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Sun May 1 2011 22:48:04

Amazon's Focus on Customer Is the Key to High Growth Rates

By: Ina Steiner

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In listening to eBay and Amazon.com executives last week during first-quarter earnings calls and eBay's annual shareholders meeting, I was struck by a difference in how the two management teams look at pricing. eBay discusses high Average Selling Price (ASPs), while Amazon focuses on low prices for customers.

When Amazon.com CFO Thomas Szkutak presented Q1 earnings, he said: "We're grateful to our customers who also continue to take advantage of our low prices, vast selection and shipping offers," and he mentioned that theme several times. Even when answering an analyst's question about Amazon.com's advertising business, he said: "we think it allows us over time to have another way to have great low prices for customers."

In his presentation of Q1 earnings, eBay CEO John Donahoe talked about putting items with higher ASPs in search results. While marketplaces and sellers may want high prices, consumers don't, and that's something Amazon.com understands very well.

Amazon.com has demonstrated a consistent laser-like focus on the customer from the beginning. What is eBay focused on these days? Making PayPal the digital wallet for both online and offline commerce. eBay's CEO also said: "We're focused on redefining retail and leading the next generation of commerce and payments," and he talked about making it faster and easier for shoppers to find what they want.

eBay seems to lack the focus on the customer that has worked so well for Amazon, and first-quarter earnings would indicate Amazon is on the right track. eBay Marketplaces US GMV non-vehicles was $5.631 billion, up 10% year-over-year. Amazon.com North America segment sales (U.S. and Canada) were $5.47 billion, up 45% year-over-year.

If you were CEO of eBay, what would you focus on, and what risks would you take to get out ahead?




Comments (39) | Permalink

Readers Comments

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Digby

Mon May 2 00:11:25 2011

If I were CEO of ebay (JD) I would focus on resigning as my 3 year turn around plan was never announced or followed through on, and has not worked.

Then I would focus on repaying ebay's shareholders all the shares I was given as I did not achieve much for them.

Lastly I would focus on repaying all of the listing fees to non TRS sellers, as they did not get much for their fees.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: another side of the coin

Mon May 2 01:01:13 2011

If I were CEO of eBay I would renew my focus back on to my actual customers, the sellers. Who pays the bills after all?

I would split eBay into two sites, fixed new and auctions.

I would have Time Ending Soonest on the eBay auction site. Best Match could stay on the fixed new eBay.

I would do away with the stupid DSR system.

The dispute process will be transparent and decisions can be repealed with proof by either party.

User names would be restored in auctions because that was part of the fun.

There would be an equal, fair playing field.

There would be no listing fees.

Servers would be updated with no so called blackouts and all listings will have visibility 24/7.

Sellers could leave negative feedback for non-paying bidders.

Bad buyers will be suspended.

User IDs must be verified. Users will only be able to have no more than two IDs.

Sellers would have a voice and not be referred to as noise.

This would be a start to getting back the trust.  

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Rich

Mon May 2 01:15:09 2011

Great article and you really nail it by showing how the patient approach by Amazon which focuses on low prices is so much smarter  than the fast greedy approach used by the elitist snob John Donahue, who absolutely cannot relate to 99% of the population.  He doesn't understand the economy sucks for most people and most people are looking for deals; not for high priced items.  He also is clueless that when you raise seller fees 6 straight years and the competition doesn't; buyers will compare ebay and Amazon and find better deals at Amazon.  So Amazon growns and Ebay remains stagnant.  Both were $40/share stocks in 2006 and neither have split; yet today Amazon is $195 and Ebay just $34. Wave after wave of Ebay sellers quit due to the outrageous fees.  Some get different jobs and some join Amazon.  And what a difference for large stores.  5,000 items on Amazon is $39/month with no per item charge while 5,000 items on Ebay is $49/month and 5 cents per item per month which adds the ridiculous extra cost of $250/month in upfront fees.  So Amazon store with 5,000 is $39/month in upfront fees plus 15% commision after the sale with no Paypal; while and ebay store with 5,000 items is $299/month in upfront fees plus 12% after sale plus Paypal. John Donahue just doesn't get it.  Ebay sellers have to raise prices every year so buyers are choosing Amazon over Ebay

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: RK007

Mon May 2 01:33:45 2011

Ina,

Thanks for the article!

I think that it is important to understand the fundamental difference between two businesses here. Amazon "owns and sells" items and hence can control the prices. eBay does not own or sell the items. They provide level playing fields to sellers around the world. It is the seller who can control the prices on eBay. Of course it is in eBay's best interest if sellers sell items at lowest possible rates but eBay cannot dictate that.

