In this post, we review the past decade of e-commerce and the key trends. Advances in recommendations technology, together with the emergence of social media and mobile commerce, have combined to change the way e-commerce is transacted. In a follow-up post, we look at current statistics for online retail.

Recommendations Technology Advances

Over the past decade the online retail industry has seen great strides in the use of recommendations technology. Amazon has consistently led the field in this, with its sophisticated blend of personalized, social and item recommendations.

Many of the retail recommendations in use today rely on implicit user data. These systems typically track user data, which is then analyzed with a set of usually proprietary algorithms. The end result: recommendations for users. Earlier this year we looked into Baynote's recommendation system:

"Baynote observes real-time user behavior on a site and looks for implicit, emergent patterns. It uses collective intelligence and an affinity engine to analyze the data. Common behaviors which it tracks include page refers, queries, mouse movement, time spent on a page, peer behavior."

Other similar recommendation technologies we've profiled include MyBuys, ATG and richrelevance.

Social Media Takes Retail to Blogs, Social Networks

As with nearly every other industry, shopping sites have increasingly used social media to promote their wares.

According to Shop.org's recent eHoliday Study, 47.1% of retailers surveyed will be increasing their use of social media this holiday season. Specifically, more than half of retailers have "added or improved their Facebook page (60.3%) and Twitter pages (58.7%)" this year. Nearly two-thirds (65.6%) have "added or enhanced blogs and RSS feeds" over the same time period.

One result of this has been a big increase in implicit social recommendations data across social networks and blogs.

Another trend with ecommerce sites is distributed sales. Anyone can embed an Amazon store into their blog or social network these days. As Kurt Collins of social commerce vendor Cartfly told us in December, this won't replace "end destination e-commerce" - but it will "augment sales tremendously" at the edge of the network.

Mobile Commerce Arrives, Albeit Slowly...

The growth of mobile phones has been a big trend this decade. However, as Sarah Perez wrote in September, mobile commerce in the U.S. market has struggled for momentum.

According to data from eMarketer, more than 70 million U.S. mobile phone users will access the internet from their devices this year. Despite this, the m-commerce market remains immature. In an April 2009 survey by RIS News, privacy and security concerns are still at the forefront of both shoppers' and retailers' minds.

There is some promise that mobile commerce will finally gain traction in the coming decade. Mobile payments firm Billing Revolution found that on-the-go consumers are happy to purchase small ticket items like pizza and movie tickets, for example.

One market that has shown strong signs of mobile commerce growth is Japan, according to Morgan Stanley.

See also our analysis of mobile payments.

Conclusion

New recommendations technologies make it easier every year for consumers to find what they want, social media has driven a lot of retail activity to small websites and social networks, and mobile commerce has slowly but surely gained a foothold in e-commerce.

These are just some of the trends in e-commerce over the past 10 years. While Amazon.com and eBay continue to be the giants of online retail, the Social Web and advances in web technology have both had a big impact this decade.

See also:

• Online Retail Thriving: 8% Growth Expected This Holiday Season
• Top Internet Trends of 2000-2009: Online Music
• Top Internet Trends of 2000-2009: Democratization of News Media

Although eBay isn't releasing raw stats into the wild, it is publishing editorial content and news on trends as well as a tag cloud of most popular searches right now. Coming soon are multimedia galleries and real-time visualizations of current eBay searches. Can we get an open API? Read on to find out.

Here's a rather scripted video from editorial director Meredith Barnett:

According to emails we've exchanged with an Inside Source representative, the site's staff is working closely with eBay's analytics team to cull information on trends. The trends examined are as broad as correlation between events and increased searches for a term (e.g., celebrity wears knee-high boots at red carpet shindig; users start looking for knee-high boots on eBay) and as narrow as data such as were used for a recent post on a Rock & Roll Hall of Fame concert:

For kicks, we decided to do a comparison of all the Hall of Famers participating in the concert series (there's a second show at MSG tonight that includes U2, Metallica, Aretha Franklin, Lenny Kravitz, Ozzy Osbourne, Lou Reed, and more) to see which names popped up most frequently on eBay over the past week.

