Meg Whitman and Ebay – Leadership Case Study Case Study

Meg Whitman and eBay – Leadership Case Study Case Study

Please note: This case study was compiled from published sources, and is intended to be used as a basis for class discussion. While care has been taken to ensure correctness of the facts, accuracy of information cannot be guaranteed. Unauthorized distribution of this document electronically or otherwise is prohibited. Please contact [email protected] for any queries.

August, 2008. © www.casestudyinc.com

Table of Contents

1. Introduction - eBay CEO Meg Whitman plans to retire...... 3

2. Meg Whitman – Early years and Career Growth ...... 3

3. Meg Whitman and Leading eBay ...... 5

3.1. Hiring the right people...... 5 3.2. Quickly understanding the new business model...... 5 3.3. Leading eBay’s IPO - a hands-on approach ...... 6 3.4. Changing eBay’s policy...... 6 3.5. Building one of the most powerful e-commerce systems in the world...... 7 3.6. Focus on Metrics ...... 7 3.7. Customer Focus - ‘Voice of the Customer’ program ...... 8 3.8. Strategic Decision Making ...... 9

4. Exhibit I: eBay stock performance graph...... 11

5. Exhibit II - Quick Facts/Key Information on eBay ...... 12

6. Exhibit III - Awards Received By Whitman...... 13

7. Exhibit IV - Major Awards Received By eBay...... 14

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1. Introduction - eBay CEO Meg Whitman plans to retire

"In the beginning, I was certainly not an entrepreneur who came up with the idea, but I think I was fairly entrepreneurial in trying to figure out how to bring that idea to life and build a backbone for the company that could take it to the next level,”

- Whitman commenting on her journey from a novice to a leader in the dotcom world.

At the beginning of the year 2008, Margaret Whitman (Whitman), the chief executive (CEO) of eBay, announced plans to retire so as to breathe fresh life into the company and also provide a much needed radical reinvention of eBay. By March 2008, Ms. Whitman, 51, had served in the position for 10 years. Whitman joined eBay as chief executive in 1998. She was popularly known as Meg Whitman and 'darling of the Internet'. In 2007, she accepted the Lifetime Achievement Award for the community of buyers and sellers that make up eBay. Whitman ranked 22nd on Forbes.com's list of the world's most powerful women. In October 2002, Fortune Magazine ranked Whitman, as the world's third most powerful women in business, after Carly Fiorina and Oprah Winfrey.

However, some analysts called Whitman old-fashioned, a low-key manager, a ‘management stodgy’ and a ‘slow-footed CEO’ because even during the dotcom boom, she avoided risk and focused on financial fundamentals. Some felt that she did not possess the ‘star quality’ of Carly Fiorina, CEO of Hewlett-Packard, or the electric energy and charisma of Jeff Bezos, the founder of Amazon.com. But the performance of eBay silenced her critics. When many dotcom businesses crashed in the late 1990s and early 2000s, Whitman steered eBay towards success. EBay was the only Internet Company that had registered continuous growth and profits since its inception in 1995. Under her leadership, eBay's revenues and profits had doubled every year. With her strong belief in eBay's business model and its customers, revenues increased from $4 million to $1 billion by late 2002. She truly succeeded where many had failed.

2. Meg Whitman – Early years and Career Growth

Margaret C. Whitman, the youngest child of a Wall Street executive and popularly known as Meg Whitman was born in August 1956. She grew up in Long Island, New York. She was smart, studious and academically oriented since childhood. She graduated in Economics from Princeton University. Her penchant for business was evident when she had The Wall Street Journal delivered to her dormitory at Princeton University - unusual during the disco era of the 1970s. The business inclination took her to Harvard University, where she received her Masters in Business Administration.

Her career began as a brand manager at Procter & Gamble (P&G) in 1979. She learnt her marketing basics and gained first hand training in brand management. Three years later, in 1982 she left P&G to become Vice President at Bain & Co., a leading consultancy firm. After almost eight years at Bain and Co., she shifted to a number of different companies and continued to climb the corporate ladder.

