”.

  • There is such an awful lot to say about “communities dominate brands” and “good vs evil”, etc., but as someone who studied Transaction and Interaction economics, there is an awful lot of deep change to be enacted in the very theory of the firm itself. Umair attracts some swipes for being “too naive” about the way google realy competes, but people don’t seem to be addressing the key issues of “what are companies for”, “what role to they perform in a market”, and “how do markets work when you remove information asymmetries”.