After Cutting 10% of Its Workforce, eBay Goes Shopping

I am pretty sure at some point we have all done this — gone on a shopping spree to mask the feelings that come after a cataclysmic event. It doesn’t make our problems go away but somehow it helps us feel better for a few hours. It is good to see that large, lumbering tech giants have a similar approach to business life.

eBay, a San Jose, Calif.-based company today announced that it was cutting 10 percent of its workforce, about 1,000 jobs, in addition to getting rid of several hundred temps. These cuts will cost them between $70 million and $80 million and will be predominantly recorded in the fourth quarter of 2008. I am told the majority of the blood letting has been in the Marketplaces part of the business.

The company also spent $1.21 billion buying up two companies.

  • U.S.-based online payments business Bill Me Later for approximately $820 million in cash and approximately $125 million in outstanding options. Bill Me Later had raised a total of $200 million in funding from Amazon along with several others. It was spun out of Nortel in 2001.
  • Denmark’s leading online classifieds site and vehicles site for approximately $390 million in cash.

These are two major moves by new CEO John Donahoe, who replaced Meg Whitman in January 2008.

Both acquisitions are smart and make strategic sense for eBay, though the company has some serious challenges in its core marketplace business. The CEO of eBay Marketplace Operations, Lorrie Norrington, who was named to the job in July and was recently named to Fortune’s 50 Most Powerful Women list, has been looking to transform the business, which is in serious trouble.

How bad? The sellers — aka the customers of eBay — are so mad that they are putting out statements publicly denouncing the company. Professional eBay Sellers Alliance (PESA) on its web site wrote:

In the first nine months of 2008, we have observed a substantial deterioration in the value of the marketplace for merchants. Broader e-commerce growth is in the high teens while eBay’s GMV has increased at low single digit rates; a clear sign that eBay is losing wallet share among online shoppers.

Today eBay merchants have an increased level of business uncertainty due to eBay’s poor execution of changes in many areas including seller performance measurement, fees, site search, buyer activity, and seller communication. The result is that merchants are changing their behavior in ways that we believe is not beneficial to the eBay marketplace.

Merchants are pursuing alternate channels for their businesses which are more economical, including launching their own website, participating in other third-party channels such as Amazon and Overstock, and even opening brick and mortar stores.

Whichever way you look at it, that is a big fat F for the company. I think buying new companies might give eBay a near-term lift, but the business is a bureaucratic mess and as a company eBay has had trouble coming to terms with the future. It has failed the innovation test — a metric almost every Silicon Valley company should be judged by — and all it has done is use its monopolistic position to paper over its shortcomings.

Given the poor performance of that stock — down almost 50 percent over the past 12 months — the investors seen to be in agreement with my F-rating on the company. I hope new deals are a new start for the company, and to them I say good luck! They are going to need it.

Photo courtesy of eBay Inc.