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In the period between 1989 and 1992, she worked as a senior vice president at Walt Disney’s Consumer Products division where she began the first Disney stores in Japan. She learnt important lessons in operating a business efficiently. In 1993, she joined as President at StrideRite, a major shoemaker and successfully revived the Ked’s brand.

In a couple of year’s time, she joined Florists’ Transworld Delivery (FTD), as its President and later became its CEO. She turned FTD from a loss making unit into a profitable one. In early 1997, she shifted to Hasbro, a leading toy maker to head the global operations of Playskool and Mr. Potato Head brands.

In November 1997, David Beirne1 called Whitman and offered her the job as CEO of eBay. She had never heard of eBay and so rejected the job offer. Besides, at the time she wanted a more challenging and bright future at Hasbro. She reportedly did not want to risk her future prospects at, in her own words ‘an obscure, no-name Internet Company’ with less than three dozen employees and revenues of $4 million. Furthermore, accepting the job would imply shifting her family from Boston to California. She felt this would be ridiculous as her family2 was well settled in Boston.

But on Beirne’s persistence she agreed to fly to California to meet eBay’s founders and investors. They convinced her of eBay’s potential. She liked the fact that that eBay provided people with an opportunity which they did not find before on the Internet and that it helped build an entirely new community. Commenting on what made her accept the proposal, Whitman said, “Two things. One is that this website had created functionality for people that did not exist before the Internet. And then Pierre Omidyar, eBay’s founder, said that people had met their best friends on eBay, had traveled with other eBay users. That people had connected over a shared area of interest. I said, this is huge.”

She joined eBay in March 1998. In early 1998, Whitman’s husband was appointed as the head of the Neurosurgery Department at Stanford University Medical Center. Thereafter, the whole family shifted to California. She was quoted3 saying, “There’s no substitute in the land-based world for eBay. I just had an overwhelming instinct that this thing was going to be huge.” Right from the time of her entry, she had to play many different roles at eBay: management consultant, marketer, financial analyst, strategist, leader, and customer.

1 David Beirne, one of the well-known headhunters in Silicon Valley.

2 Her husband was the head of the Neurosurgery Department at the Massachusetts General Hospital and her two sons were quite happy with their school.

3 “Behind the scenes at eBay,” www.cnn.com, January 13, 2000.

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3. Meg Whitman and Leading eBay

“Truly a visionary, but more importantly she is an exceptional manager. Vision is one thing, and there is a lot of that in the Silicon Valley. Execution is another. She is remarkable at actually getting things done.”

- Tim Bajarin, President, Creative Strategies on Meg Whitman’s managerial skills

3.1. Hiring the right people

At eBay, Whitman’s first job was to prepare eBay for its first IPO. She compared eBay to a ‘den of geeks’ who were handpicked by Omidyar. As the number of employees was less, she had to do many things personally. She had to bring in professionalism into the company and build the eBay ‘brand’. To build eBay into a leading auction site worldwide, Whitman had to develop an outstanding, experienced and enthusiastic team of senior executives and employees. She began building such a team immediately after she joined eBay. She hired personnel with efficient and experienced personnel from marketing and business consulting domains4 to fill key senior positions. Since many of them had functioned in old economy era, she made it a point to remind them of the differences between other traditional businesses and eBay. All were well-informed about the Internet and eBay’s mission and objectives so that they could apply lessons learnt from their respective fields effectively. Through the late 90s, she also hired thousands of employees for customer and technical support to eBay’s site. Whitman had the ability to attract the right people to the job. Her decision to hire experienced personnel - unlike other Internet companies which hired the younger generation - paid off in the long term.

3.2. Quickly understanding the new business model

“I came in and I said Pierre has created something incredibly important here that is growing very rapidly and has clearly struck the consumer nerve. My objective is to find out as much as I possibly can about what he has created and what is wonderful about what he has created.”

- “Q&A with eBay’s Meg Whitman,” www.business.cisco.com, July/August 2001.

Before making any changes, she concentrated on understanding eBay’s business model thoroughly. She soon realized that the customers (the eBay community) were the powerful force driving the business model. Hence she focused on making eBay even more acceptable to customers and investors. She began the changes by replacing the grey and white colors on eBay’s home page with bright primary colors. The eBay mascot, a weird looking apple, was displayed on the site. To avoid any inconvenience to customers, separate age-restricted sites for firearm and pornography auctions were created.

