On January 21st, Ikai Lan (@ikai) posted this tweet:

What’s the big deal, right?  So what if Ikai found a better deal on Amazon for his Star Trek geekfest?

Here’s the big deal. This was my response to Ikai:

The issue here isn’t that I was somewhat obnoxious (although clearly, I was a bit obnoxious).  Ikai & I worked together at LinkedIn, so it’s not unexpected to have a little bit of fun with the back & forth on Twitter.

The problem is that Ikai is a smart, technical guy.  He’s also someone who looks for a good deal.  If someone like Ikai thinks that Amazon has a cheaper price on an item like the complete DVD collection for Star Trek DS9, then eBay has a real problem.

eBay’s Value Problem

When I wrote my Eulogy for eBay Express in 2008, I talked about four key value propositions that eBay navigates: value, selection, trust and convenience.  One of the motivating factors behind eBay Express was trying to find a way to leverage eBay’s huge advantages in value and selection, while shoring up perceived weaknesses in trust and convenience.

But here we are in 2010, and while eBay has the item, apples-to-apples, for over $100 less than Amazon.com – Ikai didn’t know it.  And you know what?  If a low price falls in the forest and no one is around to hear it, it doesn’t make a sound… or a sale.

eBay’s Value Problem is actually a Search Problem

The point is, despite the fact that Ikai is an engineer working at Google, he couldn’t find the item.  So a $115 price advantage was nullified.   Why?

I’m not a 100% sure what Ikai did to identify the proposed “$350 price”.  When I searched on eBay, I found literally dozens of items priced below $300, many of which were from top sellers, and many of which that offered returns.  In fact, I saw items as low as $130, but I tried to find the lowest priced item that matched the quality of service Ikai would expect from an Amazon third party seller.

Of course, I’ve been on eBay since 1998, and I spent years working on structured data and search products at eBay, so I have a hunch why I found the items and he didn’t.

He typed the wrong query. My guess is that he typed something like this “Star Trek DS9 season 1-7” in the DVD category.  Makes sense, right?  Unfortunately, this only returns two items, the cheapest of which is $299.

Despite years of investment, the eBay search engine still doesn’t understand that “DS9 = Deep Space Nine”, and that “1-7″ is a range, and that “season” is an attribute that DVD sets for television series can have.

Now, what I did do?  Simple:

1. I typed the query “deep space (nine, 9)”
2. I selected the category for DVD
3. I selected “Buy It Now” for listing type
4. I sorted from highest price to lowest

Let’s review the tricks I used:

1. The () notation is how the eBay search engine does OR.  So I was able to find listings with both “nine” and “9″ in them.  To be fancy, I could have used “DS9″ in there too, but it wasn’t necessary.
2. Filter to DVD category to clean out other clutter.
3. I figured Ikai didn’t want to bid on an auction
4. Sorting from high to low is a counter-intuitive trick, but if you assume that the collection will be more expensive than individual DVDs, it makes sense.  I use this all the time with high priced items, since quality tends to float to the top.

I then scanned down the list to find the cheapest collection sold by a credible seller (someone with high feedback and % satisfaction).  And then I tweeted it to Ikai.

Would anyone else know how to do this? Would anyone else want to do this?

I do it, largely because I still love eBay, and because I actually know how to do it.  Plus, I really appreciate saving money on items like this, so the $115 is worth a few minutes.

But all I know is that if eBay can’t leverage it’s intrinsic price advantage with buyers like Ikai, then it has a serious problem.  They can never beat Amazon or traditional retailer e-commerce sites on trust and convenience.  They can, however, beat them on price and selection.

But customers have to be able to find those advantages to value them.

Far-fetched?  Read on.

In some ways, virtual goods are almost as old as role-playing games.  Experience and special weapons are time consuming to earn, so a light grey market to “cheat” by purchasing equipment or characters has always existed.

This ecosystem exploded with popularity of massively multiplayer games, like World of Warcraft, and virtual worlds, like Second Life.  For the first time, cottage industries of real human beings sprang up to devote full time effort to investing time and resources into accumulating virtual wealth.

While typical Silicon Valley chit-chat turned to the impressive revenues that virtual goods firms began generating in 2008 & 2009, it wasn’t until Zynga IPO’ed in 2010 with eye-popping revenues of more than a quarter billion real dollars that the concept of virtual economies really became mainstream.  Major players from across the entertainment and technology domains raced to enter the market, and to leverage the powerful virality of social platforms combined with the fundamental addictiveness of gaming.  Add the final magic ingredient – pure monetary greed, and you had all the animal spirits needed to create the great virtual goods boom.

Unfortunately, as described in Devil Take the Hindmost, almost all great booms and busts are created through a combination of financial innovation in products that create leverage combined with a technology innovation that drives wildly optimistic views of future value.

