eBay's Management Presents at Wells Fargo 2013 Retail and Restaurants Summit Conference (Transcript)

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eBay Inc. (EBAY) Wells Fargo 2013 Retail and Restaurants Summit Conference Call October 1, 2013 1:10 PM ET

Executives

Christopher Payne - SVP of Marketplaces, North America

Analysts

Unidentified Analyst

Okay. Well thanks, time to restart the program here. Thanks for sticking with us. I’m particularly excited about this session. So, Christopher Payne from eBay is with us who runs -- SVP of North America Marketplaces. As most of -- some of you probably know, I cover the offline retailers as well as a handful of online retailers and marketplaces. Not many other people in the street are looking at the world that way right now, I think that will change ultimately. But we’re -- we’ve been coming increasingly excited about the change that we’re seeing at eBay, and I think that some of us in the room know about that change, but we put out a survey last week where we interviewed consumers, and there is a lot of consumers that aren’t aware of the new eBay yet.

So, we think there is a huge opportunity to take the changes they’ve made, the shift to new goods, the shift to Buy It Now, free shipping programs, and really get the word out. And I co-cover the stock with our payments analyst Tim Willi, who covers the PayPal side. That’s a whole other massive opportunity, they acquired, I would say, a very large potential competitor last week, and so the path to owning that market is getting clear and clear as far as I’m concerned. So anyway with that, we’re going to do a fireside chat.

Thanks for coming Chris and we’ve a lot of time for questions, because I’m sure there will be many. I think where I wanted to start is what is eBay doing to help sellers manage their business? You guys bought a business called Decide.com, which is pricing analytics, but if you could just take us through some of the tools that eBay is using to help sellers simplify that process?

Christopher Payne

Great. Well, first of all good afternoon.. So great to see you all. Lots going on in the seller front that I can highlight a few things, so -- that will happened this year. First of all, we recently streamlined our pricing. One of the things that was surprising to me is if you did an apples-to-apples comparison against us versus other players, we would often win the price comparison, but if you ask the sellers whether they thought they were paying more on our platform, they would often say they thought they were paid more on our platform.

And the reason for that is our fee structure was complicated. It had listing fees upfront, there were price levels, tranches, depending on your ASP you take different prices, there were store subscription, so we simplified that dramatically at the beginning of the year and -- middle of the year, and then we simplified the invoices that goes along with that, and I highlight because that allows the sellers to better understand the economics of their business and then plan appropriately to drive the profitability of their business, and obviously it helps us to showcase that we have got a great pricing advantage on our site. That’s one of the things we did this year.

Second thing we did this year, global commerce is very important. So, I am the head of North America Marketplace, but 20% of eBay, Inc -- 20% of the business is cross-border, and so a lot of people visit eBay.com from foreign countries and then they buy and export, but only 40% of U.S sellers actually sell outside the United States. So, we recently launched the global shipping program that for the other 60% they can take advantage of this program. Basically, we expose their inventory to foreign visitors, we charge duties and customs on their behalf. They then -- once they get the orders, send it to a warehouse in Kentucky that is then repackaged and shipped to the remote location. It makes shipping internationally hassle free.

And then the third thing I’d highlight – let me get my new mic.

Unidentified Analyst

I said that nothing had gone wrong today and I sort of -- I jinxed us.

Christopher Payne

You jinxed us.

Unidentified Analyst

Oops, coming in now, yes, sorry.

Christopher Payne

And last but not least is data, so increasingly we’re trying to make more and more data available to our sellers. We’ve recently launched a tool called Compass that gives sellers more data about what’s selling, what's not selling, what price point should they be at, what velocity could they anticipate at that price point. One of our core strategies is to better utilize our data. That combined, we’re frankly just growing the -- growing their business by growing sales on eBay has been a powerful combination for our sellers.

Unidentified Analyst

How do you get them to buy in the cross-border trade? What is the marketing tactic there and how is that conversion on kind of selling that?

Christopher Payne

Yes, we typically talk to them about the increase that they will get in sales. Its anywhere from 10% to 15% on average, it depends on -- varies by category. So, that’s usually a powerful incentive. And then the second piece is that it’s largely hassle free, because we take care of the complexity and we inoculate them if something goes wrong, they don’t get a negative feedback which would degrade their domestic performance. So, we’ve very much tried to take any objections off the table and just focus on the benefit of growing the business internationally.

Unidentified Analyst

And that’s -- it's been another part of your strategy, and this isn’t part of your -- where you oversee, but going into emerging markets and essentially showing these goods to those countries, you launched I think an app in Brazil within the last few weeks in the fashion category.