4 Jeff Jordan, who was brought into head eBay’s US business, formerly worked for the Boston Consulting Group. Similarly, Matt Bannick, head of international operations, and Gary Briggs, Vice President of eBay’s consumer marketing division, were formerly employed at McKinsey & Company.

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3.3. Leading eBay’s IPO - a hands-on approach

“When I came to eBay there really was not a marketing group, so I actually wrote the first marketing plan. I tried to help the company figure out who their first set of customers was and utilized the 20 people that were at the company, but it was very hands-on at first. We were in a small space – 600 square feet – so there were a tremendous amount of hands-on projects that I did.” – Meg Whitman

In mid-1998, during the time when eBay was preparing for its IPO (due in September 1998), the stock market fell. All changes appeared to have gone in vain. But Whitman decided to go ahead even though several Internet startups dropped their IPO plans when the market was crashed. She traveled across the US with a team of executives to convince brokerage firms of eBay’s potential. Finally, on September 24, 1998, eBay went public. On the very first day of trading, share price shot up to $18.8 from the IPO price of $6 per share. Reportedly, the success of eBay’s IPO revived the entire market for Internet IPOs during that period.

3.4. Changing eBay’s policy

But with success came intense media scrutiny. Media reports warned users about potential auction frauds and criticized eBay frequently. However, eBay’s management insisted that the fraud percentage at eBay was insignificant. EBay had a feedback forum, but Whitman quickly realized that it would not be sufficient. She quickly realized the negative impact of such media reports on eBay’s business. At the beginning of the year (in 1999) she launched a comprehensive trust and security program. A trust and safety department with hundreds of employees was set up to ensure the safety of the transactions on eBay.

Advanced software to help identify fraud was implemented across the site. Buyers/sellers indulging in fraudulent activities were warned of severe action. Also, free insurance was offered on items that cost up to $200. Sellers also had a chance to pay $5 and have their identity verified by Equifax, a credit-rating agency. The sale of firearms was banned and pinup calendars and risqué postcards were transferred to age restricted sites. eBay had earlier relied only on customer’s suggestions. The safety program was a topdown strategic decision taken for the first time and reflected a major shift in eBay’s policy. So while eBay regarded customers’ contribution in building eBay, Whitman was also prepared to take timely action on her own whenever necessary. She continued to take such strategic decisions regarding eBay’s future whenever required.

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3.5. Building one of the most powerful e-commerce systems in the world

“Without technology, we do not have a company, It was very clear that I had to step in and provide the leadership to get us through this,” – Meg Whitman in 1999.

Whitman quickly learnt the importance of technology to eBay even though she had no/little technical knowledge about online sites when she had joined eBay. As the number of eBay users grew extraordinarily, it was getting very difficult for eBay’s IT department to manage the heavy traffic. As a result, in mid-1999 eBay’s site crashed for 22 hours. The site remained unstable for the next few weeks. Constant crashing of the site meant increasing customer anger and dissatisfaction. The company’s stock price also plunged. Whitman came into the picture. Whitman literally lived at the office. She transformed herself into a technically shrewd CEO with a clear understanding of technology related issues. She attended all technical meetings and spent many nights helping the technical staff solve problems with the Sun Microsystems computers and the Oracle database software by constantly interacting with experts from these two companies. She hired Maynard Webb (Webb), a former CIO at Gateway Inc. (San Diego), to head eBay’s IT department. eBay invested more than $200 million in strengthening its technology division. By 2000, Webb had built one of the most powerful e-commerce systems in the world for eBay. The average crash time was reduced to only a few seconds per month.

3.6. Focus on Metrics

“If you can not measure it, you cannot control it. Being metrics-driven is an important part of scaling to be a very large company. In the early days you could feel it, you could touch it. Now that is more difficult, so it has to be measured.” - “Meg and the Machine,” Fortune, September 01, 2003.

