Update: Ebay announced on Jan. 28 that Abraham is leaving the company. Here’s a look back at the challenges he faced while at the e-commerce giant.
AT THE MOMENT when most boys are plotting how to launch gum into a classmate’s braids, 12-year-old Jack Abraham was hired by his father. It was 1999. Magid Abraham already had a habit of defying convention: He had escaped the farming life of his Lebanese parents by way of an engineering scholarship to Ecole Polytechnique in France, then had turned down the opportunity to become a nuclear physicist in Europe to get his MBA and PhD from MIT. Now Magid was setting out to defy all those sensible things he’d learned in business school. His ludicrous goal was to measure all the data on the web, with Jack as one of his software coders. “From a young age, Jack always had the confidence to be able to express his ideas and not really worry about what people thought of them,” says Magid, who is still CEO of comScore, a $175-million-a-year company that, yes, measures all the data on the web and sells the intelligence it gleans to major corporations. “He also tends to be a very formidable negotiator and a formidable debater. It’s very, very hard to win a debate against him.”
In person, Jack Abraham camouflages those sharp edges. He has a sturdy build, a light dusting of freckles on his round face, a head of thick brown hair that seems to have been run through a paper shredder, and an affable, if sometimes cagey, smile. Now all of 25 years old, he is equal parts programmer and entrepreneur. During his junior year at Wharton, he became transfixed by the massive gap between online and offline commerce. When people shopped online, he observed, they had countless ways to research products, but if they wanted to find out which local J.Crew store had a red bikini in a size 6, they hit dead ends on the web and wound up making countless phone calls to stores in their area. “Whenever users have to open 10 browser tabs,” says Abraham, “there are interesting opportunities to build businesses.”
Abraham is his father’s son. He began running focus groups out of his dorm room, which confirmed his theories about shopping. In early 2008, he decided to drop out of Penn to pursue his own ludicrous goal: bring online the inventory of every offline store, from H&M to Bill & Sally’s Pharmacy, at every minute of every day. With a small amount of cash from a Wharton innovation prize, he started a company called Milo to do just that. “The vision is to bring every product on every shelf in every store in the physical world onto the Internet,” says Abraham. “Accomplishing that is what it must have felt like to build the pyramids.”
But since the pyramids weren’t built by one man alone, Abraham recruited a team, starting with a cofounder: John Evans, who had single-handedly built all the technology for comScore. The duo made their pilgrimage west, eventually scoring office space at 165 University Ave. in Palo Alto, the legendary address where PayPal and Google got their start. (“I brought them some baklava,” grins Abraham mischievously, as he tells the quaint story of seducing the building’s wary Persian owners.) He and Evans also managed to secure $4 million in Series A funding from investors, including True Ventures, YouTube cofounder Jawed Karim, and super-angel investor Keith Rabois. “It was clear Jack wanted to build something larger and more valuable than his dad did. That was a key driver,” says Rabois. “I’m interested in entrepreneurs who have something to prove.”
“My dad probably has one of the most amazing stories in America,” says Abraham, who asked his father to be on Milo’s board. “He just embodies the American dream.” And like his father, Abraham’s dream was to run Milo, grow it, and perhaps take it public someday. “I didn’t want to sell the company,” he concedes. “It was not a goal of mine. I wanted to just build a great company, something that used technology to change the world, and I was very pessimistic about how an acquisition could help you do that.”
Then early last summer, eBay called.
AT 6-FOOT-5, WITH a head of parted blond hair most 51-year-old men would pay good money for, John Donahoe looks like a cross between an airline pilot and a basketball coach. But the president and CEO of eBay is far more MBA than NBA. Even with his sleeves rolled up over a pint of Sierra Nevada, Donahoe speaks in phrases that one could imagine spilling forth from 30 Rock’s Jack Donaghy. When asked to name eBay’s biggest competitor, he replies: “Innovation.” When asked if his background is in management consulting (he spent more than 20 years at the Boston-based consultancy Bain & Co.), he stomps on the categorization. “My background,” he tersely explains, “is in business.”
In 2008, just as Abraham was getting Milo off the ground, Donahoe was tapped to put his business chops to the test as Meg Whitman’s successor. Once a retail pioneer, eBay had devolved into an auction wasteland with outdated technology. Competitors such as Amazon were beating it at its own game. “In eBay’s scaling and success, it stopped innovating,” assesses Donahoe. “The Internet shifted during that time, and how innovation occurred shifted. We were not a technology-driven company.”