Amazon never discloses sells from their individual business units. I think that the bulk of their profits come from Kindle, e-books and EC2. They are probably loosing money or making very little profits from the other business, which competes with eBay directly.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

This user has validated their user name. by: Philip Cohen
Web Site

Mon May 2 06:09:20 2011

The Life and Times of a Headless Turkey

The following quotes are from the transcript of John Donahoe’s rambling Legg Mason Forum presentation on 26 September 2007. Note the date: it indicates that Donahoe’s “three year turnaround” was underway prior to September 2007—therefore we are now well into the second of Chairman Ho’s three-year “Great Leap Backward” plans. Regrettably, just like in Mao’s case, there has been effectively no forward progress.

http://www.leggmason.com/thoughtleaderforum/2007/conf
erence/donahoe.html
 

The whole of this 2007 Forum transcript really is required reading for anyone wanting to know the direction this headless turkey thinks he is taking the eBay farmyard. I particularly like the accompanying photo of the chief headless turkey, and you have to wonder why so many publishers appear to select such unflattering photos of the “eBafia Don”. Of course, once you have read these following quotes you will understand why: they obviously recognise that this man is indeed a fool.

“By using a real focus on the customer, we embarked on a series of fundamental changes that will ultimately span a three year period. We started by creating a future vision. This was critical because not everyone felt the impetus to change, given the amount of success we were experiencing. There’s a real push to keep doing what you’re doing because it’s working.”—John Donahoe (26 Sept 2007).

“We have such volume that many of our buyers said that there was too much abundance. They just want to buy a Nike watch and instead they get 12,000 results back. That’s too many. They want to get to what they want, faster. We agreed.”—John Donahoe (26 Sept 2007).

“We talk and listen to customers, but for this kind of innovation, customers don’t always know what they want.”—John Donahoe (26 Sept 2007).

“Even though people think I’m an expert at technological innovation, my own instinct for technology was frozen in place in 1982.”—John Donahoe (Sept 2007).

“Today we’re dealing with phase two or phase three [he can’t even remember which one] of disruptive innovation. We’ve had the disruption, now we’re having to disrupt the disruption.”—John Donahoe (26 Sept 2007).

“Based on our experience, here’s how innovation at the core worked. We had to create a mind shift at our company—we had to think bold and not just incremental. We had to create a vision of the future so people could let go of a very successful past.”—John Donahoe (26 Sept 2007).

Ref: http://www.leggmason.com/thoughtleaderforum/2007/conference/donahoe.ht
ml
 

“And so we put the words out there, we are backing up our words with action, and yes, is there going to be some noise along the way? There is.”—John Donahoe (3 Feb 2008).
Ref: http://genuineseller.com/john-donahoe-quotes-a-year-in-review/

“There are times when I wish we can close this store and just open a new store, but we can’t.”—John Donahoe (11 October 2008).
Ref: http://www.iht.com/articles/2008/10/12/business/12giants.php?page=1  

“Now we had this auction business. We like it, it brings unique inventory and buyers. Our goal is to get auctions stable.”—John Donahoe (paraphrased, 10 Feb 2011).
(Notice how the turkey quite accurately says “we had”, not “we have”, and “we like it [now]”, not “we liked it” … All part of turning around the turnaround, apparently.)
Ref: http://blog.auctionbytes.com/cgi-bin/blog/blog.pl?/comments/2011/2/129
7309219.html/2/20
 

“… um … eBay is not a retailer … and we will never compete with our sellers … we don’t have the skills to be a retailer; we couldn’t begin to, ah, run a factory or warehouse or distribution center, ah, or manage a supply chain, um, ah, ah, you know, …”—John Donahoe (April 2011?).
Ref: http://youtu.be/e3H9LPVknk8  

If I was the current CEO of eBay, I would be hiding my face in shame: the man is so obviously an arrogant, ignorant fool.

Enron / eBay / PayPal / Donahoe: Dead Men Walking.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: anyone out there

Mon May 2 07:59:41 2011

If I were CEO of Ebay I would do what the CEO's of failing Japanese companies do.

I would sell everything that isn't directly associated with Fleecebay.

Then I would shut down Fleecebay permanently.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Dan

Mon May 2 08:08:25 2011

If you go onto Amazon and do a search for Schick Hydro 5 Razors you get 16 different results that provide a basis for making a purchasing decision.  On eBay you get 76 results and best match doesn't do a sufficient job narrowing the list down or explaining why the items shown are the "best match"  I still don't "get" their algorithm.

