E-Commerce Runs Into The Innovator’s Dilemma

Brad Stone discusses the challenges faced by eBay and Amazon when developing, and executing, on strategies that will position them to remain competitive. One question faced by both companies ~ whether, and it what sectors, should they invest innovation resources ~ is an important one. Some might suggest that it should be among the top one or two any successful company answers correctly.

According to Scott Devitt, an analyst at Stifel, Nicolaus & Company, “EBay could have closed the door to Amazon back when Amazon was mostly just a platform to sell books and music, . . .”

So, what happened? Perhaps one answer can be found in eBay’s response when evaluating and managing innovation.

OVER the summer of 2004, at the annual executive retreat that eBay insiders call “Telluride,” a product strategy team argued that eBay needed to break into the promising world of digital media. Pointing to the popularity of services like Napster and the new iTunes music store from Apple, the group predicted that media like books, music and movies would inevitably be distributed digitally, over the Web.

EBay, they argued, needed to ride that wave.

But, did they ride that wave?

That insight — which did catch on at Amazon and is now responsible for high-profile efforts like the Kindle and Amazon’s MP3 store and video-on-demand service — went nowhere at eBay.

“Nobody really shut it down. The process shut it down,” says a former eBay executive who was on the product strategy team but requested anonymity to avoid alienating former colleagues. “The company was obsessed with making quarterly numbers.”

Whether passing on digital media was a mistake at eBay is still an open question. But the anecdote illustrates larger problems. More than a dozen current and former eBay executives, from all levels of management, say eBay routinely failed to reorient its core business.

What would, or should, have happened at eBay? Is it possible that no one was a student of the ideas of Clay Christensen? Should eBay revisit its approach to evaluating such opportunities and challenges? What other questions come to mind?