Is eBay about to become an ecommerce dinosaur, a company whose glory days ended with the internet’s first decade? Or is it in the middle of an overhaul that will position it – as the company’s executives claim – to move into entirely new markets and continue to expand its 14 per cent share of global ecommerce?

Wall Street stuck to its “glass half empty” view on Friday after the company’s latest annual meeting with analysts. eBay’s shares slipped by more than 4 per cent, leaving them 25 per cent down since the start of the year and erasing $15bn from it stock market value.

eBay executives, on the other hand, outlined plans to squeeze more growth out of their traditional auction business, while extending their reach into some of the internet’s most promising new markets. Below: the case for future growth, and the reason Wall Street is leery.

THE CASE FOR FUTURE GROWTH

• New ecommerce formats eBay has already moved well beyond its initial auction business: fixed-price sales, launched in 2000, accounted for 34 per cent of the gross merchandise volume (GMV) on its sites last year. Yet most transactions still involve the end-of-life, remaindered or hard-to-find items in which eBay has always specialised.

As the Web has gone mainstream, other types of product have become more important, said John Donahoe, president of eBay Marketplaces. “New, ‘in-season’ has become the fastest growing part of ecommerce,” he said. “The eBay platform today is not fully optimized for the fixed-price buying experience.” eBay Express, a site geared to speed and convenience for shoppers who want to buy at fixed prices, was launched at the end of April to try to address that.

A second big push, according to Mr Donahoe, will be into local markets, where consumers buy local services, hard-to-ship items or products where they want to “kick the tyres.” To that end, eBay has bought or started up (through Kijiji, which operates in a number of countries) a series of local classified advertising sites, geared to tapping into local communities. The company now claims to own either the biggest or second-biggest classified advertising service in 21 different countries, attracting 19m unique monthly visitors.

Together, the “in-season” and local ecommerce markets represent a new opportunity for eBay that is 4-5 times larger than the existing markets in which it operates, according to Mr Donahoe.

PayPal The promise from PayPal: more of the same. The online payment system’s revenues topped $1bn last year, lifting eBay’s overall growth rate. A year ago, with 64m accountholders, PayPal was almost neck-and-neck with American Express, which had 65m: since then, its user base has jumped to 105m, compared to 73m at Amex.

Launching the payment service in new international markets and extending its reach beyond the eBay marketplaces remain big growth opportunities, according to Jeff Jordan, president of the division. PayPal handles payments in 10.4 per cent of all ecommerce that takes place in the US, but only 2.4 per cent elsewhere. Also, the division has started to experiment with new financial products, such as debit and credit cards.

Skype While Skype’s telephony business is in what eBay executives described as “hyper-growth mode”, its real potential may lie in doing far more than getting users to pay for internet voice calls. According to Meg Whitman, eBay’s chief executive officer, the communications service could push eBay into markets where transactions do not take place online but where merchants pay for leads – fields like real estate, travel, new cars, and many different kinds of services.

“Expect to see our first efforts early next year,” said Ms Whitman, though she warned that integrating Skype with eBay would not happen overnight: “It will take some time. It’s a pretty complicated engine to build.”

eBay executives outlined a number of ideas to integrate Skype with their existing services. By the end of this year, for instance, the Skype client software will include a search box that will let users launch a search for goods on eBay, said Rajiv Duta, Skype’s president.

The biggest potential in the short term may lie in integrating Skype with PayPal, according to eBay executives. With a service called Skype Wallet, PayPal users could transfer cash easily to friends and family, or pay for services directly.

“We believe this is a very powerful idea,” said Ms Whitman. One possible application: a Skype user could look for a pizza restaurant from a search box inside the Skype software, then order and pay for it instantly.

In the longer term, eBay executives suggest that the potential in Skype could lie well beyond these early ecommerce ideas, pitting it against other global online communities.

“We are clearly positioning Skype to do much more than voice,” said Mr Dutta. “Skype is a viral network for sharing content and information. We have built the hugest peer-to-peer system ever. I’m not sure what we’re going to do with it – but you have to ask, does the Skype community have the world’s largest supercomputer?”

• Keyword advertising eBay’s huge audience has attracted the attentions of Google, Yahoo and Microsoft, all of which would like to be able to place their search-related adverts on its webpages.

“Our users conduct 345m searches a day – and all of those searches are for products,” said Mr Donahue. eBay executives say they believe that level of search activity is equal to all the traffic generated by the Google search engine – an indication of how valuable it could be if the company were to accept keyword advertsing.

While declining to talk about keyword advertising directly, Ms Whiman said of the opportunity to take advertising in eBay: “This is something we’ve thought about a lot.”

However, to judge by comments from other executives, eBay is likely to move cautiously when it comes to adding advertising to its network. One potential drawback: keyword adverts could compete with the product listings that are returned when a user conducts a search on eBay.