Whitman always believed in metrics, which even led to a popular saying at eBay, “If it moves, measure it.” Her philosophy was that once data was available, it was easier to take strategic decisions and have things under control. This led to the new manager positions in the company called ‘Category Managers’. These managers closely monitored the changing trends in eBay’s 23 major categories and over 35,000 subcategories measuring growth/decline in sales and worked towards promoting their respective categories. It became easier to find out instantly which product was selling well on the site and which needs to be promoted. As the category managers had only indirect control over products in their category, they used marketing and merchandizing techniques - enhancing the look and presentation of the product on the site and providing simple tips and tools to buyers and sellers - to make better deals.

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3.7. Customer Focus - ‘Voice of the Customer’ program

“We provide the marketplace, but it is the users who build the company. They bring the product to the site, they merchandise the product and they distribute it once sold.” “It is far better to have an army of a million than a command-and control system.” - Meg Whitman

“The R&D lab here is our community of users and it is an undirected R&D lab; they figure out how to best use this platform. The organic nature of this business is really quite stunning. We did not sit in a room five years ago and say let us have our users get into the used car business – they did it on their own. When you think of where we have come from which was really almost 100% collectibles to 25 major categories, the diversification of the platform is remarkable and it happened organically – once we saw it happening we did some things to help it but it is largely driven by the community of users.” - Meg Whitman in The Guardian in 2003

Whitman’s success lay in the creation of a huge base of passionate, loyal and evangelistic customers who refused to do business anywhere other than on eBay. Whitman’s first priority was always the eBay community as she identified them with the company’s success. She emphasized customer focus from the lessons she learnt working with consumer companies like P&G and Hasbro. She consistently strove to deliver superior customer service. She employed hundreds of customer support executives who were available 24 hours a day to help eBay customers with their queries and dealings and to listen to customer complaints and suggestions. To improve customer service she invested in advanced technology systems and ensured prompt response to all customer emails. Whitman ensured that she was easily available to the customers at all times; her email, ‘meg@ebay.com,’ was very popular with eBay users. Reportedly, she received hundreds of mails everyday, many of which she personally responded to. She firmly believed satisfied customers would help attract more customers by ‘word of mouth publicity’.

She launched the ‘Voice of the Customer’ program in 1999 where about a dozen loyal eBay customers were invited to the company headquarters every year. The customers and eBay staff discussed the company’s strengths as well as shortcomings. EBay executives made a note of the suggestions made by this group and worked towards their implementation. Whitman encouraged eBay employees to work like civil servants rather than as corporate managers to gain the support and loyalty of the community. As a result of this program, problems associated with new features and policies declined considerably.

She recognized that customer feedback was very important and always worked on newer techniques to achieve it. In 2001, when eBay decided to restructure its collectibles category to make searching easier, over 1.2 million customers were mailed to find out their opinion on the proposed structure. Over 10,000 customers responded and many of their suggestions were implemented.

To help sellers and buyers to make informed decisions, Whitman strove to make eBay a transparent marketplace by providing customers a 24-hour access to every new trend, regulation and sale. Once, when a customer protested against a new policy that routed

Meg Whitman and eBay – Leadership Case Study © www.casestudyinc.com 8 bidders (who were losing an auction) to similar auctions, Whitman and Omidyar personally met the customer. They took note of his complaints and modified the policy within two days. In another instance, when a few impatient eBay bidders suggested that the auctions be speeded up, Whitman launched a ‘Buy It Now’ feature (in January 1999). ‘Buy It Now’ feature allowed bidders to end an auction at a preset price. In early 2003, more than 40% of the auction listings on eBay used the feature.

3.8. Strategic Decision Making

Though Whitman credited the community for eBay’s success and growth, she soon realized that like a government in a democracy, eBay could not leave every decision to its customers. The responsibility of taking the crucial strategic decisions necessary for expanding eBay’s reach and business was entirely her own.

By mid-1999, Whitman was working hard towards making eBay a global online marketplace. Her expansion plan focused on the following areas: targeting high priced items and big sellers, making acquisitions that complemented eBay’s business, increasing the product categories and range of items available, and expanding into international markets.