Christopher Payne

Yes.

Unidentified Analyst

You talked about Russia, and I know this isn’t your area, but is that a big part of kind of the other step to demand side that you have to grow as well?

Christopher Payne

Absolutely. So Russia, I will highlight. We were -- the eBay executive team was in Moscow about three weeks ago, I was there. My son asked why the Head of North America kept traveling to these different locations, and so I said, well a lot of our business comes from there. We are actually either number one or tied for number one, very close in Russia. That is completely an import business. It is U.S based goods and European based goods being imported into the Russian market. The difference is we now created a Russia-based site, Russian language, Russian support, we’ve launched it with our eBay buyer protection, we’ve done a good marketing in the country, so we’re pushing the demand side of the equation to your point and bringing in the supply from the U.S. and Europe, and we like what we see there. That’s -- the importation strategy is definitely our emerging market entry strategy.

Unidentified Analyst

And you and your number one status in Russia, I think is prior to be accepting rubles as payment and maybe even prior to being in Russian language?

Christopher Payne

It’s correct. There is lots of synergy between PayPal and Marketplace. It doesn’t take very long when you visit Moscow to understand the complexity of the all-cash marketplace. So, PayPal is making it easy to accept payments in that market, and that goes hand in hand with our marketplace ability to drive sales in that market.

Unidentified Analyst

Interesting. So the next topic I want to head on is, another topic that we’ve written about, which is Cassini. And for those of you in the room that aren’t familiar with Cassini, it’s a new search engine that eBay rolled out last quarter. You could probably explain this better than me, but I guess previously your search engine didn’t search the entire contents of a listing page.

Christopher Payne

Yes.

Unidentified Analyst

Now it is, the results -- we’ve found the results to be much better. I’d love to kind of hear the early results if you can share.

Christopher Payne

I read your report. They’re better, I’m not sure they’re …

Unidentified Analyst

Go with it. Go with it.

Christopher Payne

Exactly. So the search engine that we’ve been working on is basically a decade old, but I will compliment it just for a second before I talk about Cassini. A big part of the success that eBay has had over the last few years has been in terms of increasing the relevance of search, which has led to more conversion on the site, and basically we’ve been using behavioral data from our customers to drive improved relevance.

Now because the search engine is almost a decade old, that was reaching a point of diminishing returns or a plateau. And so, what we’ve been doing in parallel is working on a next generation search engine that was designed to supplant that older search engine and then give us more headroom in terms of increasing conversion. That’s what we’ve launched. We launched it fully in the United States in June. We are now testing it in Europe. We will fully launch it in 2014.

And basically at this point, it’s just -- we’re just – its goal wasn’t to sort of perturb the system too much. It was designed to kind of keep things on balance. It has made stride though, we reduced the number of null searches or zero searches by about 50%, which is all upside, you can better match. And to your point, the reason it can do that is, it searches across the entire listing not just the title and description. It also offers a bunch of new capabilities to computer scientists in terms of using state-of-the-art stuff in machine learning to rank better. So, we are excited about Cassini, but don't think of it as like a step function change, think of it as the drum beat continues, and there is more low hanging fruit to be harvested in the coming years.

Unidentified Analyst

Got it. Okay. And then Cassini, the impact to mobile -- I mean how does that impact the mobile sites, if at all?

Christopher Payne

Same story. I mean the good news about the eBay business model is just the same on mobile as it is on the web. So, we haven’t had the sort of existential dilemma about as we move to mobile. It’s actually with mobile our business just worked, and it worked better. And so, any relevance improvements we get with Cassini affects both the website and mobile equally.

Unidentified Analyst

Which is a good segue into mobile, I mean, I don’t know how many people are aware that eBay app is the number one app in the lifestyles category on iTunes, and that from the data we can see, it looks like people are spending a lot more time on the app by a pretty significant factor, maybe 2x or 3x.

Christopher Payne

Yes.

Unidentified Analyst

What do you see in terms of the buying behavior on the app or mobile in general?