The results were pretty fascinating: in terms of keyword searches, Metallica was far and away the most sought after band among the bunch (more than 86,000 searches!)... Second to Metallica in frequency of keyword searches was U2 (75,190), followed by Bruce Springsteen (32,690). The number of search per artist dropped off significantly from there, with but Ozzy Osbourne coming in fourth (5,290) and Sting rounded out the top five at 4,570... The supply of concert tees correlates pretty well with the demand, with the top five live listings for the concert performers and the term "shirt" as follows as of this afternoon: Metallica (1,759), Ozzy Osbourne (327), Bruce Springsteen (376), U2 (680), BB King (61).

The editorial nature of the site also puts eBay in a unique position as both a retail outlet and a recommendation source. For example, The Inside Source features a widget on the left side of the page, a thumbnail gallery of most watched items featuring auctions from around the site. Clicking the thumbnail directs the user straight to the auction page for purchase decision making. And the post we linked to above ends in a series of recommended auctions.

While it's nice to know about trending topics, the site is also definitely geared toward encouraging positive user actions - by which we mean that eBay is still directing attention in ways that will increase sales. It would be really interesting to see more of the data released in a raw, less glossy-consumer-mag-style format. Currently, eBay offers one research-focused API, powered by AERS, for retrieving pricing information for a given search term. AERS offers a suite of tools for retrieving and parsing eBay user data, as well. Their API includes calls for popular items, trends, keywords, and more.

Said Osama Bedier, PayPal's VP of Product Development, "We'll do 70 billion in sales this year, but there's $30 trillion dollars being spent globally. We need to tap into this... You are the X factor."

Developers can access X.com's SDKs, technical docs and API support tools to produce integrated checkout solutions. Examples of some pre-existing products using the new Adaptive Payments API include:

• The Javastore's new drag-and-drop installation and frictionless payment system;
• Instant storefronts for Facebook via Payvment's social network shopping cart system; and
• Cut-and-paste shopping solutions embedded in mobile applications, including instant purchases via ShopSavvy's barcode-enabled comparative shopping Android application.

So far, one of the key points of this morning's proceedings has been mention of the "removal of pricing barriers." As a direct shot at Amazon, the company plans to offer what it describes as an "enhanced pricing structure," with a $0.50 flat fee per transaction. For more on today's PayPal developer event, check back here for details.

While Verizon was one of the first companies brave enough to stand up against the RIAA's file sharing crackdowns, in recent years the company has come under fire for its own privacy offenses. In early 2009, the company was ordered by the FCC to stop its aggressive marketing practices. When customers were porting from phone to cable services Verizon was illegally using proprietary client information in its last chance to retain fleeing customers. Meanwhile, in March the company was widely criticized in the blogosphere for its efforts to share customer info with affiliates through an overly complicated 45 day opt-out campaign. The information to be shared with affiliates included services purchased (including call records), billing info and location info.

Although eBay and Verizon do have their merits as service providers, they hardly deserve to receive today's accolades. It looks as if these announcements are more about rewarding privacy policies rather than practices.

Photo Credit: Rob Pongsajapan

Online telephony service Skype will be sold by eBay to a group of private investors, possibly including Netscape founder Marc Andreessen's new venture capital group, and the deal will be announced on Tuesday according to a report by a team of reporters from the New York Times.

EBay faces legal challenges from Skype's founders that the company said earlier this summer could mean the end of Skype as we know it. From an innovation perspective, we're always excited when such an interesting company breaks free from a slow-moving monolith that acquired it.

If the Times report is accurate it will be very interesting to see who runs the new Skype and what kinds of changes are made to the service. With $600 million in reported annual revenue and nearly twice as many users as Facebook, Skype's international network of P2P software installs powering multimedia communication, file-sharing, chat and status still has boundless potential to do interesting things.

Update: PaidContent's coverage points out that TechCrunch broke this story three days ago.