In line with the above, she acquired Butterfield & Butterfield (B&B), a San Francisco- based 134 year old auction house, in exchange for eBay stock worth $260 million. Whitman expected the B&B acquisition to accelerate eBay’s entry into the premium segment and thus help the company increase its earnings. Since the average B&B auction closed at $1,400, eBay’s expected commission on auction would be $400, which was substantially higher than the commission eBay received on its own auctions. The average eBay auction closed at $47, yielding a commission of only $3. EBay also acquired Kruse International, an automobile auction company, which was expected to provide it with a steady supply of high priced goods and an efficient group of appraisers. Whitman also increased the company’s focus on fixed price retailing (i.e. no- bid sales) since goods could be sold faster in this type of format than the auction format. As a part of this, in 1999, eBay acquired half.com, an online retailing outfit that sold used items such as books and CDs at fixed prices.

Whitman made strategic investments in various other businesses in the early 2000s. In 2000, eBay invested $22 million in Tradeout.com, a New York-based business-to- business (B-to-B) start-up. In 2001, Whitman bought iBazar, which had online auction sites in eight European countries, to strengthen eBay’s presence in Europe. In mid-2002, eBay bought PayPal, an online-payment service, to cut down on back-end processing costs (eBay’s credit card payment division was losing money).

In the early 21st century, Whitman focused on attracting high-priced and brand name products from leading companies. She persuaded leading companies to sell their excess inventory on eBay by giving them special privileges. For example, for a $499 monthly fee, instead of the $10 monthly fee normally charged by eBay, big companies could use their own logo on the site to distinguish themselves from other sellers. Whitman also introduced a PowerSeller program, which provided additional customer support to big merchants.

As a result of these initiatives, many major companies (such as Sun Microsystems) began selling products worth millions on eBay. As the economy weakened in the early 21st century, more and more such companies tried to dispose of their inventories through eBay, much to the latter’s delight. Some such companies were IBM, Sears Roebuck and Walt Disney.

Whitman also entered into strategic agreements with leading media companies such as AOL Time Warner and Disney. Under these agreements, media companies encouraged their customers to shop at eBay. Reportedly, as a mutual benefit strategy, AOL Time Warner also encouraged its customers to use the website by running television advertisements, which mentioned how easy it was to find any item/perfect gift on eBay. In the early 2000s, Whitman also focused on expanding the portfolio of merchandise sold through eBay. She wanted eBay to conduct more regional auctions so that people could trade big items such as cars and boats that could not be shipped easily. By 2002, eBay had nearly 20 major categories and over 18,000 subcategories. Some of the major categories included cars, antiques, fine art, real estate and computers. The computer category was one of the major categories that attracted leading companies. Major sellers in eBay’s computer and electronic categories included IBM, Dell, Palm and Sun Microsystems. The major products in these categories were computers, routers, servers, digital cameras, hubs and laptops.

Whitman’s knowledge of business and marketing helped her drive growth at eBay. When eBay launched a special category for automobiles called eBay Motors, Whitman realized that many buyers would be reluctant to purchase such products online. To address this concern, eBay offered assurance programs that included free limited warranty on used cars and other fee-based services to ensure the proper working of the automobile. Reportedly, by end of fiscal 2002, eBay Motors evolved into the largest car dealer in the US, earning more than $1 billion in revenues from the sale of used cars and car parts. During the early 21st century, Whitman continued to expand eBay internationally. By 2002, eBay established local sites in 53 cities in the US and five other countries (Canada, Japan, Australia, Germany and the UK).

According to eBay sources, Whitman was determined to globalize the business. Analysts observed that though Whitman seemed to focus on communities, she also quietly and rapidly set about to restructure eBay to ensure its future growth and profitability and thus please investors and the stock market. Many analysts felt that Whitman’s strategies were suitable for a company which had gone public. They were of the opinion that it was but natural for such a company to try to attract people with deeper pockets.

The positive stock price movements that occurred every time Whitman made a strategic announcement showed that eBay’s investors supported her decisions. By the end of fiscal 2002, eBay had successfully completed its transition from a plain auction website into the world’s largest consumer-commerce site.

