eBay selling Stumbleupon? Not surprised

According to TechCrunch, eBay is looking to unload Stumbleupon, the “crowd-sourcing” Web recommendation engine that the online retailer bought last year for $75-million. Mike Arrington says that reputable sources have told him the company is for sale. I can’t say I’m all that surprised. Not because Stumbleupon isn’t an attractive asset (although whether it was worth $75-million is a different question entirely) but because it never made any sense as part of eBay in the first place. When the rumours of an acquisition first surfaced in April of last year, I said that I didn’t really get it, and despite the attempts by many people to justify the deal since it happened, it has never made much sense to me, and still doesn’t. Combine that with talk of layoffs at eBay in the near future and a sale seems fairly plausible.

Not everything needs to be auctioned

Catherine Holahan has a piece in Business Week about eBay and the decline of the company’s traditional auction business — or rather, the increasing growth of its non-auction “Buy It Now” business, which she says currently generates almost half of the company’s revenue. Nick Carr (always eager to pronounce something dead) asks whether eBay was “just a fad.” Some fad: eBay has a market cap of about $40-billion and year-over-year quarterly revenue growth of about 24 per cent. But it’s certainly worth asking whether its business model is evolving toward something non-auction based.

If anything was a fad, it was probably the idea that the eBay auction model could be applied to almost anything — that online auctions could solve virtually any problem, from disposing of human organs to getting rid of all your life’s possessions after a divorce. In that sense, eBay was seen as a giant hammer, and everything started looking like a nail. But it’s been known for some time that the auction model works for some things and doesn’t work for other things. And if you think about it, one of the main downsides to the auction model — as my friend Mark Evans notes — is that it can be a gigantic pain in the ass.

The auction — whether it’s the English style (used by Sotheby’s, etc.) or the Dutch style (known as a “reverse auction” because the price starts high and comes down) — is a method that is best used for goods that are scarce and for which there is plenty of demand, such as paintings by the Group of Seven or tulip bulbs in the 17th century. Some products on eBay might fall into that category, but certainly not every single one. And the other requirement for an auction model is time — something many prospective eBay buyers don’t have a lot of.

Does the increasing interest in the Buy It Now option mean the online auction is dead? Hardly. But not everything is a nail.

eBay and Craigslist: A fox in the henhouse

A week or so ago, eBay filed a lawsuit against Craigslist, alleging that the controlling shareholders of the classified site — namely, founder Craig Newmark and CEO Jim Buckmaster — had taken certain steps to dilute the auction provider’s minority stake in the company, and thereby had breached their fiduciary duty and injured eBay as a shareholder. Craigslist has now made the statement of claim public, and it reads like a corporate version of a divorce court filing. These two parties are married, but they really don’t want to be, and each one is trying its hardest to get out of the relationship without losing everything.

According to the statement (which obviously has only one side of the story) eBay says that Craig and Jim got mad when Kijiji — the eBay subsidiary that competes with Craigslist — started up operations in the United States, so they took a number of steps to dilute the company’s stake below 25 per cent (including issuing themselves a bunch of shares), and thereby removed a bunch of rights that eBay had as a shareholder. They also, according to eBay, instituted a “poison pill” that threatened to flood the place with cheap stock.

In other words, they did (or are alleged to have done) pretty much what Valleywag and others, including yours truly, thought they did when the lawsuit first emerged. Of course, what eBay is talking about isn’t really a poison pill — pills are typically designed to prevent hostile takeovers, but no one can take over Craigslist because Jim and Craig control it. This pill isn’t so much designed to prevent someone from buying as it is designed to prevent someone (namely eBay) from selling.

Can Craigslist do that? Obviously eBay is arguing that it can’t. And while you might think that the classified site is a private company and so Craig and Jim can do whatever they like, it’s not quite that simple. Ebay does have rights as a minority shareholder — and it argues that even if it did engage in competitive activity, the clause it triggered did not give Craig and Jim the right to prevent eBay from selling its stock to anyone but them. This could get ugly.

eBay: Won’t you be my neighbour

Lest anyone think that it is totally clueless when it comes to the whole social-networking thing, eBay has launched eBay Neighbourhoods, a kind of mashup of MySpace and Digg-style features that has been grafted onto the shopping site. Not surprisingly, perhaps, these social features are all mixed up with the main focus of the site — which is, after all, shopping. That’s part of the problem (along with the fact that it’s about two years late, of course).

ghost-town.jpgSo when you go to the “Coffee Lovers” neighbourhood, for example, — which eBay suggested I might be interested in, despite the fact that I wasn’t logged in with my eBay user name — the URL is actually “espresso machines.” The implication is clear: come here to our beautiful neighbourhood and chat about coffee… and then please buy one of our lovely espresso machines. Is that the kind of basis for a social network that will have any kind of traction? I’m not sure (neither are GigaOm or Techdirt). I’m not a big shopper, really, and I don’t like to spend a lot of time talking about my prospective purchases. But maybe that’s just me.

It reminds me a little of a social network that Chapters Indigo — a large Canadian bookseller — recently launched. It has all the requisite features, with recommendations and friends and links and so on, but it appears to be a bit of a ghost town so far. Maybe that will change, I don’t know. But as I keep saying, I don’t think you can just create a community (not a real one, anyway) by just building something and then flicking a switch. That’s not how real-world communities are formed, and it’s not how online ones are formed either.

eBay has lots of users who have signed up to buy or sell things — but is that the kind of community that will translate into a big user base for its “neighbourhoods?” I’m not sure it will. Does it mean anything to me that when I look at comments, it shows that person’s eBay feedback score? That means people enjoyed buying things from them, but I’m not sure that means their comments on the Coffee Lovers chat forum should be given any more weight than anyone else’s. Maybe they should be given less.

Even if eBay does just want to use social-networking to facilitate more shopping — which it is free to do, of course — Erick Schonfeld at TechCrunch says it is pretty much missing that boat too.

eBay waves wand, Skype value disappears

Well, now it’s official: Skype turns out not to be worth the $4.1-billion that eBay seemed to think it was back in 2005. As Henry Blodget notes at Silicon Alley Insider, the $1.4-billion writedown that the online auction company just announced effectively recognizes what everyone else has known for some time: Skype may or may not have been a mistake (I would argue it was, although Ash Karbasfrooshan disagrees), but one thing is for sure — eBay paid way too much for it.

In true contrarian fashion, my friend Paul Kedrosky says that all the breast-beating about eBay overpaying for Skype is overdone:

“Ebay is still motoring along, and this is lots of reason to be optimistic about the auction company’s future.

Over-focusing on the lamentable (and long past) Skype deal strikes me as a mistake.”

As I said in a comment on Paul’s post, I disagree. eBay may very well be motoring along, but the purchase of Skype was an error in judgment, and a fairly expensive one at that. I realize that a $1.4-billion writedown is small beer for eBay, but the fact that the company made such a decision — without any compelling synergies or anything else to justify the price — speaks volumes about the leadership of the company as far as I’m concerned (as usual, John Paczkowski has the best headline).

It’s nice for Niklas Zennstrom and Janus Friis that they not only get a big chunk of that $530-million earnout, but they can now get on with their lives (and with Joost, which launched as a no-invite-required app today) and quit trying to force some kind of fit between Skype and eBay — a fit I’m willing to bet they never saw either, although Niklas defends the deal in an interview with Thomas Crampton (Janus writes about it here).

As for eBay? Henry thinks they should sell Skype to Yahoo or Microsoft or someone like that, and he might just be right. Jeff Nolan thinks the company should turn it into a backend service-type offering, a la Amazon’s EC2.