As Saul Hansell points out on the New York Times Bits blog, eBay is currently suffering from a major identity crisis. As we reported earlier this year, eBay's attempt to drive users away from auctions and towards fixed-price transactions ('Buy-it-Now') drove a lot of users away from the service, which, after all, used to be all about auctions. As Hansell rightly points out, a lot of this is meant to make users feel more secure about shopping at eBay, but at the same time, the company has also managed to annoy its traditional base of smaller sellers by focusing more on large retailers, while confusing users about what eBay really wants to be (auctions or Amazon competitor?).

Of course, it is also important to note that the current state of the economy also doesn't do eBay any favors. Consumer spending in general is down, and a lot of the items purchased on eBay were often collectibles and other items that were not necessities.

Take consumer electronics site Woya, for example. When faced with the daunting task of buying a new laptop without the requisite Gs needed to make that process sufficiently simple, I have been paralyzed into procrastination. In about 30 seconds, Woya showed me inexpensive, well reviewed laptops I wanted from eBay, Craigslist, Overstock, Amazon, and other sites. It did the legwork and analytics for me, making the process entirely painless.

Users can check out results from retail sites, auction sites, and online classifieds from three simple tabs on the product page. They can scope out specs and reviews for a given product, and Woya lets the user know if they think now is a good time to find good deals on the product. The Deal Digger function is particularly useful, similar to Priceline's name-your-own-price function. Users can select parameters and get real-time updates if and when the selected product becomes available at a given price point.

Woya also shows trends and analytics for the product:

Of course, there are social sharing options, and the site apparently allows users to login via OpenID (although this process was a bit buggy and ultimately dysfunctional on my end, perhaps because of a Chrome-related browser incompatibility issue).

All things being equal, Woya's consumer-friendly, ad-free, highly detailed, comparison shopping approach reminded us of discount travel sites such as Priceline, Travelocity, Expedia, and their like. Those sites enjoy their tremendous popularity for good reasons: They have taken a boring, painful process and made it easier, faster, and less expensive for the end user. For a small, Bay Area-based startup barely six months old with just one full-time employee, Woya has done a great deal to simplify and streamline online shopping in a powerful and unique way. We'd love to see the site grow to encompass all verticals of consumer products.

Stumble in an Iframe

The DiggBar, of course, sparked a lot of controversy though StumbleUpon's new toolbar does not include a URL shortener. So, unlike the original DiggBar, there is probably little reason to assume that the new StumbleUpon toolbar will steal too much search engine 'juice,' even though it uses an iframe to show the original page. As users aren't likely to share the long StumbleUpon links or use them to link to a site from their own blog, this shouldn't be too much of an issue. But it should be noted that, as far as we can see, StumbleUpon does not return a canonical link which would tell search engines like Google to ignore the StumbleUpon link and index the original page instead.

We talked to StumbleUpon about this earlier today, and the team there didn't seem too worried about this, but instead emphasized that the bar was easy enough to close. It should be noted, though, that whenever a StumbleUpon user shares a story by email, the recipient will see the toolbar by default.

Until just a few weeks ago, StumbleUpon was part of eBay, but now, StumbleUpon is once again an independent company after its founders and investors agreed to buy the company back. It's good to see that the company continues to roll out new products on its roadmap while it is going through yet another transition, though the company is obviously going see a lot of competition from other content discovery services and social networks in the near future.

The fact that eBay and Skype make strange bedfellows does not mean Skype doesn't have a business model. On the contrary, the business generated revenues of $551 million in 2008, which is a 44% increase year-over-year and represents a 21% profit margin for them. The press releases also states a projected revenue of $1 billion in 2011, twice as much as in 2008.

With promising sales, high adoption rates and an openness to new platforms such as their iPhone app, its not hard to think that Skype will have a booming IPO, and will remove the albatross status from eBay, which can return to its core strengths of online payments and e-commerce.