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4. Exhibit I: eBay stock performance graph

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5. Exhibit II - Quick Facts/Key Information on eBay

eBay Inc. : Quick Facts Company Type Public (NASDAQ: EBAY ) Corporate Headquarters San Jose, California Revenues $7.7 billion in 2007 (29%, year-over-year increase) Industry • Online marketplaces for the sale of goods and services, • Online payments services and • Online communications Business/Operating Segments Marketplaces, Payments and Communications

Employees 15,500 (9,500 in the U.S.) (including temporary employees) Active users • eBay.com had 82 million active users in 2007 in 30 markets • PayPal had 57 million active users in 190 countries • Skype had 276 million users in 2007 Brands/platforms • PayPal • Skype • Half.com • Rent.com • Shopping.com • StubHub etc.

Major Competitors • Wal-Mart, Target, Sears, Macy’s, JC Penney, Costco, Office Depot, Staples, OfficeMax, Sam’s Club, Amazon.com, Buy.com, AOL.com, Yahoo! Shopping, MSN, QVC, and Home Shopping Network. • Quelle and Otto in Germany, Yahoo-Kimo in Taiwan, Daum and Gmarket in South Korea, OZtion and Aussie Bidder in Australia, and Amazon in the United Kingdom and other countries. Business/Growth Strategy • Making eBay easier and safer to use • Expanding selection of products on eBay • Extending PayPal’s lead in online payments and making it easier and faster to use.

Key Executives • Pierre Omidyar, Founder and Chairman of the Board Name, Designation • John Donahoe, President and CEO • Meg Whitman, Member of the Board and former President and CEO (till March 2007) Website • www.ebay.com • www.paypal.com • www.ebayjapan.co.jp

6. Exhibit III - Awards Received By Whitman

Year Award Awarded by January 2002 Business Week Top 25 Managers - Meg Whitman Business Week May 2000 Worth Magazine Top 50 CEOs-9th Place Worth Magazine October 1999 Top 50 Most Powerful Women in American Business Fortune October 1999 Mirabella’s The 25 Smartest Women Mirabella October 1999 The New Establishment – The 50 Most Powerful Vanity Fair Leaders the Information Age Sept. 1999 e.biz 25 – The Most Influential People in Electronic Business Week Business July 1999 Ernst & Young’s Entrepreneur of the Year Award Ernst & Young July 1999 The e-Gang 12 mavericks who are rewriting the rules of Forbes the Web June 1999 Ernst & Young’s Entrepreneur of the Year Award Ernst & Young May 1999 E-Retailer of the Year Award E-Retailer May 1999 Women to Watch New Woman May 1999 Worth Magazine Top 50 CEOs Magazine Mar 1999 Editor’s Choice award Worth Magazine Feb 1999 Top 25 Female Professionals PC Magazine January 1999 Entrepreneurs of the Year San Jose Business (Source: eBay.com)

7. Exhibit IV - Major Awards Received By eBay

Year Award Awarded by October 2002 Business 2.0 Top 100 Fastest Growing Technology Business 2.0 Companies September 2002 Fortune Magazine Top 100 Fastest Growing Fortune Magazine Companies. July 2002 Web’s 50 Best Sites PC World November 2001 Fast 500 ranked eBay the #1 fastest growing Deloitte & Touche company July 2000 World Class Awards 2000 PC World May 2000 22nd Annual Entrepreneurial Company of the Year Harvard Business December 1999 Forbes Favorite Auction Site School August 1999 CIO 100 Award Forbes August 1999 Business 2.0 Top 100 - eBay rated #14 CIO Magazine July 1999 Business Week Info Tech 100 Business 2.0 Magazine May 1999 E-Retailer of the Year Award Business Week May 1999 Brand Week/Ad Week ‘Top Marketer of the Year’ E-Retailer Award March 1999 The Webby Awards - Top E-Commerce Site Brand Week/Ad Week January 1999 Top of the Net ‘98 The Webby Awards October 1998 Winner of Hot IPO Yahoo!! Internet Life September 1998 A must-see Web destination Bloomberg Personal (Source: eBay.com)