Donahoe’s rehab of the San Jose company started with all the smart moves in the management consultant handbook. He stripped out layers of bureaucracy between management and engineers; opened up PayPal, the online transaction service eBay had purchased for $1.5 billion in 2002, to outside developers; created a beta-lab website where consumers can try out, experiment, and give feedback; invested in new e-commerce technology; and divested 70% of Skype, the Internet phone service that had done little for its parent since eBay’s 2005 $3.1 billion acquisition. (The 30% stake Donahoe held onto recently netted the company an estimated $2.3 billion when Microsoft purchased Skype this May.) Donahoe also worked to diversify eBay’s dependence on auctions, which now account for just 24% of revenue, down from around 35% when he arrived.
Despite all this, says Forrester Research analyst Brian Walker, “eBay’s business is fairly anemic. EBay has seen its sales numbers essentially plateau, while watching competitors such as Amazon grow incredibly.” Over Donahoe’s tenure, the company’s stock has been essentially flat. While revenues are up and may hit $10 billion this year, profits are flat. And the image of the company remains obscure, faded, and, yes, flat. When discussions turn to the great tech companies of today and the future, this onetime Internet giant is an afterthought.
That may change. While Donahoe reorganized his bureaucracy, he also shifted eBay’s focus. Like Abraham, Donahoe saw that the increased acceptance and use of mobile devices was blurring the lines between online and offline commerce. His goal is simple: He wants to put eBay at the center of this new hybrid online/offline shopping experience. So like a rich kid trying to buy his way to cool, Donahoe ordered his leadership team to snap up the best innovations and talent in the market.
Last summer, Dane Glasgow, VP of global product management, acted on a tip from CTO Mark Carges and met with Abraham. They discussed eBay’s itch to reach more of those shoppers who like to buy goods locally. Glasgow and Carges urged Donahoe to acquire the startup. “Jack seemed very focused on team, technology, and building to scale,” says Glasgow, who came to eBay after the company bought his own startup. “We thought, Gosh, that’s extremely complementary to the way we think and the way we’re looking at evolving the marketplace.”
Abraham had other ideas. When he met with Glasgow, he thought Milo would partner with eBay, helping the company to power its offline inventory. At the time, Abraham and his team had been able to land major retailers for its inventory network, but they were still a small player. Abraham and the precocious Glasgow (he sold his first company to Microsoft while still in college) immediately discovered a kinship, and Abraham became tempted by all the things eBay could offer his startup. EBay had armies of designers and developers who could help Milo crack its technical challenges. EBay also had more than 30 million sellers and merchants in its marketplace, many of whom presumably had offline inventory that Milo could tap. He began to believe that becoming part of eBay was the fastest way to achieve most of his vision. “It just became apparent how much more could be done together versus separate,” says Abraham.
In December, eBay purchased Milo for a reported $75 million. Now Donahoe, sitting next to Abraham in a Silicon Valley café, is relying on the twentysomething to help steer his company to the future of retail. “I don’t pretend to be a visionary,” the CEO admits. “Jack sees a future that others don’t. He just has a disruptive mind-set of what he wants to do and absolute clarity on it.” As he speaks, Donahoe affectionately slaps Abraham’s thigh and shoulder at least a dozen times, showing off his MVP.
IMAGINE YOU meet your girlfriend for brunch, and you are sweating her new taupe Marc Jacobs Kitty Clutch. Then imagine that you snap a picture of her purse with your iPhone, which uses an eBay app to reveal the three boutiques within a 3-mile radius that have the same bag in the same color in stock right this minute, with prices to boot. You decide which store has the best combination of price and location, and order via your phone. After brunch, you swing by and bypass the line because you show the salesperson your digital receipt. Voilà! Your new Marc Jacobs clutch — and all the pleasure of instant gratification.
This is the future of shopping, as imagined by eBay (and many other companies working on bits and pieces of this vision). Over the past year, Donahoe has made several acquisitions that, alongside Milo, might just help deliver the chance to shop wherever you want, however you want, for the best price and with the greatest convenience. “In the next three to five years, we’re about to see more change in how consumers shop and pay than in the last decade,” says Donahoe. “So our challenge as a company, our opportunity, is to help shape and be part of that next period.”
With so many consumers equipped with a smartphone, the distinction between shopping online and offline is disintegrating. When someone is standing in a chain outlet, using her iPhone to compare the price of the frock on a hanger in front of her with prices she can get elsewhere, is that considered online or offline shopping? Those in the business refer to this as “cross-channel retail,” and eBay wants to own it. Forrester says the financial opportunity dwarfs the space of simple e-commerce (i.e., browsing and buying online), which represents just 9% of all retail sales. On the other hand, says Abraham, “last year, cross-channel was over $1 trillion. It was more than 33% of retail sales and is expected to be 50% in the U.S. If you just do the math, this behavior almost adds the entire size of the e-commerce market every year.”