“Our continuing principle will continue to be the health of the marketplace,” said Mr Donahoe, who added that advertising may work only on some parts of eBay, or in some countries.

• A revamped management team On display at this week’s analyst meeting was a senior management team that has been reinforced with executives from a number of big companies whose roots lie beyond the internet.

Among the new executives on display on Friday: Mr Donahue, a former head of management consultants Bain; Bob Swan, a former General Electric executive and now eBay’s chief financial officer; Matt Carey, chief information officer of eBay Marketplaces and a 20-year Walmart veteran; and Scott Thomson, a former Visa executive who is now chief technical officer of PayPal.

The implied message from several of these executives is that a tighter focus on operational excellence will help eBay to fulfill its growth potential while also reaping the full benefits from its vast economies of scale. Mr Donahoe, who joined a year ago after eBay’s biggest markets in the US and Germany first experienced an alarming slowdown in growth, said: “We have a plan to grow aggressively and we have been executing on that in the last nine months.”

Margins The markets that have the best potential for growth – PayPal, Skype and fixed-price sales on the internet – produce lower profit margins than eBay’s traditional auction business. This year, the company has predicted that its operating margin will slip to 33 per cent, from 35 per cent in the previous two years, as it invests in Skype. However, the company’s overall margin will rise back above 35 per cent, according to Mr Swan, thanks to a greater efficiencies, for instance in acquiring new customers.

WHY WALL STREET IS STILL LEERY

• Slowing growth in the biggest ecommerce markets This is the biggest single cloud hanging over the company, particularly when it comes to the international markets that were thought to have the most potential, and one that executives failed to dispel at this week’s analyst meeting.

“Ecommerce growth is slowing in our key markets,” conceded Matt Bannick, president of eBay International. While seasonal swings may accentuate the pattern, growth in the international markets is decelerating at a rate of around 2 percentage points each quarter, he added.

However, Mr Bannick called the European business “fundamentally sound”: with France and Italy showing some of the same characteristics that have seen the UK become one of the company’s biggest successes, Europe overall could eventually become eBay’s biggest market, he said.

eBay last year lifted the flagging growth rates in the US and Germany, its two biggest markets: in Germany growth fell to 9 per cent in the first quarter of last year, but had risen to 19 per cent again by the first quarter of 2006. Nonetheless, company executives conceded that the period of hyper-growth was over and their business was becoming more seasonal as the markets matured and eBay became more dependent on selling new rather than used goods.

• Asia A year ago, when it announced plans to invest $100m in China, that country became a central focus for eBay’s international expansion. At this year’s analyst meeting, however, the company’s Chinese operations were downplayed, reflecting what executives called a “difficult” market. EBay has been forced to reverse course and offer free listings on its Chinese website after losing ground to local rival Tao Bao. The company also pointed to fierce competition in South Korea.

• Competition from Google Through Google Base, its online listings service, as well as its payments and communications initiatives, Google’s steady expansion beyond its search engine roots has been interpreted by Wall Street as a significant threat to eBay.

Ms Whitman’s response is that eBay owns three of the five most powerful brands on the internet, each of which has the brand focus and broad user base to cement its position. Other executives also listed focus as a key factor in their company’s attempt to keep Google at bay.

Mr Jarvis pointed to a string of other companies that have tried, and failed, to build online payments systems of their own, from AOL and Citibank to eBay before it acquired PayPal. “What we do is pretty hard,” he said.

Commenting on Google Base, Mr Donahoe added: “The technology at this stage is nothing more than an aggregation of listings – many of them eBay listings.”

• Keeping the community happy EBay’s first quarter results were hurt by its mishandling of an initiative designed to greatly increase the number of listings it presents to buyers. Through an adjustment to its search engine, made in February, eBay started to include all the listings from the online stores it runs for other merchants. That, however, left buyers deluged with items for sale and led many simply to go elsewhere, according to eBay executives.

The company reversed course last month, and now says it will think harder before making the same mistake again. “We need to get this right before we do anything else with it,” said Bill Cobb, head of the US marketplace business.

The slip-up echoed other recent problems that eBay has faced, reflecting the difficulty it has had keeping all parts of its “community” happy as it has grown.

A year ago, an increase in some of the fees it charges for hosting stores prompted an outcry from sellers, leading the company to undertake a campaign to rebuild confidence. Despite the complaints, the number of stores on eBay has risen by 50 per cent since then, said Mr Cobb.

• Skype Many analysts see Skype’s telephony service as a commodity that will struggle to generate revenue once voice-over-IP (VOIP) services become more common. They also remain skeptical about the company’s ability to build voice calling into its other online services in a way that will encourage users to actually pay for the privilege of communicating.

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