Virtual goods and virtual economies had all the right elements to boom.  Initially, the conversion from real world stores of value into virtual stores was highly controlled.  Some of these economies allowed for the transfer of goods and virtual wealth, and some didn’t.  Quickly, however, competition forced a basic truth – people like obtaining virtual wealth in the form of virtual goods.   They like seeing that value multiply and grow.  More and more innovative services and economies were built, and increasingly they enabled mechanisms to convert those virtual stores of value into other virtual stores.  They also enabled players to compound their virtual wealth.  In fact, some even enabled the conversion back into real money.

Thus the vicious cycle was born.  Converting real money into virtual goods, and then taking advantage of the ability to compound that virtual value at unrealistic rates, set off a true boom.  The rate of return on virtual investments was so high compared to the anemic returns offered by the still moribund real economy, that early adopters looked like geniuses.  In 2014, the meme began to spread that everyone should have a portion of their portfolio allocated to “virtual assets”, which were not highly correlated to traditional stores of value.   Funds sprang up to allow the average individual without the time or inclination to invest and build virtual wealth to access the market.

The companies providing these ecosystems had no reason to dampen this enthusiasm.  Their systems, like those of investment bankers or market makers of yore, ensured a percentage of all transactions as revenues.   They made money as people converted real currency to virtual currency, and technically, as they converted it back.  Like central bankers with no fear of inflation, they juiced their economies to juice their own revenues.  Fortunately, the higher the internal rates of return in the virtual worlds, the less people were incented to take their virtual goods out and convert to real money.  Everyone effectively let their money ride, watching their virtual wealth grow.

By 2015, the notional value of virtual goods exceeded $1 Trillion for the first time.  Government bureaucrats began to explore the possibility of taxing these virtual economies to help cover increasing deficits.  Lobby groups sprang up to protect this “new economy” from destruction.  Pundits debated this nightly on all major cable networks.  People borrowed real money at relatively low rates in the real world to invest in virtual goods, because the returns were so much higher.  Real debt grew, savings dropped, but virtual assets grew faster.

Then, in 2016, one of the more flagrant virtual worlds began to see withdrawals rise.  Not significantly at first, but it turned out they had allowed virtual wealth of their members to grow high enough that people began to “retire”.  Everyone was in the game, so new entrants with smaller balances could match the asset loss.  Suddenly, the bear arguments, which had been discussed for years (beginning with a famous blog post from 2009) began to make more sense.

No one had the real money to cover these virtual “liabilities” the companies implicitly had to their members.  There was no virtual FDIC to cover accounts.  There was no regulation to ensure that these accounts would be paid.  The first “run” on a virtual economy had begun.

Suddenly, it became clear that these virtual economies were linked, even if owned by different giant companies.  People who lost money in one virtual economy, began pulling real money out of others.  One virtual world froze conversion, like a panicked 20th century third world nation.  Then the run really began.

Virtual asset values plummeted.  But the real debts did not.  Suddenly it turned out that more companies had their fingers in the virtual pie than most people thought.  Asset management firms.  Insurance firms.  Hedge funds.  Large banks.  Tech giants.

And that’s how virtual goods caused the market crash of 2016.

Do I believe that it will really happen?  No.  Do I believe that conceptually, virtual goods and economies could lead us into uncharted waters economically if we are not careful?  Yes.

I’ve read quite a bit in the past decade about the history of market bubbles and panics, and the patterns of each.  In every case, financial innovation creates some new way for people to assume liabilities in a highly leveraged way, outside of existing regulation or norms.  In combination, some technology offers the world hope of a much larger economic future.  Given the new found ability to invest heavily in that future, and radically different perceptions of that future, people invest, creating a virtuous cycle of high returns and increased investment that sucks almost all the air out of the system… and then keels over.

A fun mental exercise for a Thursday night.

Still I wonder. Since it’s only 2009, I feel like I don’t own enough stock in these companies.  It’s going to be quite a ride. 

His article was entitled:

TechCrunch: How Facebook, MySpace and YouTube Killed eBay

Told you it was inflammatory.

However, I’m not normally the one to take eBay flame bait.  After all, if I was, I’d be posting twelve times a day on the topic.  But Keith actually hit upon a deeper insight in his piece that is worth calling out, because it provides insight into both eBay and other successful, engaging web products.

Although it was always classified as an e-commerce destination, the quirkiness of the eBay marketplace was once a major source of entertainment on the Web. It was where people sought and bought everything from the first broken laser pointer to Beanie Babies to Bob Dylan’s boyhood home. While the catch—anything from an antique clock to a Gulfstream II—was rewarding for the buyer, it was generally the entertainment and excitement of the chase that brought a buyer to eBay in the first place.

This insight, that eBay’s success was driven by entertainment and engagement is extremely strong.