Now you can Stumble outside of the shadow of the mega-corporate overlords at eBay - two years after Stumble founders Garrett Camp and Geoff Smith cashed out and handed their baby over to the ecommerce giant, they've come back with a team of investors and bought StumbleUpon back from eBay. It's pretty exciting.

Why is this such a big deal? For three reasons.

StumbleUpon is Back in the Game

Earlier this year we wrote about StumbleUpon hitting 7 million registered users, which was at the time 50% higher than most estimates of media darling Twitter's users. Twitter's numbers have shot through the roof this year, leaving StumbleUpon in the dust.

Some people told us that Twitter and Stumble are like Apples and Oranges. Both, though, are tools of discovery, sharing and social connection. They are different in some ways but similar in others. There's a special kind of magic to StumbleUpon, though, and we're very glad to see its founders back in the driver's seat. A web where Twitter and Facebook are the only social discovery games in town is a poorer web.

Some Suspicion is Mitigated

Dave Winer wrote last week that the reason everyone wants to know how Twitter is going to make money is because eventually they'll come up with something - and we as users might not like it.

There was always a similar kind of feeling with regards to StumbleUpon at eBay. Just what was eBay going to do with Stumble and was it going to be creepy? Did you really want to share your serendipitous discoveries, your likes and your dislikes, with the arguably dysfunctional eBay?

Somehow Camp and Smith, as founders, feel more trustworthy. Who knows though - last time they thought it would be a good idea to sell the company to eBay! Many innovators from the beginning of Web 2.0 quickly grew skeptical after their startups were acquired, hopefully they'll be more careful next time.

Innovation Coming Again

Remember what the last wildly innovative thing StumbleUpon did was? Adding the awesome video section of the site, we'd argue, six months before the eBay acquisition. Now that Camp and Smith are in charge again, we hope to see the same spirit of awesomeness that built Stumble in charge again. The team already says they've got "several new products and features to be released in the upcoming months."

We've got high hopes for this deal, just like we do for the rumored founder buy-back of Skype from eBay.

Founders are where the innovative juice is, often, and if a big conglomerate that buys those startups can't figure out how to make effective use of these incredibly disruptive technologies - then they should get out of the way.

StumbleUpon is one of the handful of services launched on the consumer web in the last few years that can truly be said to have significant cognitive benefits for the people who use it. Give yourself an evening to peruse and explore the web using Stumble, if you haven't. It makes the brain feel good and it's a great way to learn - through play and personalization. It's a whole lot of fun. It's not something that needed to be turned into a way to jump from eBay listing to eBay listing. Stumble is smart, it's useful and we're very happy to see it independent again.

One of eBay's first partners to release a Selling Manager application - and a good example of the possibilities this platform provides - is UPS. Their WorldShip shipping software will be integrated directly within the eBay Selling Manager so sellers can manage shipments without having to leave eBay to do so. Other applications available at launch time include those from ecommerce developers Terapeak, HostedSupport, ahTEXT.com and Cloud Conversion.

Ebay's developer community, which includes some 87,000 members who have created over 13,500 applications, have been itching for a way to get better access to the 270,000 subscribers of eBay's Selling Manager service, an extra and formerly paid-access only area of eBay which many small-to-medium business sellers use. Now they can.

Why formerly paid? It seems that eBay wants to encourage sellers to check out these new offerings available within Selling Manager, so they're making the service free of charge. This is a win-win for all. Developers get greater access to sellers and sellers get access to better tools from the developers. 

The new Applications platform was built using theOpenSocial gadgets specification. Developers join the beta and begin developing their own apps by visiting http://developer.ebay.com/products/selling-manager-applications.

