Can eBay Get Its Tech Savvy Back?

Last November, eBay (EBAY) added a feature to its home page that tips off shoppers to one-day deals on certain products. The company has been fussing over it ever since. The "daily deal" widget attracted so many clicks that product managers decided to spotlight four items instead of one. Engineers saw a need for real-time updates on new deals, so they ginned up automatic Internet alerts. Customers asked for a simple way to remind themselves and friends of bargain details, so eBay added an "e-mail-a-friend" button next to each item.

The try-and-retry approach to software development may be typical at many Web sites today, but it's a break from eBay's usual model, one notorious for subjecting every new product or site tweak to months of internal scrutiny. "Now we're actually going to put something out before we've got all the answers," says Mark Carges, the company's chief technology officer.

Since Chief Executive John Donahoe hired him last September, Carges has been charged with recapturing the innovation that drew millions of users to the auction site more than a decade ago. In the early days of the Web, eBay poured resources into building a sophisticated auction system and infrastructure that could sustain huge amounts of traffic. "We were writing the rule book and experiencing growth no one had witnessed before," says Marty Abbott, a technology executive who left the company in 2005.

But under former CEO Meg Whitman, who left in early 2008, analysts say eBay turned to acquisitions and expansions to boost margins at the expense of technological advances. "They made a decision that they didn't have to innovate, that their platform already was meeting the needs of buyers and sellers," says Colin Sebastian, an analyst with Lazard Capital Markets.

Whitman takes exception. "People should remember that everything eBay is today was created from scratch," she says. "Even many of our acquisitions, like PayPal, were about integrating services and functions our users were clamoring for."

Donahoe, who, like Whitman, is a former Bain & Co. consultant, has been applauded for spinning off Web site recommendation tool StumbleUpon and planning the 2010 public offering of voice-over-Internet provider Skype—two Whitman-era acquisitions that analysts say distracted management from e-commerce. Meantime, he's rolling out more services at PayPal. The online transaction business has added an app for the iPhone, for instance, and is striking partnerships with thousands of Net shopping sites, putting it on track to outsell any other eBay unit.

But the future of the $8.5 billion company still rests largely on its online marketplace, which Donahoe concedes needs help. Weaning itself off poor-performing auctions has forced eBay to compete directly with (AMZN) as a destination for goods with set prices. While eBay's 73 million monthly visitors tops Amazon, that's down 8 million from the previous year, according to data provided by comScore (SCOR). Amazon's traffic rose by 5 million visitors over the same period.

EBay's tech inelegance is apparent to many users, who complain that searches on the site don't yield results as relevant as Google's (GOOG) and that tools enabling people to interact lack the ease of Facebook. There is grumbling inside the company as well; former employees say new ideas often are stifled by an exhaustive vetting process. "You have to be able to measure everything, and demonstrate that something will work before you make it," says Simona Brusa Pasque, who worked as a Web designer with the company before leaving last August. Carges admits product cycles can be improved: "My focus has been on accelerating the pace of innovation at eBay," he says.

A veteran of enterprise software developer BEA Systems, Carges may be able to speed things along. "Mark has always been close to customers, and has first-hand knowledge about how to translate customer requirements into what the technology is actually capable of," says William Coleman, who co-founded BEA in 1995. And Carges' track record suggests he'll stick around. When Carges, 47, met with Donahoe last summer, it was his first job interview since 1984, when he started at Bell Labs after receiving a master's degree in computer science from New York University. (His Bell project, online transaction software called Tuxedo, was acquired by BEA, which in turn was acquired by Oracle (ORCL).)


Carges' plan for eBay is to take the "agile" method of software development epitomized by the daily deal widget and expand it to other areas of the site. New product pages will be customized to better accommodate different categories, such as jewelry and clothing. And the company is helping third-party developers create applications for eBay's site such as a UPS-branded terminal for monitoring shipments.

Donahoe is sending a strong message to investors by putting Carges front and center at events like the company's annual presentation to analysts in March and the Web 2.0 Expo in April. "Mark gets it," says Donahoe. "He is changing the way we think about technology at eBay." Still, many analysts are cautious. "There is certainly a culture shift at the highest level," says Youssef Squali, an analyst with global investment bank Jefferies. "The issue is, how do you pass it through the ranks?"

One answer: a new seating chart. Since last year, eBay has moved some business staffers and software developers who share a specific focus, like search, to the same work areas. And though the company laid off 10% of its work-force, or about 1,000 employees, last October, Carges is recruiting candidates to fill specific needs, such as a senior director of design. He shouldn't have trouble, says former staffer Pasque: "People are interested in working on a problem like eBay." Return to the IN: Inside Innovation Table of Contents

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