The rest of the article follows this path:

• In January 2004, over 47% of internet users visited eBay once per month.
• In December 2006, while the % of audience stayed the same, people were spending 3x the time on MySpace
• In 2007 Facebook & Youtube added to this drift of attention and engagement (timeline is off here a bit, since Youtube took off well before 2007).
• eBay stripped out the fun, not pursuing eBay 3.0 strongly enough, and then Donahoe pushed towards an Amazon-focused approach.  Fun gone.

I don’t personally agree with much of the deductive flow here, actually.  Overall, Myspace, Youtube & Facebook have significantly increased the engagement overall on the internet, taking metrics like “daily visits” and “daily unique users” and “time on site” to previously unthinkable numbers.  It isn’t a zero-sum game, per se, because the overall number of users and time spent on consumer internet sites has grown dramatically.

More importantly, the assessment of eBay 3.0 and the current strategy makes it sound like eBay’s current approach is largely management-driven, when in reality the overwhelming global scale and activity of eBay buyers (and sellers) has made the current direction almost fait accompli.  In 2006, the number of eBay listings that were fixed price (including store listings) was already well north of 50% and rising rapidly.  The marketplace was voting through billions of bids, BINs and listings, and it was voting for a higher and higher proportion of fixed price commerce.

But I digress.  The point is that Keith got something very, very right in his article about eBay.

eBay was never meant to be just e-commerce.  It was fun.  It was exciting.  It was empowering.

It was engaging.

There are a couple strong reasons for this.

First, if you’ve read my previous posts on game mechanics in the design of engaging software and websites, you’ll know I’m a big fan of Amy Jo Kim‘s work here.  In fact, eBay demonstrates all five of the “fundamental games” that humans like to play.  This wasn’t done intentionally, but it explains a lot of the almost visceral, addictive reaction that people had to eBay.

Second, eBay captured irrational economic behavior on both the buyer and seller side of the marketplace brilliantly.  Buyers exhibited a number of irrational behaviors that we now describe and associate with behavioral finance.

These irrational behaviors on the buyer side, combined with the game mechanics of the site, effectively created a lift in demand.  Combined with the transparency and breadth of the online marketplace, you had literally a huge multiplier on e-commerce demand.

On the seller side, however, engagement was driving irrational behavior too.  Buyers of collectibles became sellers in order to “fund their habits”.  (I know this personally, since I began selling coins on the site to help keep my PayPal “slush fund” fully tanked so I could buy coins…)   More than anything, people fell in love with the empowerment eBay offered.  You didn’t have to have $100,000 to open a business, an SBA loan, or an MBA.  The web was full of stories of people just driving around garage sales, picking up items on clearance at local department stores, and stocking up at flea markets.  Some of these sellers grew businesses that measured in millions of dollars, promoting hope that anyone could build a business on eBay.

Of course, there was a kernel of truth to this.  An unprecedented number of successful businesses were built over eBay.  But most sellers were nowhere near any sort of traditional business scale.  There is a reason, after all, that PowerSeller starts at just $1000 a month.  And that’s $1000 of sales revenue, not profits.

Can you imagine any real-world storefront with only $12,000 a year in sales?

People would spend 8, 10, even 12-hours a day looking for inventory, listing items, answering questions, and shipping goods.  When people went to the first eBay Live, they even made sure that on the road trip out to California, they brought enough packing materials to keep shipping items.  They made buyers happy because it wasn’t just a business for them, it was a way of life.

In every sense of the word, it was irrational commerce.  It was a labor of love, not economics.  Sure, it was a good way to pad the income of a family.  But for many the money was just a rationalization – they were really in it for the excitement, the activity, the empowerment, and of course, the community.  If you calculated the “wage rate” of many of these sellers, it would be shockingly low.  But no one did, because that wasn’t the point.  It was fun.  It was empowering.  And it was only just the beginning…

I didn’t get to go to the first eBay Live in 2002, but I did go to three starting with the third in New Orleans in 2004.  I’ll never forget, at one point Pierre was touring the booths (I believe he was giving a speech that day).  A group of us were discussing how to manage the insanity of the event – the intensity and sometimes aggression of some attendees who had to have every pin, every collectible.

I won’t get the quote right, but Pierre said something there that has stayed with me to this day.  To paraphrase, he said that he loved the energy, and that the insanity is part of what made eBay great.  If eBay became just another sales channel, then it would lose its magic.

It has been five years,  and for me personally the growth in my understanding of game mechanics, behavioral finance, and web 2.0 product design have given me terms and tools to help explain the irrational engagement that people had with eBay, and currently have with sites like Facebook, LinkedIn & Twitter.

eBay has a very metrics-driven culture, but while site and business metrics accurately reported the results of the incredibly engagement and activity on eBay, as always they never actually provided  the full picture around causality.

So, from my point of view, Facebook, MySpace & Youtube did not kill eBay.  (eBay, of course, is no where near killed in any case, since it continues to be an incredibly large and active site.)