In ten years time we may look at Skype in the same way we look at Amazon and Google, as a huge built-to-last company, for these ten reasons:

1. It has revenue, about $500 million in 2008. Ahem, only in the strange world of Web 2.0 is that considered remarkable. I love using Twitter, but without sustainable revenue their future has to be in question.
2. It is profitable. We're talking "high-teen margins," according to eBay's CEO at the Accel Symposium. That does put it in a different league. It means they can survive the harshest of economic climates. If Facebook is having to raise money in these markets their model must be fundamentally flawed, which means their time as an independent company may be limited. To control your own destiny, you need to be profitable.
3. Skype's growth is accelerating in a tough market. Skype is publicly talking about growth rates of 30% to 40%. That's not bad in an economy where flat is the new 30%. Skype has the perfect recession pitch: cut costs now! This shows in its most recent numbers. In the last quarter, Donahoe told us that Skype-to-Skype grew 73% and Skype Out grew 63%.
4. Disruptive technology. Disruptive technology is an over-hyped term, but in this case it really fits. Skype's peer to peer technology enables them to dramatically under-price the competition and still make money. New users don't cost much money - compare that with Facebook and YouTube. Even better, each new user that comes on improves the service for others - the core P2P proposition.
5. Viral marketing. Skype is the perfect viral business. I have lost count of the number of people I have told about Skype, for the simple reason that I want to communicate better/cheaper with them. Many of them are doing the same.
6. Massive market with vulnerable incumbents. $2 trillion is a lot of money. That is the size of the global telecom market. As to vulnerable, how many people feel so loyal to their telephone company that they won't switch to get lower prices? Yes, when Skype dominates the market it won't be worth $2 trillion any more. Even if it is worth 25% of that, say $500 billion, that is OK for the dominant player. Faced with the Skype threat, incumbents have a horrible innovator's dilemma. To really match Skype will destroy their current business even faster.
7. Just wait until it bites into those cell phone bills. Skype on mobile phones - really native Skype you can use for free wherever there is WiFi - has been possible technically for some time. This has been held back by the mobile operator's head lock on the device manufacturers. At some point the dam will break. Consumers pent up anger over nickle and diming cell phone bills will ensure that a real alternative will be welcomed.
8. Skype is totally mainstream. This is not about being hip or early adopter. Just show the video conversation to anybody with loved ones in distant places. You will see the surprise and amazement that makes it seem like magic.
9. It is a sticky service. Google still gets my business because they are better than the alternatives. But switching to an alternative will be totally simple. When somebody suggests using something other than Skype, I resist. I have my contacts in there, know exactly how it works and have integrated some external tools. Skype can continually add new features to make the experience better as our hunger for communication is pretty well limitless.
10. Skype can do an IPO. For anyone younger than 30, we should probably spell that out: Initial Public Offering. We keep being told that the IPO market is moribund because of Sarbanes-Oxley. Baloney! The IPO market is moribund because we have lacked profitable high-growth companies that move into huge markets.

My prediction is that as soon as market conditions improve, eBay will sell Skype through an IPO. Their shareholders will pressure them to do so. There is no synergy logic in being part of eBay. The value of Skype is obscured by the problems in eBay's core business. The Skype IPO can be early in the market recovery, as their story resonates so well in a recession (markets usually recover well before the economy recovers).

Who Else?

Who else can take the title "biggest winner from the Web 2.0 era"?

• Google: not really Web 2.0, though; born in 1999.
• YouTube: still losing money, no clear monetization model, and video-serving costs are substantial. It is hard to imagine YouTube as an independent company
• Facebook: how long can the great hope remain the great hope? At some point, it has to demonstrate a sustainable revenue model and some profit. It still doesn't have a native revenue model that makes sense to both users and advertisers.
• Twitter: see above.
• Salesforce.com: not really Web 2.0 either; born in 1999. More revenue than Skype today, but smaller addressable market.

These problems were only compounded during the last year, as eBay also lost a lot of its casual sellers to Craigslist (which saw its traffic rise 40% over the past year).

As Compete's Matt Pace rightly points out, eBay's strategy of emphasizing fixed-price transactions only muddled the waters and blurred eBay's distinction from other online retailers, including eBay's own shopping.com. Also, users clearly prefer to buy from a trusted source like Amazon, and the average order value on eBay has remained stable at around $28 for the last year.