Christopher Payne

So mobile has definitely been a big hit for us. It’s $140 million, is that right? $162 million, that’s overall eBay. So, one of the things I think eBay did well is it invested in mobile relatively early and made a big bet against that, and that’s helped propel this number one status. The thing now that we’ve learned is interesting. I think earlier if we talk to 2009-2010, we would be talking about mobile versus the web, and what we’re finding is actually it is a very much a multi-channel world, and so if you actually look at an individual’s experience what you will find is they’re spending part of their day on mobile, part of their day on the web, part of their day on the tablet. And the thing it’s interesting is they expect that experience to be seamless across all those channels, and no better way to see this to bring it to life is on any given day I get the daily results of eBay, and invariably somebody has bought a ridiculously priced car. So, that will be like a Ferrari or a Mercedes McLaren that’s bought and it says bought on iPhone or bought on android device, and you kind of have to scratch your head going, did you really paid for $160,000 car on your iPhone? And the answer is yes and no, like they consummated this transaction on the iPhone. But if you look at the -- what they did, they’ve have been looking at it for weeks. They have been thumbing it through on their tablet, the beautiful experience they’ve been looking at it on online maybe at work, and then they decide to take the plunge over a cocktail and dinner, which is fantastic. I encourage that behavior. We want to be with them 24/7. And so, what we founded is that the -- it’s a little bit more than just hey, mobile is more engaging. It’s actually multi-channel is more engaging and the expectations of how you will behave across that multi-channel are going up.

Unidentified Analyst

So, what's next in terms of improving the experience for consumers and for mobile? I’d love just a little roadmap on what we should look for over the next 6 to say 18 months?

Christopher Payne

Yes. So multi-channel will be one big theme, sort of behaving properly is a good example with some of the work we’ve done in consumer selling. So, right now for example, you can get significantly more for your iPhone, if you’re willing to sell that on eBay versus they traded in at Apple, we try to make that very easy to do. So if you come on to the device like let’s say you start to listing on the website, say I’ve got an iPhone 4S 32 gig or whatnot. And then you’re like I’ve got to take a picture of it, and then like how do I take a picture of this, this is my computer, well, you can’t. But now it’s seamlessly integrated with the application, so you can just oh, just transfer this to my phone and then you can start taking pictures with your phone and they sync up. You can actually complete your listing on the phone, you complete your listing on the web, hope this isn’t the phone you’re going to sell because that will make it very difficult to take pictures of, but the idea there is to make things better by thinking through the multi-state option. The second thing I will highlight, that I’m very excited about and one of the themes of your conference is the convergence of local and online, and we see mobile as the key catalyst to that.

We have a new service that we’re testing called eBay Now, which unfortunately is not available here yet, but it’s available in the San Francisco Bay Area, it’s available in the boroughs of Manhattan and Brooklyn and soon will be in Chicago and Dallas. And what it does is, it allows you to use the e-commerce tools of eBay to shop across local merchants. Merchants like Target and Macy's and Urban Outfitters and RadioShack and Best Buy and Toys Я Us and Barnes & Noble, order what you want and then have it show up an hour later. It basically takes the tools of e-commerce, ratings, reviews, price competition, and brings the convenience of local shopping, which is immediacy right in the hands of someone with a mobile device. So, it literally works kind of like Uber where you literally can see the courier go to the store, pick your stuff up, and then see the courier come to you. The thing that has been exciting is that consumer reaction has been fantastic. We were excited about this, they like it. They want to shop this way and so we are extremely excited to expand our offering and build on that and mobile will be at the very center of it.

Unidentified Analyst

eBay Now, just to go off script here a little bit that we -- so we tested it, we love it. How does that evolve over time as it -- right now it’s a very kind of A to B service where you order and a courier picks it up and bring it your house. Is there a scenario where there is a lot of kind of movement in between those two points? Maybe they’re picking up an item you’re going to sell on eBay, and talk to us about how it could evolve over time?

Christopher Payne

Yes, I think there is lots of ways it can evolve. The way I think about it is, we kind of started with this premium service offering, which is immediacy you get it now. But once you have this courier capability, you then can expand that to offer different service levels. So you -- we've announced that we’re actually going to do schedule same day, which is the ability to say I don’t read it now, but can you bring -- I will be home tonight at five, just go ahead and deliver it to me is fine. So that’s -- using that in a different convenient mode. You could imagine eventually things like next day and those types of things. So one of the things we’ve learned in our consumer research is that consumers want choice particularly as it pertains to the shopping.

So depending on the mode you’re in, you might want immediacy, you might want it next day for cheap, you might want to buy online pick up in store because you need to try it on or you might actually want to go browsing and shopping the store and have a great local shopping experience. So we’re really thinking that this is not a one size fits all approach, but more of a convenience choice offering that makes it easy for that spectrum to be realized. The cool thing is once you have that infrastructure that you just start back, you can use it in a wide variety of ways and then the two way scenario of going to picking up something, maybe like an iPhone and those types of things, those could become possible in the future to maybe augment our C2C business in time. But that’s not the focus out of the gate. One more focus on trying to create a consumer category around local shopping.