Instead, eBay fell victim to a much more insidious threat than simple competition for eyeballs or time on site.  It fell victim to a version of the Innovator’s Dilemma.  There is a limit to how many people will wrap their lives around selling on eBay.  There is a limit to what percent of people’s purchases they will pursue through an auction process.  There is a limit to the disposable income to spend on collectibles and hard-to-find items – most purchases, in fact, are of new, standard commodity products.  Thus the company and the site follows the aggregated votes of hundreds of millions of buyers and millions of sellers, their “best customers”, and those votes are eventually dominated by the bulk of the e-commerce market.

Reading articles this weekend, like this piece in VentureBeat, they quote Donahoe in the Wall Street Journal as follows:

Asked about eBay’s identity, Mr. Donahoe said he wants shopping on the site to offer the same sort of low-price experience as buying at bulk retailer Costco Wholesale Corp. There, “the inventory is somewhat fluid, but everything they’ve got is a great deal,” he says in an interview.

(Ironic for me, since Costco was one of the examples we looked to frequently in the design and thought behind eBay Express.  I am a huge, unrepentent fan of Costco as both a customer and as a student of great companies.)

eBay 2009 cannot go back to the eBay of 1999, or even 2004.  The size and scale and make-up of the market means that any attempt to “crowd-out” the less engaging aspects of the market would mean drastically reducing the size of eBay.

That doesn’t mean there isn’t hope.  There is still time for eBay to re-invigorate its experience to capture and create elements that drive engagement.  There is time to learn from both the past and the present, and chart a course that will inspire and empower millions.

The original needs that drove eBay to success still exist.  People are finding some of the serendipity and empowerment from Craigslist… but it’s not as actionable or broad.   The game mechanics, for the most part, aren’t there.  Amazon has increased its breadth, but it’s truly an ecosystem designed for large sellers (by eBay standards).  Google has enabled independent websites to purchase traffic… to an extent.  But the more you make selling online like running a business, the more you lose that sense that this is fun instead of work.

Collectors still want to collect.  People still want to find ways to make a little extra money and to be a part of something bigger.  Little kids still collect and trade things from a very young age – no matter if they are stickers, baseball cards, Pokemon, or whatever small colorful items come in sets with variable rarity.  I sold my brother’s broken iPhone (he dropped it in the ocean) for $130 to a man on an island (Reunion) that I had never heard of.  Those eBay stories still exist. Small businesses are still being built on eBay.  Sellers are multi-channel, but eBay can and should offer them unique dynamics that capture a disproportionate amount of their attention, if not their business.  Apple has a small fraction of the computer market, but it captures the lionshare of its attention.  That could be eBay if it was prepared to act boldly and ask hard questions about what eBay reall should be… and shouldn’t be.

eBay cannot be MySpace, Facebook, LinkedIn, YouTube, or Twitter.  Nor should it be.

It should be eBay.

Update (5/27/2009): Turns out I had missed a great post from Rob Go on this same topic, just a few days ago.  Worth reading.

Today, I checked my stats briefly and noticed something really strange: my post about eBay Express, A Eulogy for eBay Express, had jumped with a vengence to the number one post on the blog.  My overall traffic spiked a bit too.  A little strange for a post that is over 6 months old.

Perusing my top referring sites, I saw one obvious culprit: eBay Strategies.  Scot Wingo has a new post up entitled Episode IV – How to fix eBay (you are here) – A NEW HOPE – Introducing eBay 2.0. It’s a long post, but there are a couple of paragraphs in it that point directly to my last eBay Express post:

You may recall an experiment eBay had called eBay Express where they tried to extend the brand with a different fixed-price site, but failed.  Ex-eBayer, Adam Nash had a great eulogy and behind-the-scenes view of what happened that I recommend everyone read to see his perspective.

I always likened eBay Express to diet donuts.  It just isn’t an extension and you are admitting that, well, if you have an eBay express, that makes eBay – what- eBay slow and poky?  There were other problems too that Adam details, like they didn’t send it any traffic and small things like that.  Also the way the inventory worked was all jacked-up, it was a sub-set of fixed-price items on eBay (what?!).  I’ve read all of Adams thoughts on eBay Express and chatted with him before on what eBay’s doing wrong/right and many of his ideas have found their way into eBay 2.0. (BTW, eBay needs to get this guy back.)

OK, it’s hard not to find that last line flattering.

Scot’s post is fairly long and detailed, and while I don’t agree with everything in the article, I did find all the talk of “New Coke” amusing in one sense.  You see, Malcom Gladwell’s book Blink had just been released when we kicked off the eBay Express concept efforts.  As a result, one of the specific guiding statements for the project was: “Don’t build New Coke.”  As I mentioned in my original post, one of our key goals for eBay Express was to NOT change the original eBay, but instead focus our efforts on a new site in order to protect what buyers & sellers loved about eBay.com.  Our analogy was, in fact, Diet Coke, which is not totally surprising given that I have an entire category for Diet Coke-related posts on this blog…

Still, the branding point around the name “eBay Express” is fair, and as I mentioned previously, branding was one of the obvious mistakes made in retrospect.