That doesn't mean that eBay's focus on "Buy-It-Now" transactions was a total failure, though. The number of these transactions grew steadily over the last year (up 20% from last year), but this was not enough to make up for the simultaneous decline in eBay's auction business. According to Compete, 1.5 million fewer users actually placed bids on eBay in February 2009 than a year ago.

Real human social networks (as opposed to the tools that facilitate online communication between people in a social network) have an obvious reverse network effect. If I have too many people in my social network, I cannot pay enough attention to each of them, and without attention, relationships fade.

Back in September 2007, we looked at social motivation in the real world, specifically the two distinct types of motivation. One is, "I want to communicate better with the people I already know and trust". The other is, "I want to increase my visibility so that I can connect with more people."

Both have clear limits. The number of people I can really know and trust is limited, because knowing and trusting take time and attention. Increasing visibility, whether by blogging or tweeting or advertising or PR, is less limited. But when visibility goes beyond a certain number of people, it becomes no more social than broadcast media or spamming. The personal touch is gone. The real community spirit is gone.

As Groucho Marx remarked, "I refuse to join any club that would have me as a member." If it is an exclusive club, the membership has to be limited. If it is not exclusive, is it really "social"?

eBay is the classic example of a network that lost its community spirit after reaching a certain scale, as the comments on this post vehemently demonstrate. This loss opened the market for eBay alternatives, such as Bonanzle. It is unclear whether these alternatives will face the same issues when they get to scale.

Etsy will be an interesting case study. It looks like it may avoid the reverse network effect by being focused entirely on handmade goods. That focus may limit its eventual scale, as not everybody wants to make or buy handmade goods, but it will still be able to build a business more than big enough to satisfy even the most demanding dreams of avarice. That focus on handmade goods will act as its social glue. It will grow as eBay would have had it decided to remain focused on the global garage sale, not getting lured into selling mass consumer goods. I suspect if eBay had done that, its core business today would be smaller but ultimately more profitable and sustainable.

Networks Without Messy Human Interaction Are Immune

eBay the corporation owns two businesses that have almost perfect network effects and do not suffer from any reverse network effects: PayPal and Skype.

PayPal works for consumers because merchants use it, and merchants like it because consumers like it. The fact that everybody likes it won't make me like it any less.

Skype gets more useful with each new user, and each new user promotes Skype, consciously or unconsciously, for his or her own reasons. Even better, the cost of providing the service goes down with each new user, and that is really unusual (a function of Skype's P2P architecture). Google and PayPal also benefit from each new user, but they still have to service that user, and that costs money. In the case of a video service such as YouTube, the servicing cost is significant. So Skype really is in a league of its own when it comes to network effects, and that is why it may become the world's largest telephone company and the biggest economic success story of the Web 2.0 era. (Google Voice, having just thrown its hat in the ring to battle Skype, will be interesting to watch. My bet is on Skype.)

The difference, though, is that we do not look at these services as communities. They are simply enablers of commodity transactions: payments and phone calls.

What About Social Networks?

Does Facebook still feel special now that it has 175 million users and is growing at a rate of 600,000 per day? That is a sincere question for Facebook users. I am one of the few people who do not use Facebook. For whatever reason, I never got into the habit. And I have no compelling reason to start now. This has made me a bear on Facebook for a long time. As a non-user, I miss what makes Facebook special and why it grows so fast.

The network that I use is LinkedIn. I use it to connect to people who my contacts know. As far as I am concerned, it is a utility in the same way that the phone or my email/CRM system is a utility. Do I care that LinkedIn has 7.7 million users now? Does that make it more valuable to me? No. Is Facebook 22 times more valuable to me than LinkedIn because it has 22 times more users? No.

Here is the theory:

In a social network, the value for existing users of a new user joining the network plateaus once users have most of their own contacts in that network.

