Ebay Case Meg Whitman
In 1995, Pierre Omidyar founded eBay, an on-line company whose purpose was to facilitate an environment where people could not only exchange goods, but also have discussions, make connections, and form relationships. He carefully crafted a culture based upon, “trust, respect, autonomy, empowerment, and equality,” and sought for the eBay community and company to be reflective of those principles. eBay was successful because Omidyar realized that a respectful, symbiotic relationship with this on-line community was critical, “because eBay wouldn’t exist if it weren’t for [the] community. In 1998, Meg Whitman was brought in as CEO to strengthen the eBay brand and to develop a stronger marketing strategy. In this, she was remarkably successful. In little over a year, eBay registrants grew from 88,000 to 3. 8 million users. The company successfully went public, revenue just about doubled every quarter, and acquisitions and partnerships were made to increase the customer base. However, the rapid growth under Whitman caused a major problem for eBay: it put a strain on the culture and the community upon which eBay was successfully founded. With growth came the need for more rules and policies.
For instance, Whitman made the decision to ban the sale of firearms to keep the company free of legal liabilities. Many in the community and company were shocked and outraged by this policy because it violated the eBay values of open communication and trust. Also, the acquisition of Butterfield and Butterfield, a prestigious, high-end auction house, was taken as a slap in the face. It violated the eBay value of respect, and the community saw this purchase indicative of the company’s priorities being focused on higher profit margins, not building and maintaining relationships with its existing community.
There are clear reasons why the eBay community felt its culture was being left behind in the wake of rapid growth. First, the strategic design of eBay dramatically changed under Whitman’s management. eBay was previously built upon a small, flat and flexible team of engineers who worked together without many formal chains of authority. This open work environment perfectly mirrored the community Omidyar sought to create online, and the internal company practiced its values of respect and trust on a daily basis.
However, Whitman correctly recognized that as the company grew, more formal structures and positions would have to be put into place to bear the burden of greater demand. With expert consultation, she reorganized the engineers. She eventually added eleven different vice presidents in upper management. In little time, the company transformed from an informal, flat model to a formal functional structure. This enabled growth, but it also created tall hierarchies that diminished the culture of open communication.
For instance, lower-level employees and the eBay community both back-lashed at the decision of banning firearms for largely the same reason: they had no idea such a policy was forthcoming. Upper management made this decision without outside consultation. Even though it was the right decision for the company, it was handled and presented in a way that violated the culture eBay was built upon. In 1999, Whitman formally created a Community Watch group to monitor the website for fraud. Initially, eBay “counted on its users to abide by its user agreement and take much of the responsibility for safeguarding the site themselves. But, the community had grown too large to be self-monitored. Again, the decision was appropriate, but so many structural changes implemented in so little time was too much for the community to absorb without reaction. Moreover, the political nature of eBay changed rapidly. Pierre Omidyar, eBay’s founder and developer, had the rare gift of leading with both referent and expert power. He used this power to create a strong sense of community throughout eBay. He also used his referent power to give Whitman legitimacy in both her position as CEO and in her consequential actions.
His support was effective at getting the company to align behind her decisions, but the external community did not see this support and were more suspicious of the company’s new direction. Whitman’s decisions were all sound and applauded by Wall Street. But the community saw what was once a democratic forum turning into a big business. Her lack of consultation with the community lead one user to brand eBay as having a “cavalier attitude,” and a “political agenda. ” Lower level employees also saw this lack of communication. Where there were once full company meetings weekly, now they were held, at most, once a quarter.
Power was concentrating. Clearly, this power shift was positively causing growth but negatively affecting culture. In her defense, Whitman was not indifferent to the culture at eBay. She stressed hiring people who understood and wanted to expand the eBay culture. But at the same time she outsourced customer service to a location in Utah, far from where the gatekeepers of the eBay culture were to be found. Therefore, those directly working with the community may have been the least in tune with its values. Also, she applauded and maintained the “no penalty” culture where everyone could voice their opinions and feel free to change their minds.
However, with the growth of the company, there were fewer opportunities for a voice to be heard, less direct contacts with upper management, and fewer voices involved in major decisions. This led to decisions being made that were sound individually but not corporately when placed in the eBay culture. It also proved difficult to spread this culture to the plethora of newly added users. And it is critical because it built the community, which built the company, and if it is removed, those elements that made eBay a unique success will be gone. Therefore, eBay needs to find a way to maintain its culture.
One way to correct this problem would be to implement more cross-functional teams internally. These teams would recreate the initial eBay structure of being team-based, autonomous, and flat. They would allow different departments to address problems and offer valuable input into pending company policies. This lateral flow would lead to decisions that would keep more in line with the original eBay culture, thus satisfying the community at large. The downside to these teams is that it gives Whitman and others less authority to use in making decisions for the company.
Another alternative would be to create a formal system of distributing information and gathering feedback from the eBay community. This would create an opportunity to communicate values as well as pending or upcoming policy changes. This system of polling through email would empower the community to have a cogent voice once again and would reestablish the feeling of one-to-one communication. The downside is that if the company decided to go in a direction different than that of the community, those polled and involved could lose faith and optimism in exercising their voice.
Finally, Whitman could create a separate company under the eBay name where she could make mergers and acquisitions without alienating the base users and without directly affecting the company. This would help maintain the existing eBay culture, but it would do nothing to repair any damage done. Moreover, having a different arm will not expand their user community of eBay, which is eBay’s vision. Whitman should create a formal system of distributing information and gathering feedback from the eBay community. This mechanism would be two-fold in design. First, eBay would create a oalition of the “top sellers,” those truly engrossed in the eBay community and whose interests are aligned with both company and community. Upper management would formally integrate the opinions and responses of this group (on issues ranging from policy to community values) into its decision-making processes. Also, the use of widely sampled polls of eBay users on the same issues would help the company get a feel for how the broader community at large feels about important issues. This would be positive for the community because it would give them a legitimate voice in the company again, just as it had at eBay’s inception.
It is important to remember that eBay is unique in that the community it serves is the company itself. Soliciting, responding to, and implementing the voice of this community improve eBay; even with its now more functional structure, it will only help the company know the needs and opinions of its community, which will strengthen business. The downside to this move is that after hearing out the top sellers and looking at the data of a poll on a particular issue, Whitman and upper management may still feel that an unpopular direction needs to be taken.
Some users may feel patronized and refuse to participate in future polls. Even so, many in the community will be appreciative to at least be involved in the process and to be forewarned of pending changes. Once again there will be a dialogue with the community that will attribute value, trust, and respect to its opinions, even in disagreement. In this manner, eBay can grow and still stay small.