In any case, a little more snooping and I discovered that while eBay Strategies was the source of some of the new traffic, even more traffic was being sourced from the Seeking Alpha distribution of the article.  I’ve been an active reader of Seeking Alpha as an investment site for years, and I’ve noticed their recent push for sourcing content from any major blogger.  However, this is some real evidence that bloggers who leverage Seeking Alpha are likely seeing significant boosts in distribution.

I wonder if I have any posts that are Seeking Alpha worthy… I’ll have to think about experimenting with them at some point.  I’ve actually been cited in Seeking Alpha posts before, but typically with pointers to my articles on investing in Timber as an asset class…

USPTO: Patent #7,490,056

• Filed: November, 2004
• Granted: February 10, 2009

Ironically, I wouldn’t have known about it except for a promotion catalog I got in the mail today with a list of plaques I could buy to commemorate this patent from some souvenir company in Florida.  Yes, I know.  Weird.

This was the first of several patent applications I submitted while at eBay.  This particular application surrounded the logic and algorithm around assessing popularity for e-commerce listings based on “following” behavior, aka “Watch” in eBay terms.

Yes, this was the “Most Watched” patent, from the debut of eBay Pulse.  (Sadly, it looks like the patent office has actually moved faster approving this patent than eBay has updating eBay Pulse since that 2004 launch.)

There is a lot I could comment on here about the USPTO, the dubious nature of software patents, the length of time, etc.  Normally, I’d go on at length about some of these issues.

Instead, however, I’ll just note that it’s a somewhat sentimental moment for me, because I always remember hearing about how my late grandfather had filed an important patent on his path to business success.

Needless to say, saltwater does not do good things to an iPhone.  It doesn’t boot anymore.   No recourse with Apple or AT&T.  He had to get a new phone.

As a result, I ended up with my own variant of Pierre Omidyar’s famous broken laser pointer… I listed the broken iPhone on eBay.

Well, it sold today, for $122.50.  However, it sold to an international buyer… in Réunion.

Réunion, as it turns out, is a little island in the Indian Ocean, off the coast of Madagascar.  It is a French island, and happens to be the first place in world (due to time zone) to adopt the Euro.

So, would you ship a broken iPhone to Reunion?

They paid with PayPal.  All the info lines up, roughly.  eBay has a hotmail address for the user, but the payment came from a wanadoo.fr email address.  However, the name and address on both is the same, although eBay lists United States for the registered country (with the Reunion address).

That could be a sign of fraud.  Or it could be the sign of a user who moved.  eBay data is pretty messy at times.

He has made recent purchases with positive feedback.  A cheap piece of wireless equipment, and an expensive ($259) piece of tree climbing equipment.  So, not just trivial items.

So, do I ship it?  Not sure.  The worst that would happen is that the credit card would end up being stolen, so PayPal would seize the funds.  And I’d be out a broken iPhone.

But, on the plus side, selling to Reunion is a new destination for me.  I’ve sold to over 30 countries on eBay at this point, and it’s getting harder to attract buyers from new ones.

I think I’m going to ship it.

People are basically good… right?

Here is the new PayPal Micropayments site, which explains the terms.

For those of you unfamiliar with PayPal economics, PayPal charges a fixed fee and a variable rate on every transaction for premium customers.  A premium customer, by the way, is basically anyone who wants to receive more than $500 a month and/or accept credit cards.

The payment scheme is similar to the credit card companies, although of course PayPal charges the same fee for bank & debit payments too.  They even charge the fee on PayPal balance purchases.  There is a reason why PayPal is a phenomenal business in its current form.

The problem is that for low cost items, the PayPal fixed fee can be expensive.  The fees for a basic premium account are:

$0.30 + 2.9% of the transaction.

So, if you are selling a $100 item, your fees would come to:

$0.30 + $2.90 = $3.20, or 3.2% of the transaction.

Not a huge fee, but certainly a significant line item for normally thin retail margins.

Now look at the cost for a $5 item:

$0.30 + $0.145 = $0.45 (rounded), or 9% of the transaction.

Wow.  9% for payment processing.  Hard to build a great business there.

The micropayments service offering fixes this, by lowering the fixed fee, and raising the variable fee.  The new fee structure is:

$0.05 + 5% of the transaction.

So, that same $5 payment now costs:

$0.05 + $0.25 = $0.30, or 6% of the transaction.

6% is still high, but much, much better than the old fees.

Of course, given the scalability & cost issues with PayPal infrastructure, the launch is typically limited in terms of implementation:

• You can’t really find this on the site, you have to go to the magic micro-site to sign up.
• You have to sign up for this fee structure separately.  You can have the micropayment structure, or the normal structure, not both on a single account.
• You have to wait 2 days for the fee structure to take effect.

