Special Edition
>> welcome back. i asked c.e.o. meg whitman how competition from google, microsoft and yahoo is changing how the company does business.
>> we see competitors that have somewhat similar models to ours, quite different models, all of whom are going after consumers and their share of wallet that they are going to spend in e-commerce.
>> yahoo spent $1 billion in a stake for alibaba, number two auction site in china. how big of a competitive challenge is alibaba with a market share a few percentage points below yours in china?
>> we think alibaba is a good competitor. they’ve got a great local team and have done a good job. we’re still ahead and investing in that market .
>> an area of competition in internet phone service. you paid $2.6 billion when you purchased skype last year. i notice microsoft and m.c.i. have announced plans to enter the internet phone business along with yahoo. isn’t there a possibility that you could see a driving down of prices that we’ve seen with all forms of service? cell and land-line. how do you avoid that with big players like you guys getting into the business?
>> the business model is nascent. next year we told analysts we think we would do $200 million in revenue. most of the revenue is what we call skype-out revenue. so if i’m a skype user and i call your home phone, that’s skype-out revenue. we charge roughly one to two cents a minute so it’s very large cost and the reason the revenues are so high is because there are billions of minutes that are being utilized but skype to skype is actually free so the belief is, over time, that whatever player has the largest ecosystem of users, hardware, developers, will win the monetization game and my personal view is that four or five years from now, there may not be tremendous revenue in the traditional telecom space in terms of cents per minute but we may be monetizing is differently.
>> google is competing with you as the status of the darling of wall street. they’ve just grown in 16 months to $130 billion in market cap, twice the size of ebay. are you surprised of this growth? >> this notion of paid search, it was a really good idea that they, together with overture, really pioneered and overture is now owned by yahoo. it’s clearly they’re benefiting from secular trends, offline advertising moving to on.
>> have you noticed when you look at them, something that’s unique about the way they operate that will ensure their success in the future?
>> it’s hard to predict. it’s a young company and 98% of the revenue comings from one advertising model and we’ll see how they evolve over the next several years.
>> which means you could say 16 months out, we don’t know if google ultimately will succeed?
>> we don’t know. these industries grow very, very fast. there is consolidation and five, 10 years from now, it will be hard to predict who are the winners in the space.
>> google has made moves to compete with ebay directly in several areas in in the past six months. although on a small basis. google introduced on a website that allows users to add classified ads and job listings and other items, competing directly with your website. what do you think of the google product?
>> it’s in beta right now and we think that the craig’s list product in the united states and the kagigi product is quite far ahead because we’ve been at it longer.
>> google with $130 market cap does have cash to grow a business if they want to. do you take that move seriously? >> absolutely, very seriously. we have always been acutely aware of competition and we take every new competitor very seriously and we see what they’re doing well and how to learn from them and how to protect our business. we think there’s a host of competitors and we take google very seriously.
>> if you look at the google size, the potentially voracious appetite for new markets . isn’t it almost inevitable that they will come on to your terrain more aggressively?
>> there’s no question that they’re releasing a lot of products that are going after many spaces. it is important to remember and will be interesting to see how much traction they get outside of their core business.
>> ebay shares fell as much as 6% in october when google said it may add a feature that allows users to sell products online competing directly with ebay and bear stearns analyst said we think this would be a incremental positive for google and large incremental negative for ebay. how concerned are you about this potential development?
>> we, i think, are the experts at running marketplaces. we’ve been at this for 10 years and there’s a lot to running marketplaces―there’s trust and safety, there’s payments, there’s managing 180 million registered users.
>> there have been a number of users leaving ebay to go to other website, like amazon, et cetera, for competitive reasons. obviously, if a user decides they’re going to use a google product instead of ebay, that’s a problem, right?
>> we would prefer they use our product.
>> i talked to meg whitman about how renewed acquisitions will fuel growth. when “for the record” returns.