Of course, the social network grows in value as a business as more users come into it because the network then has more eyeballs to sell to advertisers. But that is different from network effects. As a LinkedIn user, I do not benefit when more strangers join. I already have about 90% of my contacts in there, and the remaining 10% may remain hold-outs; and I don't really care anyway, because I can always reach them outside of LinkedIn. When I meet somebody in business, I look them up on LinkedIn and connect if they are on it (I cannot recall anybody recently who was not on it). I do that to keep my Rolodex updated, which is a very valuable utility for me. But my actions are not growing the network. If I joined a new network, I would spam all my contacts asking them to join, but I have zero motivation to do that.

As a long-time Facebook user, do you care when more strangers join? Does it make any difference to the value you get from Facebook?

So, it is possible that the network effect has a natural plateau.

A Plateau Is Okay, But a Steep Downward Slope?

Whether that plateau turns into a downward slope depends on the monetization strategy adopted by the "owners" of the social network. And in the social networking business, a downward slope can very quickly become a steep slope or even a cliff. Trust tends to be binary; viral can work both ways; and switching costs are minimal. That is why I put "owners" in quotation marks. You can never really own a social network or community. You can provide services and extract rent for only as long as the community wants those services and is willing to pay the rent.

This is where the incredibly high valuations of businesses such as Facebook and LinkedIn may become problematic. If these businesses get too eager to monetize to justify those valuations, they may create the reverse network effect.

There are only two ways to monetize: ask for revenue from users who regard the service as a utility (like paying for the phone company), or ask for revenue from vendors that want to sell something to the people using the service. Thus far, all the major social networks have taken the latter fork in the road. They don't want to become utilities because that wouldn't justify their lofty valuations. So they have to sell more to those who use the service. At that point, the reverse network effects may kick in.

Craigslist

Craigslist chose a different path by not taking on external investors. It has no valuation to justify. It can leave masses of money on the table without any worries. So Craigslist won't suffer the reverse network effects that come from over-eager monetization. Its model of allowing lots of free listings will sustain high growth and is clearly impacting eBay's business.

Twitter an Interesting Case Study

Once again, Twitter is the interesting one to watch. The ease with which one can add and delete who one follows makes its size self-regulating. As a real-time search tool, its value goes up with each new user. As a communication tool, it goes up as new people join who might be interesting to follow. Its openness may prevent the reverse network effect.

The other reason Twitter is an interesting case study is that it has not yet disclosed its revenue model. If the revenue model it does adopt involves selling to its users, the reverse network effect may kick in. Twitter would become classic MBA case study material, a fact of which management must be well aware!

John Donahoe made the very reasonable point that online e-commerce will look like offline commerce: fragmented. Consumers will buy from eBay, Amazon, Walmart.com, Zappos, whatever gets their attention and has the right product at the right price. That rings of common sense.

To illustrate this fragmentation, he told us that the mighty Walmart has only 4% of the market.

For a more extensive discussion of the problems facing eBay's core service, read this very well-reasoned (but long) post on SeekingAlpha.

When queried on these issues, Donahoe simply indicated that the problems did not originate on his watch, that he was aware of them, and that they were complex to solve. That does not seem enough. The bits of insight above may be great, but eBay needs to fix its core service to regain its stature as a leader and give investors a good return. You don't transform a company without fixing the core, and investors clearly feel that eBay needs transforming; that is the message behind a stock price that in the last 12 months trails the NASDAQ and peers like Google and Amazon. eBay is actually in the rather miserable club with Yahoo, as perceived by investors.

PayPal: Jewel in the Crown?

Donahoe contrasted the fragmented e-commerce business with the highly consolidated payments business. Clearly, the latter has greater appeal. One can see why. The payments business is global and dominated by a few players: Visa, MasterCard, and Amex. As the low-cost player best suited to the web, PayPal has enormous potential.

I'm pretty sure I even heard Donahoe say, "PayPal should be bigger than eBay." As he spoke about the global payments system, one could see why.

He described the national banking regulatory challenges, a major barrier to entry. Taking money online is the easy bit, he said. Moving that money in and out of the traditional banking system is hard, because the banking system has to adhere to a maze of local regulations. Donahoe told us that eBay works on penetrating something like 5 to 15 new countries each year. Some, like Japan, remain a challenge.