This means that as an e-commerce seller, you have to keep two accounts open – one for your items over $12, and one for the rest of what you sell.  It also means you have to juggle the fact that PayPal doesn’t like to see two accounts linked to the same bank account, credit card, or email address.

Still, it was fairly trivial for me to set up a new email address on my personal domain, and get the new account.  I’ll start using it immediately on Media items, like used DVDs, that tend to get below $10 prices.

If I was in the eBay selling tool business, I would definitely build in a feature to automatically assign the right PayPal account to listings based on the fixed price or expected final value of an auction.  It probably wouldn’t take more than a day or two to implement.  An eBay seller with $100,000 GMV per year, with 50% of items below $10 could likely save thousands of dollars with this technique – that’s margin that is worth taking.

I’m not sure this fee structure will get PayPal into the true micropayments arena.  If they want to be collecting payments under $1, they will really need a fee structure that operates on the aggregate – grouping together charges like they do for iTunes to minimize charges.  Still, I’m glad to see them make at least this small step forward.  It must not have been easy to face the potential cannibalization for existing sellers who are using PayPal today on eBay for under $10 items and who will move to this payment structure.

What would be great is a true wrap account from PayPal that would mix together a true micro-payment pricing (sub-$1), low price item band (sub-$10), and regular merchant fees, with PayPal handling all the aggregation and management to deliver payments for a broad product line at a fixed rate based on monthly volume.

Still, I’m sure there are a few people at PayPal who slaved over this recently, and I do want to say to them thank you for shipping it.  I’m hoping this will help make selling lower price items viable again for me.

I’ve continued to shy away from posts about eBay and eBay Express in the past year.  Somehow, it feels inappropriate to comment too deeply about my former company.  But tomorrow (April 24th) is a special day for eBay Express, and I thought it would be wrong not to acknowledge it.

Happy Birthday, eBay Express!

On April 24th, 2006, eBay Express officially launched it’s beta site to the world.  In actually, the site had been running internally as of March 20th, but we officially made the DNS entry available outside of eBay for it’s beta debut.  (Actually, we originally thought it could take up to 48 hours for the DNS to propogate… it turned out to take 5 minutes, which led the site to actually go live during the launch party on Friday, April 21st.)

It may not be obvious from the outside, but eBay Express was exciting for a number of reasons:

• Mission. eBay Express had a real mission – to build a best-of-class, retail buyer experience with the value & selection that buyers love about eBay, but with significant improvements in convenience & trust.  This high-level goal led the founding team to craft several principles which guided every decision and led to an incredible passion across the team and the company.   Principles like, “Always ask what’s best for the buyer.” and the concept of making the platform “backwards compatible” with existing seller business process, were kept consistent across the site.
• Innovation.  Never before had eBay committed so broadly to investment in new technology & systems designed around a holistic end-to-end business & experience.  In each and every area, leveraging the principles of the site, we re-examined the best technology eBay & Paypal had to offer, and in many cases invested heavily to break through a number of long-standing roadblocks to platform innovation.
• Entrepreneurship. eBay Express was an important experiment for eBay, which has a long history of acquiring new businesses, but less experience in building them.  eBay Express was a significant test for the organization and for the business.

It’s two years later now.  Much of the technology that we developed during eBay Express has informed new designs for technology for the core eBay business.  Many of the principles of eBay Express have now also been transferred to the entire eBay markeplace.  In fact, if you read through the transcript of Lorrie Norrington’s speech today, a vast majority of it echoes strongly with the original vision.  Of course, it differs in one important way: one of the basic tennants of eBay Express was that we were building a different site so that we didn’t have to change what buyers & sellers love about eBay.com.

One of the founding team’s greatest fears with eBay Express was the long term ability of eBay to invest in building a new business in a very tough market.  Amazon spent almost an entire decade interating on their model for third-party fixed-price sales on Amazon.com.  Of course, it is very successful now, but it’s easy to forget the amount of capital and the number of missteps that Amazon endured in the process.  I continue to be extremely proud of the incredible sales growth & volume that the team generated in just their first year (and even into their second!).

When I worked at Apple in the 1990s, one of the lessons I learned was that it is very hard for a large business to invest in new markets when it’s core business is suffering.  It seems like ancient history, but when Steve returned, Apple focused first on stemming the bleeding in its core Mac market with the Think Different campaign and the iMac years before it debuted the iPod & iTunes sensation.  To this day, Apple’s success is a pairing of its new businesses and its old.

eBay’s priority now has to be it’s core eBay marketplace business, and that’s why you see tell-tale signs of cutting back on investment in ancillary businesses.