If you need a shave it's not only about price, its about how quickly will the item ship to you.  Can anyone get it to you on the same day ordered?  Is your item being shipped from across the country or from the local pharmacy.

People are less likely to make a buying decision when they are given too many confusing choices.  

I've noticed more and more people are not putting their location or where the item is shipping from on eBay.  

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Disgusted

Mon May 2 08:33:37 2011

Come on y'all. Sell all your books & media on wonderful Amazon for a penny and give the customers what they want. Great way to go bust.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

This user has validated their user name. by: Tula

Mon May 2 08:35:30 2011

When I worked a contract job at Amazon (in software development), I was surprised at the level of customer focus within the company. Whenever there was a problem that affected customers (both buyers and 3P sellers) everyone would drop everything to work on it until it was fixed. The 3P sellers are definitely very important to Amazon, because they bring in a lot of revenue, so they give them the same level of care as buyers.

I've worked for other retailers whose internal focus didn't necessarily match their public image of customer-centric policy, so it was quite refreshing to see a company who "walked the walk" and didn't just talk the talk. Yes, Amazon may sometimes compete with its own sellers, but they still leave eBay in the dust when it comes to customer service.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: John

Mon May 2 08:52:16 2011

When I purchase general merchandise online I purchase from Amazon. I have never had a problem. The site allows for an easy and trouble free transaction.

eBay's site is difficult to navigate. Their search is a joke, and their pushing of pay-pal is insulting.

I just purchased 2 items on Friday from  Amazon and was informed on Sunday the items were shipped . The tracking number confirmed this.

Anything I have purchased from Amazon usually arrives within a weeks time but mostly less then  7 days. It is really a pleasure buying from them.

I will say that I have seen prices a bit cheaper on eBay at times but stay away from them. I weigh Amazon selling history with me, and that of eBay. I opt out of purchasing from eBay completely.

I base my buying on first impressions. Amazon may be a few cents higher at times but their first impression exceeds that of eBay's hands down.

I define first impressions not only as price, but ease of use of the site, ease of search on the site, ease of understanding the buyer's policy, a problem free transaction both during the purchase and in transit, and follow through if I purchase from one of their sellers.

I would never purchase general merchandise on eBay. Not even from their diamond sellers which I believe do more harm then good for the site.



Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

This user has validated their user name. by: Nan
Web Site

Mon May 2 09:08:05 2011

Agree with the list posted by another side of the coin.  Especially #2 "I would split eBay into two sites, fixed new and auctions."  It would bring the 'treasure hunters' back.

Then I would give eBay back to the sellers.  We do have brains after all, and know how to market an item.

Then I would take a pin and puncture my giant ego-bloated head until it deflates enough to fit out the eBay door, so I could go somewhere else and disrupt them for a change.


Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Charlie W.
Web Site

Mon May 2 09:20:20 2011

Add my voice to those who think that eBay should have been split into two sites: ''Classic eBay'' and ''New eBay''.

Perhaps it's not too late to try, but it seems as though the damage has been done and it will be an exceedingly difficult task to regain the trust of the sellers (and buyers) who have abandoned eBay.

Good reputations are hard to earn, and a bad reputation is hard to shake-off.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Ron

Mon May 2 09:40:07 2011

I agree with Another Side of the Coin and Nan.

Donahoe made a huge mistake by mixing auctions with new fixed price items.  It demonstrated a lack of understanding of basic merchandising.

You cannot have efficient marketing and selling processes in place that address both auctions and new items.  New items require a shopping cart and customers buying that type of thing require different marketing approaches and buying mechanisms.  Competition is fierce for easily available new items, so you've got to seriously compete in that market.  People buying by auction are treasure hunting - they're seeking a special something, and that requires a whole other approach, which eBay did have down pat at one point, before skewing everything in order to access the new fixed price market.

The result has been that eBay now serves neither market well.  It's called being "stuck in the middle", when you try to be all things to all people and you land up satisfying no one.

eBay needs to split the site and leave the third party auction sellers to do their thing.  And then they need to do what Amazon has done for fixed price goods - become the primary seller and handle all fulfillment and selling process.  Amazon offers 3rd party, but given the choice, I almost always opt to buy directly from Amazon as I can trust that if there is a problem that it will be handled professionally.

You cannot mandate excellent service like eBay has attempted to do;  the only way to ensure excellent service is to take ownership of it yourself and do what you need to do to provide it.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Ebay Express?

Mon May 2 10:03:03 2011

@ another side of the coin.
''I would split eBay into two sites, fixed new and auctions.''

They tried that already. It was ebay express. It failed. They should have taken a clue from that mistake. Now  they've dumped the new ebay onto the old one so they could keep the customers without having to do a massive ad campaign.