This is clearly a huge opportunity, but these local regulations are a big barrier to entry. Anyone who has done a lot of international business can attest to how archaic some of the processes are. Wiring money is bad enough, but the processes around letters of credit seem positively arcane, almost 19th-century.

Oh, and a $500 million High-Growth Skype Business

Skype is the eBay business I am most familiar with as a user. We use it all the time here at ReadWriteWeb. It is a core tool for running a small business in which colleagues, clients, audience, partners, and everybody else in the community are all over the world. For entirely selfish reasons, I evangelize Skype to everybody. Now, I want Skype on my cell phone to cut my mobile bills; it is definitely ready for prime-time.

And yes, Skype is a real business. Donahoe told us that Skype generated $500 million in revenue last year, with "high-teen margins" and growth rates of 30% to 40%. Saying "That's not a bad business" got a wry laugh from the audience (all of whom would consider it a totally amazing business). In any other market, that would be a red-hot IPO.

Skype is perfectly positioned for a long recession, too. That already shows in the numbers. In the last quarter, Donahoe told us that Skype-to-Skype grew 73% and Skype Out grew 63%. I can personally attest to seeing many smart people, who had not used Skype previously, see it and say, "OMG, it's amazing."

$500 million was only 6% of eBay's total $8.5 billion revenue in 2008. But with Skype growing at 30% to 40% and eBay's core service hurt by a slow-down in consumer spending, this percentage could change significantly in 2009.

How much could eBay get for Skype, a business that already has scale, good revenue growth, decent margins, and a model and technology that are disrupting the massive telecom market globally? It is not entirely outrageous to think that Skype could become the biggest telecom company in the world at some not-too-distant point in the future. At some point, the IPO market will come back. All of eBay (including PayPal and Skype) is currently valued by the market at $15 billion. How much would the market value of Skype as an independent entity be? More than 6% of $15 billion? I think so.

eBay spinning off Skype was one of the three web-tech market events that I wished for (not predicted) for 2009. It looks possible. Methinks it is simply a matter of timing and market conditions.

The VC Portfolio

As well as being a collection of great but unrelated businesses, a kind of online conglomerate, eBay also looks like a VC with a strange but interesting mix of minority stakes. The most interesting and oft-discussed is its 28% stake in Craigslist. It is clearly not a happy relationship. But that 28% must be worth something.

The Economic Question

The underlying question for everybody at the Accel Symposium was, "What about the effect of the economy on your business?" Donahoe pointed out that they saw the downturn in their PayPal and eBay lines as early as May. Signals from millions of small buyers and sellers are far more reliable than any GDP numbers. So they were able to take corrective action early.

eBay's biggest action was to offer coupons to buyers, to help sellers. As he pointed out, small sellers have weak balance sheets, so a downturn can make them vanish quickly. eBay moved quickly to support its sellers.

Asked if eBay was recession-proof, Donahoe pointed to Skype as being perfectly positioned, but he noted that if consumer spending slows, then even e-commerce is affected. And e-commerce is down.

Time to Fix E-Commerce While it's Down

eBay needs to have a compelling core proposition for e-commerce that unites auction, fixed price, and classified ads. Donahoe pointed out that search is the obvious unifier. But it is not clear how eBay can use this to its advantage.

E-commerce still makes up only 7% of retail. Given the amount of time we spend online and the obvious opportunities, this could grow to 15% to 20%. A big prize awaits here when the economy turns around. eBay has the financial strength to build through the downturn.

Donahoe also painted a vision of mobile e-commerce. It is one that others have painted before: you go into a real-world retail store; see an item you like; scan the barcode to get the price; find a better price online; then decide whether to buy it in the store or online, depending on whether you prefer convenience or lower price.

As he pointed out, this could encounter a bit of resistance. I can envision videos popping up on YouTube of irate shopkeepers throwing out barcode-swiping bargain hunters! Physical retailers will have to adapt, but online folks such as eBay will have to be sensitive to their needs. This will be interesting to watch.