There were plenty of lessons learned from eBay Express – things done right, things done wrong.  But that’s not really the purpose of this post.  The purpose of this post is to say “Happy Birthday” to the site while I still can, and give a brief shout out to the original founding team who got pulled off every other “top” priority at the time:

• Luke Wroblewski
  
• James Reffell
  
• Chung Meng Cheong
  
• Adam Nash

Special nod to MD, LR, AH, SM, RV, CF, RV & ES for their support, and to the entire Express team.  eBay Express will always be special to me.  And of course, there is the ever growing list of eBay Express alumni on LinkedIn. 

P.S. Just in case she’s wondering, yes, Rebecca, 4/24 is first and foremost your birthday in my heart.  Happy Birthday, Rebecca!

You see, I wanted to run an experiment using Amazon’s new For-Sale By Amazon and EasySell products, which Randy Smythe has been blogging about.  I’m interested in them, because, in theory, we often discussed on the eBay Express team what directions we would have to move in to support selling of fixed-price, new-in-season products in the future, and Amazon FBA looks an awful lot like one of those ideas.

In any case, I can’t tell you about Amazon FBA yet because a bug in Amazon’s seller on-ramp flow is preventing me from upgrading my account.  I contacted Amazon’s customer service by email, and got an incredibly poor reply.  Fortunately, Amazon now has click-to-call support, and that worked beautifully.  The Amazon customer service rep was very apologetic, and knew about the issue immediately.  It’s not fixed, but I’m confident they are working on.

(In case you are wondering, the bug is that when you try to upgrade to Amazon Marketplace 2.0 BETA, you get a login screen where someone else’s email address is pre-populated and not-editable – which pretty much locks you out.)

In any case, I can say one thing:

Amazon Marketplace + DVDs + PayPal Shipping is a pretty darn good system for selling DVDs.

Here is why:

• Amazon listing process has the best elements of Half.com.  Type a UPC and condition comment, then pick a price based on Amazon current stats, and you are done.
• Amazon has ample DVD buyer demand.  Something eBay has, but Half.com doesn’t.  (Something we tried to rectify by adding Half.com inventory to eBay Express).  So if you price at the low price, you sell in 24 hours, even for titles that aren’t particularly hot.
• PayPal shipping makes fulfillment a breeze.  Just enter the sale data, and get a printed postage label ready to go, with tracking info!  All for a great price.

In case you are wondering, it is in-fact possible to print postage with PayPal on non-PayPal transactions.

It’s the same way eBay let’s you print postage for Half.com transactions – the base PayPal Postage form, available as long as you have a merchant account with PayPal.   I do all my shipping, both e-commerce & personal, with it.  In fact, I have a second tray in my laser printer, filled with peel-and-stick label paper, just so I can easily print and stick postage on my packages.  It offers Media Mail, First Class, Priority Mail, and Express options…

PayPal has a lot of features that they built specifically to support the eBay marketplace.  Historically, PayPal did not see these as a third-party opportunity – after all, what other marketplaces were there?  But 2008 is not 2003, and PayPal should expand their efforts around their marketplace products.  A lot of sites are adding transactional third party inventory, and PayPal has already solved many of the problems related to these transactions.

I would love a link from Amazon to just print postage with PayPal.  I would love to have the form pre-populated, and to be able to tap into the money from the sale to do it.

I’m not saying that Amazon would go for this, since they want to own fulfillment.  But the right integration between Amazon & PayPal could address those issues by linking Amazon’s fulfillment ecosystem to PayPal for supporting third party shipments.

In any case, I still use eBay for almost all my selling, and Half.com for textbooks.  But for DVDs, I haven’t been getting great prices lately on my auctions, and the listing process is just too long right now for individual items for something that’s only going to get $5-$10.

Now, if eBay finally starts showing Half.com DVD inventory on eBay.com, I’ll be back in a flash.

Motif, Inc., a leading global knowledge-based BPO services provider announced today that Karl Wiley has joined the company as President of U.S. operations. Mr. Wiley will be responsible for all of Motif’s U.S. based operations, including corporate strategy, sales & marketing, key account management and M&A. He will be focused on driving accelerated growth for Motif by attracting new clients, expanding into additional industries and service lines, and growing activity from Motif’s current client base.

Mr. Wiley joins Motif after more than six years as an executive with eBay. Most recently he served as the Chief Operating Officer of MicroPlace, eBay’s start-up initiative providing a retail investment marketplace in the Microfinance industry. Prior to that, he was the general manager of eBay’s $5+ billion Technology and Media categories, and led eBay’s B2B wholesale initiative. In these roles, Mr. Wiley was responsible for strategy, consumer marketing, product management and customer service, and managed eBay’s relationship with many major branded retailers and manufacturers.

Karl was one of the great eBay Category Managers.  I first worked with Karl when he was part of the Business & Industrial team, which turned out to be an incredible pool of leadership talent.  At the time, Karl was the primary driver & business sponsor for product support for wholesale lots at eBay. For me, it was one of the first projects where I felt like I was truly working on features that were driven by the eBay selling community itself, and not from just internal motivation.  I learned a lot from my efforts with the B&I team, and even after the category management for wholesale lots was disbanded, I still ended up leading the course on Buying & Selling in Lots at eBay Live in 2004 & 2005.  Packed rooms, both times.

