Bill Cobb '79
old-school business wisdom
eBay's success is in part the result of
its leadership refusing the lure of 'irrational exuberance'
during the Internet boom, say Kellogg alumni who work there
by Ed Finkel
the late 1990s, when venture capital flowed toward Internet
companies like lava streaming downhill, many startups immersed
themselves and rapidly immolated.
with eBay, which today stands as not only a New Economy survivor
but a company with numbers that many bricks-and-mortar firms
of a similar vintage would envy, say Kellogg School alumni
who work there. The firm's resistance to the "irrational exuberance"
that Federal Reserve Chairman Alan Greenspan famously warned
of has played a significant role in eBay's success and staying
power, they say.
has prided itself on having made a profit ever since it was
a startup," says Bill Cobb '79, senior vice president
for international business. "We believed you ought to be able
to pay your bills right from the beginning. Our only venture
capital check is still in the bank. We have been a very cost-conscious
Penchina '97, eBay's vice president for Southern Europe,
remembers that five years ago Wall Street analysts were perplexed
by eBay's seemingly conservative strategy, pointing out that
then-money-losing companies like Yahoo! and Amazon were taking
more risks. "Why aren't you people being more aggressive?"
they asked. Penchina says, "We always said that the discipline
of forcing business leaders to look at [return on investment]
and think about profitability would serve us more in the long
recalls that a lot of capital-rich companies at the time spent
lavishly on advertising and marketing. "eBay didn't do its
first big [U.S.] advertising campaign until the fall of 2002.
Abroad it was fall of 2003," he says. "We've been pretty disciplined."
has understood from the beginning the importance of showing
profit," says Philipp Justus '96, who on July 1 was
promoted to vice president for Europe, from managing director
and vice president for Germany. "Our formula has to do with
tradeoff decisions about how much we want to be investing
in marketing versus other areas."
has been aggressive with acquisitions, Cobb says, noting that
the company paid a "significant premium" to obtain online
payment facilitator PayPal for $1.5 billion in late 2002.
"That has certainly paid out," he says. "On big decisions,
it's your traditional ROI approach and how it adds to market
which focuses primarily on eBay but also services other sites,
enables buyers and sellers to have a much smoother transaction
flow and greater confidence in the end result because sellers
can see immediately when buyers have paid, Justus says.
we look at how we can make trading easier for buyers and sellers,
payments are an important part of the process," he says. "The
biggest movement on that has definitely been the acquisition
broadly, Penchina says, eBay has "doubled down our investment
in technology to achieve world-class architecture" during
the past five years. Among the benefits of that? When eBay
acquires other companies, it can migrate them to its technology
platform at relatively fixed costs. "Acquisitions become very
lucrative as we're able to add them at marginal cost," he
has enjoyed other advantages inherent in its nature. The company
has expanded to 20 countries in 8 1/2 years since its Labor
Day 1995 founding in part because it is not a bricks-and-mortar
operation, Penchina says. "We don't need to buy warehouses
or set up distribution," he says.
page: "We're about trying to make
inefficient markets efficient"
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