Donahoe wants to make eBay the first place a consumer goes every time she shops. With RedLaser, eBay’s first major cross-channel acquisition, consumers can scan a bar code, VIN, gift cards, asset tags, and QR codes via their mobile devices. Milo now powers eBay’s search for both local stores and websites with the product you crave. And the connection will work both ways. A mobile advertising company (eBay owns one of those, too!) can send deals to you when you’re near stores that carry products that appeal to you.
Most important — although Donahoe won’t come right out and say this — eBay wants every transaction to end with PayPal. “Milo is inventory where you are, and PayPal is paying where you are,” says Sam Shrauger, PayPal’s VP of global product and experience. That Marc Jacobs bag? It would be paid for via PayPal’s Express Checkout. The local Starbucks, which wants to shoot you a dollar for your next Frappuccino when you’re two blocks away? It pops that “cash” into your PayPal account, where it sits until it expires in an hour. That new Canon camera you’re eyeing but aren’t yet ready to purchase? Scan its bar code into your PayPal “wish list” — which PayPal is currently prototyping — “and then, when I walk by a retailer who has that in stock,” says Shrauger, “they make me an offer that’s better than anybody else’s.”
While this brave new world of effortless shopping may seem great for consumers, it might provoke a race to the bottom among retailers. Abraham disagrees. “We’re solving probably the biggest problem that exists for [small retailers], which is giving them exposure on the web and doing it in a way that doesn’t require a lot of technical investment on their part,” he says. The Milo team has been testing a plug-in to make it easy for small retailers to integrate their inventory into eBay search, which would put the local indie shoe store in the same league as mega-retailers like Foot Locker and Zappos. “It levels the playing field,” concurs Alanna Klein, owner of children’s clothing store Honeys & Heroes in Palo Alto. Like many small retailers, Klein, even in an affluent suburb, has been struggling to find new customers. She’s beta-testing Milo’s plug-in. “Now when someone’s searching for a specific piece of clothing,” says Klein, “we can show we’re competitive with Nordstrom and Macy’s because [the consumer] can see us all in one place.”
MOST OF this vision of cross-channel-shopping bliss is just that — a vision. Milo’s inventory of inventory is planets away from having every store on every street in every town in every country. While it claims to have 50,000 stores in its network, that’s mostly from key partnerships with chains like Best Buy and Crate & Barrel. Bringing in millions of small businesses will be harder. And while you can search Milo today, its developers are still working to get its search to be as clean and effective as Google’s.
The other pieces of Donahoe’s puzzle don’t quite fit together yet. Freshly acquired Where, which has more than 120,000 retailers and brands, and claims millions of active users, currently doesn’t fall under Abraham’s domain (his official title is eBay director of local, and Where falls under PayPal, which is headed by Scott Thompson). And the $2.4 billion acquisition of GSI Commerce, which will presumably give Milo access to the inventory of the couple hundred major offline retailers for which it builds web platforms, won’t be finalized until this summer.
In other words, the hard work is just beginning. “It’s not something that is going to be launched next month,” Abraham says.
But if all of the pieces come together as Donahoe imagines, eBay could make a lot of money. A big chunk of that change would come through PayPal, which now represents 39% of revenues and is growing at more than twice the pace of the company’s Marketplace business. Every time anyone would make an online purchase through eBay’s presumably seamless cross-channel network, PayPal would grab a cut of the transaction. When eBay drives traffic to a store, it would earn a referral fee. The company says that it facilitated nearly $2 billion in mobile transactions in 2010 and expects to double that this year.
Donahoe, in his Jack Donaghy — ian way, does not feel the need to discuss specifically how eBay will profit from cross-channel shopping. “We’re not worried about profits, in my mind,” he explains, with all the clarity of a Zen philosopher trained by GE. “What you learn about these Internet businesses — whether it was eBay, PayPal, Skype, Facebook, Google, Twitter — is they didn’t monetize early on. You add monetization if you have really successful consumer engagement and a successful business model.”
Not everyone is convinced that eBay belongs in the same sentence as Google and Facebook. Forrester analyst Walker says even if all of eBay’s acquisitions sync up flawlessly, consumer perception will still be difficult to shake: “They will fight an uphill battle for consumer mind share because today eBay is still seen as the place to find the cheapest used thing.” And Rabois, one of Milo’s first investors, says Donahoe’s strategy to bet the company on entrepreneurial outsiders could be dicey. “Historically,” says Rabois, now COO of Square, Jack Dorsey’s startup, “the company has been awful at inculcating entrepreneurial talent. Ultimately, what will prove whether they’re really changing the culture is if the people with entrepreneurial backgrounds stay and thrive, or get frustrated and leave.”