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turned ebay into the world’s number one online auction site with a market value of more than $60 billion. the company’s big challenge is now slowing growth as the company gets bigger. i interviewed whitman at her headquarters in san jose, california. i asked her about her success in reviving sales in the u.s. and germany.
>> we’re really excited about it. most companies, when they see a decelerating growth rate, it’s hard to change the trajectory and our german team and u.s. team does a remarkable job driving accelerating growth in our two largest markets .
>> the thing that struck me is particularly the u.s. market . many were worried that was maturing inextricably, yet revenues expanded from 19% growth in the first quarter to 29% excluding shopping.com. tell me how you did it.
>> this is a young and responsive business. ebay’s only 10 years old. a lot of some of the basic things you would do in a company that was much older we’re just beginning to do at ebay. we focused on more effective marketing , more effective online markets , continued to drive product innovation and business initiative that resulted in accelerating growth and we reconnected with our community of users. our top sellers are as happy as they have almost been ever.
>> is that by focusing heavily on growth during a president growth―particular period, you lost contact with the customer?
>> we have grown so rapidly from, really, $4.7 million in revenue in 1997 to this year just finished, $4.5 billion. when you grow that fast, we now have operations in 23 countries outside the united states, you have to stay focused on customer needs every single day.
>> one thing that strikes me is when you look out over the next three years, 29% organic for the fourth quarter, can you continue to accelerate that growth over the next few years at that rate?
>> you can measure us against the benchmark of if we grow as fast or faster of emerc.
>> you also give your revenue and profit forecast in the first half of this year that, by many analysts’ point of view, more cautious, coming in below analysts’ forecasts of revenue and profits. you indicated uncertainty over the skype acquisition.
>> we have a number of new pieces to our overall businesses. we have just owned skype for a couple of months. shopping.com is new and we are launching a number of initiatives in our core businesses. you turn to paypal, we just acquired verisign payment business that needs to be integrated, so since most of those incentives―initiatives don’t kick in until later, we wanted to be conservative.
>> so you could run into integration problems. are you accounting for that?
>> yes, and because we are pioneering new space, sometimes we don’t know how things will work and we wanted to be a little bit cautious. we didn’t want to get ahead of ourselves with so many new things launching this year.
>> typical of all high-tech companies, ebay had explosive growth and has indicated it’s slowing. should investors get used to the idea that ebay is maturing from a hyperfast growth company to a fast growth to what eventually will be a growth stock with slower earnings that will look more like a cisco or e.m.c.
>> yeah. next year we gave guidance we would do between 5.7 and $5.9 billion in revenue. that said, we still have tremendous growth ahead of us in my view but the law of large numbers impacts how fast one can grow.
>> talk about the key factors that will drive international growth in the coming years.
>> within ebay, more than half the revenues within the quarter came from outside of the united states. we continue to think we have lots of running room left in international. you need to look at the u.k., germany, france and italy as major growth drivers but we’re also excited about china, australia.
>> could you get up to 2/3 international growth in the next five to 10 years?
>> it’s very possible. we have said we thought international for ebay would be bigger than ebay u.s. and two years ago we said ebay europe could be bigger than ebay u.s. and i don’t think that’s unrealistic looking down five, 10 years from now that 50% of our business could be outside of the united states.
>> paypal, an exception in terms of performance, the electronic payment service. some people are very interested in the possibility that you might expand beyond your core mission of providing processing service to ebay customers and sellers and expanding into new businesses such as online banking, bill payments for other kinds of companies. is that likely?
>> certainly not in the very near term. we’re focused on two things. one is processing payments on ebay and accelerating the trade in the marketplace and providing what we call our merchant services business. let’s say you have a website where you’re selling fly fishing equipment. you can take paypal, having no affiliation with ebay and today that business is 35% of our total paypal business, grew 55% quarter over quarter in q-4 so we’ll focus on the ebay business and off-ebay business to be a merchant service provider. over time, the other financial products may be in focus but we have our hands full in the next couple of years.
>> when “for the record” returns,