Donahoe had the right instinct about wishing he could start a new site. Who stopped him? Why didn't he trust his own gut?

Ebay Express was rushed out without thinking it through.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: who me?

Mon May 2 10:06:13 2011

I would shut down ebay completely in order to fix it right. Same way Tylenol shut down & corrected flaws after that poisoning stuff back in the eighties in order to restore/maintain consumer confidence. Ebay is tainted.

That means going back to the 2003 or so era, with common sense enhancements/updates to security etc. (as in verifying ID's before they even get on the site, everyone and other obvious changes)

Then I would force everyone to re-register with one ID only and purge all the fake ID's, 'players' and cheaters. (because whatever they're doing now is bass-awkwards as they say. The cheaters and scammers are all still there but legit folks are being abused)

And I would fire that sleazy disgusting lieworld

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: who me again

Mon May 2 10:11:38 2011

Change to focus away from 'get rich quick' back to the love of collecting.
That's what made ebay. Once the MBA and wall street types got their grubby fingers in the pie they ruined it.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

This user has validated their user name. by: Ric

Mon May 2 10:29:34 2011

John Donahoe's reference to placing items with higher ASP in search details exactly how badly out of touch he is with users.

During the biggest recession in recent history, the disconnected CEO would rather favor items that are higher priced as opposed to featuring value buyers want and need.

John Donahoe's first three year turn around plan has failed miserably due to his own lack of vision. Now it seems users will be subjected to another three years of pain caused by a CEO who is focused solely on Wall Street and ignores the buyers and sellers who are his customers on Main Street.

On the other hand, Amazon's CEO Jeff Bezos has managed to reposition his company and keeps his finger on the pulse of what buyers want, thus the consistent sales growth his company manages to achieve.

Once and a while, Amazon may miss Wall Street projections, however, it is a breath of fresh air that the needs of buyers and sellers takes precedence over the wants, demands and dictates of Wall Street analysts.

Jeff Bezos continues to put Main Street ahead of Wall Street, and sales continue to climb. Buyers and sellers are happy. Happy buyers and sellers will assure that sales at Amazon will continue to grow for a long time to come.

Meanwhile over at eBay, John Donahoe continues to dictate policy and system changes which do nothing but alienate buyers and sellers. John Donahoe is under pressure to meet the projections set by his Wall Street Masters. With the anemic rate of growth eBay manages to eek out, if eBay fails to generate margins demanded by Wall Street, eBay will fall out of favor with the street and eBay stock will return to the ten dollar range.

eBay's problem is that present management's failed vision has completely destroyed buyer confidence and at the same time destroyed the good will which once existed with their third party sellers. That one two hit may be insurmountable by management which is so completely disconnected from it's users.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Patricia This user has validated their user name.

Mon May 2 12:00:14 2011

Amazon may be focused on the customer BUT they honestly listen to both the buyer AND seller.  They do not automatically stand on the seller's neck! In the one problem I had with an Amazon seller they listened to both sides - they gave the seller a talking to but far as I could see he was not punished, simply warned.  On Ebay that seller would have probably had his standing lowered and all kinds of havoc.  Amazon used a soft brush whereas Ebay would have used a bloody axe!  

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: cocjas

Mon May 2 12:32:03 2011

The problem is if amazon focuses on price, most of you small sellers wouldn't be on amazon. Small sellers often have poor prices, especially compared to amazon themselves. In the long rung amazon isnt a viable option for most sellers and theyll never get into auctions because its a slow growth area.

Amazon's Focus on Customer Is the Key to High Growth Rates   Amazon's Focus on Customer Is the Key to High Growth Rates

by: Charlie W.
Web Site

Mon May 2 13:06:25 2011

@Patricia:
''Amazon may be focused on the customer BUT they honestly listen to both the buyer AND seller.''

I think this is a concise summary of where eBay's plans were flawed. It appeared as though eBay had half-a-plan but never really followed through fully.

Focusing on the customer experience is, in an of itself, a good thing. There's no denying that. However, when it's the ONLY thing... and when it's lopsided at the seller's expense... that's when a good plan goes bad.

The ultimate effect of this is disenchanted sellers who are forced to leave, or who are driven away, or who choose to leave voluntarily rather than succumb to the other two options.

In an effort to clear out a few ''bad-apples'', eBay has effectively dumped out the entire barrel of apples. The net effect is that their barrel contains no bad-apples, but it's also an empty barrel. Except for the few buyers who are actually interested in obtaining an empty barrel, everyone else appears to be departing.

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