eBay's growing pains

The online auction site is no longer the most talked-about phenom on the Web, but that just might be a good thing, writes Fortune's Leigh Gallagher.

By Leigh Gallagher, Fortune senior editor

(Fortune) -- It's not a social networking site and it no longer gets the buzz of, say, Google, but eBay has quietly grown to become a giant.

Founded in 1995, the company now has more than 14,000 employees, a market cap of $53 billion and what will likely be $7.6 billion in revenues this year - a profile many companies take three or four decades to achieve.

eBay CEO Meg Whitman

But for all those metrics, the company is very much an adolescent - a "12-year-old," as president and CEO Meg Whitman described it at Fortune's recent Powerful Women's Summit.

There were two telling signs of eBay's transition to adulthood last week. Most notably, the company said it would take a $1.4 billion writedown related to its acquisition of Skype. The 2005 deal itself - in which eBay paid $2.6 billion for the Internet phone company - was seen as a sign of eBay's maturity.

The company has attempted to offset the slowdown in its auction business by seeking growth through acquisitions. But, as the Skype writedown shows, it's not yet clear whether those purchases will be enough to offset tapering growth in eBay's core business.

At the same time, as noted by the Wall Street Journal, analysts are changing the way they value the company, looking at traditional retail-industry metrics like revenue-generated-per-user and overall sales growth instead of Web-centric metrics like total auction listings and new users.

The shift factors in eBay's slowing growth and is a clear signal that Wall Street now sees an established company that should no longer be held to the high-growth standards of young Web companies. ("I love it," Whitman told Fortune. "It sent our stock up." )

Sharing her lessons on making the transition with about 50 Most Powerful Women Summit attendees, Whitman said if eBay is the 12-year-old, PayPal, the company's online payment service, is a nine-year old and Skype a three-year old.

"And by the way," she deadpanned, "they act their age."

Whitman then offered lessons on how to handle the transition from a startup culture to a multibillion-dollar company. For starters, she said it's important to bring in executives from outside.

"This is not a popular thing to do and yet you must do it," Whitman said, citing eBay's hiring last year of Bob Swan, a 15-year GE veteran who was most recently chief financial officer and executive vice president of Electronic Data Systems (Charts, Fortune 500). Whitman said bringing in Swan, who is senior vice president and CFO, was critical for eBay's future. "Bob will take us to new places," she said.

She emphasized it's important that outside hires be the right people. Ebay, Skype and PayPal, she noted, are still "filled with entrepreneurs." Bringing in the wrong people, she warned, risks "organ rejection."

Whitman said Swan has adapted well, though she says he's had a healthy dose of culture shock. "There are times when Bob has [said], 'you guys are nuts,'" she says. "'Completely, certifiably insane.'"

She said communication is a big challenge as the company grows, especially as it becomes more global. More than 50 percent of eBay's revenues come from overseas and 30 percent of its employees are outside the United States.

"I used to know everyone at the company and walk around and talk to them," she said. Now, she has to find a way to communicate "clearly, crisply and with immense clarity" to employees around the world.

Whitman has also made project teams smaller as the company gets bigger. To create a new version of PayPal checkout, for example, a team of four engineers and three product managers worked for six weeks on prototypes, compared with teams of ten or more in the past. The new version will launch next year.

Whitman said seven to nine people are ideal for projects like this. "Much over ten and things start to fall apart," she said.

Whitman also reminisced about her early days at eBay, recalling when she not only knew everyone, but also wrote the company's first marketing plan.

She said the growth has been intense and focused. "Everything gets compressed," she says. But hard as it is to find the right balance of big and small, Whitman said it's critical not to lose the entrepreneurial culture.

"You can't crush the spirit of the 12-year-old," she said.  Top of page