eBay Bids for Revitalization

Like everyone else at eBay's San Jose, Calif., campus, John Donahoe sits in a cubicle. Though this is one of the dotcom biz's oldest clichés, the company's 6-ft. 5-in. new CEO really does use the cramped space--filled with eBay trinkets and pictures of his wife (an Obama campaign fundraiser) and four children (all basketball players and eBay users)--as his primary office. That visibility and openness has earned Donahoe, brought in by Meg Whitman from Bain & Co. three years ago and promoted to replace her in March, respect from employees and customers alike. The conference room where Donahoe holds meetings has a small DENNIS THE MENACE nameplate on the door. He explains the eBay tradition whereby colleagues name your conference room after a cartoon character. "It's because I tend to have a smile on my face, but I'm maybe a little more devilish and firmer than people realize," he says, looking very much like a grownup version of the impish comic-strip kid. "You can have a smile and be quite firm--it's tough love with a little bit of humor built in."

Tough love is a very fitting description for the Chicago native's eBay tenure so far. In the nine months since assuming the top job, the former Dartmouth basketball player, 48, has shown a penchant for shaking things up. In October he acquired three companies on the same day that he laid off 10% of eBay's 16,000 workers worldwide--a way to boost efficiency in a tougher economic climate.

Although you'd think that eBay's flagship marketplace business, a site where people go to buy and sell stuff, would flourish in a downturn, it has stopped growing. It's still unclear how badly the credit crisis and buying slowdown will affect an e-commerce value site like eBay, which does half its business outside the U.S. During the 2001 recession, eBay's marketplace continued to thrive because of its Web dominance and discounted goods. Whitman at the time even crowed that "eBay is to some extent recession-proof."

Today that statement seems wishful thinking. In the third quarter, for the first time, transactions on eBay's marketplace, a key metric of growth, fell 1%, to $14.3 billion, from a year ago. The strength and popularity of Google's search, Amazon's sales and the sheer number of other Web retail sites have eroded eBay's dominance, making it harder to compete with the same business model that steered the firm through its first 10 years of jaw-dropping growth. Three years ago, eBay boasted 30% more traffic than Amazon, but today its 84.5 million active users scarcely best Amazon's 81 million customers. The troubled economy and weakness in eBay's core business contributed to a 60% drop in market value this year. Amazon's market cap topped eBay's for the first time last summer. "eBay used to own all the on and off ramps, and now it's just another highway," says Scot Wingo, chief executive of ChannelAdvisor, a consultancy that works with online retailers. "They have to figure out how to reorient the eBay brand to mean more than auctions and learn to become a leader again."