Unidentified Analyst

And should I ask you about the economics of the business? I mean its sort of -- it’s amazing. I think its $3 or $5 you get something in an hour.

Christopher Payne

Yes.

Unidentified Analyst

So I think people are scratching their heads and saying obviously you’re not making any money on that, but what’s the path -- maybe it’s not a profit driver in itself, but how do you think about the economics?

Christopher Payne

Yes. So what we’ve done is -- one of the advantages of local is that you can kind of heavy up on an individual geography and say okay, in San Francisco we’re going to do this and New York we’re going to do this, so you can test a number of things. And so what I would do is you will be seeing us rollout more and more experimentation where we can sort of test different models and different permutations to figure out what the right ongoing business model is. Number one thing right now for me is the fruit of consumer interest and then I would definitely think the math works on the business long-term.

Unidentified Analyst

Super. One of the other things that you’ve done is you’ve taken certain categories and try to improve the categories specific experience. So in auto parts, electronics, you change the searchability and the look and feel of how you search and I think you’re doing a handful of these a year. Love to know sort of which categories are next and is there an opportunity to go faster? Can you actually go through and do maybe 10 or 15 categories in a year or is it just too complex to do that?

Christopher Payne

Well, we’ve definitely been sort of titling our strategy to be more vertically oriented. So thank you for noticing that. Fashion is definitely been one of the hot ones we focused on. We have done a lot of private sales in the category [ran one] with Levis last week that was great. We will continue to do that. The way I think about it though is that there are soft goods like fashion, home and garden, there are hard goods, electronics, toys and some other categories. And then there is other like collectibles like the auto parts and that.

The cool thing for us is that a lot of the work we do can be applied holistically across these categories. So for example if we launch a capability to do private sale, we don’t just keep that in fashion. We now can have the capability to do private sale in electronics or private sale in home and garden. So that’s been a platform capability that our vertical managers can apply to individual categories.

One of the things we launched in electronics first was the ability to stick things together, to say that this iPhone goes with this cable, pre-standard stuff. We were then able to leverage that to do the same thing in automotive parts. These parts goes with this car and that has been a big part of the reason it's been easy to find things, easier to buy things on the platform. So we are not looking for just vertical specific things. We’re looking for things that we can use to sort of rate the playing bar of all the verticals. And then shot at, it's not really a vertical but it's a different destination within the eBay and its daily deals.

We’ve been working very hard on daily deals over the last few years and it's done really, really well. eBay historically has been just a searching destination and now what's happening is people are increasingly coming to us for a browsing experience around deals, and we worked very hard to build this platform. We’ve gone from a few deals a day to now 1000s of deals a day. And not only it's been interesting from the consumer perspective, it's also interesting from a seller perspective because we can now once our deal is established with the seller they can move significant volume. And so that is a horizontal tool that works across all of the verticals and something that we’ve invested heavily and we’ll keep investing in that in the future.

Unidentified Analyst

And then which categories you mentioned apparel, but are there other categories that are sort of focused points over the next year or two for you guys?

Christopher Payn

Yes, I would say the biddings are fashion home, automotive parts and electronics. We’ve had some success though in other areas, more nascent areas like Bullion we did a different customer experience in Bullion. The price fluctuations of Bullion have made them an interesting market, has big price fluctuation today which will -- and the cool thing is it doesn’t matter whether it goes up or down, it will just be -- it's just that it goes, leads to sales. So, we’re looking at the micro -- at micro verticals to develop strategies around growing individual businesses. So there’s been a definite vertical tilt to our strategic approach, and so there’s a bunch of others that will be coming in the future that we’ll talk about a little down the line.

Unidentified Analyst

Super. And as you think about these categories, your guidance assumes that GMV growth accelerates and it's very strong over the next few years. And I know you don’t sort of provide guidance or project individual categories, but are those the categories that you think will really carry the torch that you mentioned or so they’ve been strong, auto parts has been strong for years; does it have another leg of growth?

Christopher Payn

Yes, I think so and I think particularly if you overlay things like international expansion, exportation cross border on top of that. Yes, absolutely I see tons of potential left in that, and there’s still frankly a lot of selection that we haven't brought online. One of the reasons we’re so successful in the automotive parts is that we’ve worked with salvage yards and wanted to bring their selection online, there’s still a lot more that’s sort of still isolated in the physical world. There’s lots of work left to be done in that category.

Unidentified Analyst

Interesting. I would like to take a pause there. We’ll take some questions from the audience. Go ahead. Where I think we’re webcast, so …

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