eBay and Yahoo! face remarkably similar problems - which should make eBay’s positive earnings news today mildly encouraging for Yahoo shareholders, who just got hammered (only "mildly encouraging", because Yahoo has shown a dependable ability in the past to shoot itself in the foot.)

You could think of it under these three headings:

1. Improvements in monetisation. At eBay they call it RPL (revenue per listing), at Yahoo it’s RPS (revenue per search.) eBay didn’t focus enough on the constant, incremental enhancements needed to keep improving the rate at which listings turn into actual sales, then compounded the error by flooding its site with low-value store listings. Reversing that core mistake has been the work of the last 12 months: better monetisation, in the former of higher RPL, is behind its rebound last quarter.

Yahoo, by contrast, did nothing in the two years after it bought Overture to enhance its search marketing product, then spent two years belatedly overhauling the system. The results of that may come later this year. Now, though, another monetisation brushfire has broken out: advertisers pay less for display ads connected to booming user-generated content sites, since they aren’t as convinced of the value. Yahoo claims to have the tools and the expertise to enhance the value of this advertising - and hence the rates - but it has a lot to prove.

2. Better user experiences. Monetisation is one thing, but attracting the audience in the first place also needs more work. This is the one dark spot in eBay’s latest figures. Listings in its mature US and German markets are hardly growing at all. The solution, according to Meg Whitman: better products. That means more innovation to make it easier to search on eBay’s sites, defeat fraudsters, and so on.

Something similar is underway at Yahoo. After the sclerosis of recent years, which saw little improvement in some of the core services, Yahoo is trying to ramp up the innovation again. That’s encouraging, but it  would be nice if the company had more successes to point to than Flickr and Answers.

3. Changes at the top. eBay’s improved execution follows a quiet shake-up in its top ranks. It brought in outsiders as head of its core marketplace business and chief financial officer.

Yahoo, coincidentally, is looking for outsiders to fill exactly the same core jobs: head of the new "audiences" division, and CFO. Terry Semel’s credibility, and that of his senior management team, has been badly dented. The quality of the new hires will provide one clue as to whether Yahoo can follow eBay in starting to raise its game again.

April 18th, 2007 in Internet, Tech Finance | Permalink