eBay goes small

December 8, 2003

BY MICHAEL KRAUSS

San Jose, Calif.-based eBay Inc. is a true Internet phenomenon. Consider these statistics: In the third quarter of this year, they grew their customer base 14.7% to 86 million registered users from 75 million, with merchandise sales of more than $5.8 billion. That’s an annualized run rate of $23.2 billion in merchandise sales changing hands over eBay.

EBay’s net fees for all the trades made on its system were $530 million in the third quarter, up 84% from last year. During that same quarter, they generated record operating income of $155.9 million, up 73% vs. the prior year.

Not bad for a company that’s just over 5 years old. But what do you do for an encore to sustain that growth? That’s a big question these days, not only for eBay but for many businesses.

As the cost-cutting of the recession starts to wind down and companies look for top-line revenue and increased market share, eBay’s approach to sustaining growth could serve as a model for online and off-line companies. It just might save businesspeople a few bucks as well.

To sustain growth, eBay’s management studied their current customer base for patterns and opportunities. Now there’s a novel idea: Study your current customers. Ironic, too, because Harvard Business School Professor Clayton M. Christensen, author of the 1997 technology strategy classic <it>The Innovator’s Dilemma,<mn> exhorted all of us in the dot-com boom not to necessarily listen to existing customers because they might mislead us regarding future opportunities.

What eBay discovered is that small businesses were buying and selling over eBay--not Pez dispensers and old comic books but construction, metalworking and restaurant equipment. Real business stuff. From this analysis came one of eBay’s key strategies for future growth: target the nearly 22.9 million U.S. small businesses and the even greater numbers around the world.

“We observed what small-business people had already done on our site,” reports eBay’s Jay Fiore, senior manager of business marketing. “Then we looked for ways we could improve their experience and make more small businesses aware of eBay as a trading platform.”

And that’s just what eBay has been up to over the past 24 months. Under the guidance of Fiore and eBay Business General Manager Jordan Glazier--and with the help of Chicago-based advertising agency Slack, Barshinger & Partners Inc.--eBay crafted and executed a model approach to cracking a new segment and growing the business.

After a review of the campaign and a conversation with Fiore, five things impress me about eBay’s effort:

• Reach: EBay found efficient ways to connect with the diverse, small-business market.
• Defusing FUD: The company defused the fear, uncertainty and doubt of trading business goods online.
• Peer to peer: It created positive, revenue-generating buzz among small businesses.
• Integration: It cleanly merged online and off-line marketing tools.
• Execution: The quality of the Web site and the communications tools are first-class.

The small-business market is anything but homogenous. The market comprises a cornucopia of seemingly attractive subsegments from architecture firms to florist shops to small machine shops. How do you reach this diverse market efficiently? How do you develop product offers that fit their needs? Who do you target within these organizations? And, how do you do it profitably?

“We needed to reach small-business people through the media and in a way that was credible and meaningful to them,” Fiore says. “That meant a departure from our typical online media into vertical industry trade publications and through trade associations. Small businesses look for credible information. We decided to reach small-business people through the media they trust and recognize,” Fiore adds.

What about the FUD (fear, uncertainty and doubt) factor? EBay expected that small-business executives might have real concerns about buying tens of thousands of dollars’ worth of equipment over an online trading site.

To solve this problem, eBay sought out current customers. They found corn, bean and alfalfa farmer Joel Holstad of Forest Lake, Minn., trading on the site and persuaded him to participate in the campaign. In full-page ads, Holstad proclaims, “On eBay, I bought a tractor, a combine and a cherry picker--nearly $20,000 worth of equipment--for less than $10,000. And I did it from home after my regular work was done.”

The ads not only signal the benefit of cost-saving, they communicate an added benefit that would resonate with other farmers--buying on eBay doesn’t take you away from your fields during the day.

“We employed a testimonial-on-steroids communications strategy,” says Gary Slack, CEO of Slack Barshinger, eBay Business’ ad agency. “We call it the FUD-eradication campaign because we're using real people in the ads, who are gaining significant savings and dramatically wider selection. Plus, our real-life small-business owners are actually enjoying trading on eBay."
The ads had an unexpected benefit. They turned viral. Once they started running, people like Holstad and Bill Golden, a Roswell, N.M.-based CPA who’s profiled in another eBay ad, started receiving telephone calls. Not from aliens, but from other small-business executives who’d seen them in the ads and wanted to know if they were for real. According to Fiore, the news about eBay Business spread by word of mouth and rapid fire.

“What we’re doing is mirroring the eBay consumer phenomenon,” Fiore reports. “If you look at eBay’s history, we took off and started growing by word-of-mouth.”

If you go to the eBay Business Web site (www.eBaybusiness.com), which is prominently displayed in the print campaign, you’ll find a home page that is remarkably well-structured for the small-business marketplace. The site features obvious landmarks that make it easy for small-business buyers and sellers to navigate whether they are contractors, restaurateurs or metal workers. There are clear guideposts to popular cross-segment goods such as office equipment. And buttons are there that can get a confused first-time trader started right away.

Fiore is quite modest about the program. “I don’t believe what we’re doing here is actually revolutionary. It’s a very straightforward approach. We focused on understanding our target audience, understanding how to reach them, and understanding their concerns and issues. We simply built a program to address our customer as directly and effectively as we could,” he says.
What’s next for eBay? Are there other worlds to conquer after small business?

“I think the day is coming when larger enterprises will see the advantages of buying on eBay as well,” Fiore says.
Personally, I think Fiore should take a bow. Well-planned, integrated and effective strategic marketing programs that merge online and off-line capabilities are still more the exception than the rule. This campaign should be a stimulant for any marketing executive who’s still numb from the recession and under the thumb of budget constraints.

If that’s you, take my advice: Share the campaign with your CFO. Then tell your CFO to start shopping for goods and services on eBay and invest the savings back into your marketing budget.

Michael Krauss is a partner with Marion Consulting Partners and can be reached at Michael.Krauss@Marionpartners.com or news@ama.org.