Congratulations, Karl, and best of luck with your new venture.

One minor quip, of course, is that it’s time to update your LinkedIn profile…

I think the problem is that I’m emotionally attached to my library. I surround myself with my books. They remind me of what I’ve read, and even in some cases, who I was when I read them.

Unfortunately, while I’d love to flip through some of them more frequently, the physical form gets in the way. I know I would love to have all my books in electronic form, the same way that I have my CD library now on my iPod, or my DVD library on my AppleTV/Mac Mini.

I caught this article today about the Kindle, and I decided to put out there a plea for a program that Amazon could put on that would immediately convert me over:

Let me send you my books. Yes, my physical books. When I send you them, give me download access to the e-book form, for my Kindle. Let me trade you my paper for electrons, in high quality form.

Take my books, and either sell them through your marketplace, or donate them to libraries and schools. Spread them to others so they can enjoy them.

If I could get my existing library converted over to a form for the Kindle, I’d gladly give you my future purchases. I can rip a CD. I can even rip a DVD. But I can’t rip my books.

I’m guessing the royalties for the book publishers will be a problem. But likely not insurmountable. After all, there is some money on the table here, since the books can be converted into some small amount of dollars. And think of the marketing data you’d have on me once you knew in detail the hundreds of books I already own.

Just a thought.

First, here is the original post on eBay that announced the test of Best Match as the default sort in five major categories, dated January 16th. Just a few days ago, really.

I caught this blog post over the weekend from Randy Smythe, and realized that I had a few things to say about the launch of this test.

The first of which is congratulations to the eBay Finding team. The launch of this test represents an inevitable step towards the future of a search engine on the eBay.com site optimized for the best possible buyer experience. For all the back-seat driving and Monday morning quarterbacking that they receive, very few people understand the complexity of the problems that the eBay Finding team has to tackle.

The second thing I have to say here is get ready to drink from the firehose. This move is bigger than anything I can think of in the history of the eBay buyer experience, and it’s going to test eBay and the eBay community in new ways. There is no playbook for this type of change, there is no simple pattern match. There is going to be a lot of churn, a lot to learn, and lot of quick action & analysis needed to make this successful.

It might not seem obvious to outsiders how big a change this really is. But believe me, it’s huge. There is a $60 Billion economy that is all predicated on the way that hundreds of millions of buyers search through and find billions of items for sale on eBay. That’s roughly the Gross Domestic Product of the country of Vietnam.

To explain why this change is so dramatic, let me explain a bit of the background behind this change. Let’s start with how eBay search works today.

eBay search has a history of being extremely literal and transparent. Until changes were made in the last few years, eBay search would literally do only the following:

1. Look at the keywords entered by the buyer
2. Look at the title keywords of every listing on the site
3. Return only the listings that had 100% of the keywords entered by the buyer
4. Sort the listings by “time remaining”

When I worked on the eBay Finding team, it was always surprising to me how many active eBay users I would talk to, both buyers and sellers, who assumed there was “something more” to the way eBay returned items. In fact, I would sometimes ask potential product managers, interviewing at eBay, to describe how they thought the eBay search engine worked. I would get the correct answer less than 10% of the time.

This system had some clear and obvious benefits. It’s simplicity meant that it was transparent to sellers and buyers, at least, in theory. Sellers would, in theory, experiment over time to find the right keywords to use in their listings. Buyers would also experiment. Over time, assuming that eBay was a fairly efficient market, sellers would provide listings with keywords to match the keywords that buyers would use. Supply would meet demand.

Sorting by time remaining had some natural benefits too. For an auction that ending soon, the differences between zero bids, one bid, and more than one bid are stark. One bid guarantees a sale, two bids puts you on a fast path to an efficient price. There was inherent benefit for sellers and for eBay to see auctions that were ending soon get exposure to a disproportionate number of buyers.

So, if it’s not broken, don’t fix it, right? Well, the good news is, the search system was good enough to grow eBay to the giant it is today. The bad news is that it had some fairly obvious shortcomings that became unsustainable over time.

There were a few obvious ones that almost anyone who used eBay ran into. Inexperienced sellers, just casually listing, had no idea what keywords to put in their titles. Pitty the poor seller, trying to sell their $1500 PowerMac G5, if they instead called it a “PowerMac G-5″. Inexperienced buyers also had no idea that searching for “Apple Macintosh” would bring back radically different results than “Apple Mac”. eBay didn’t know how to match keywords to categories. A search for “DVDs” wouldn’t just take the buyer to the DVD category – it would literally return all listings that had “DVDs” in the title. eBay didn’t even understand plurals! “DVD” would bring back very different results than “DVDs”.

eBay started addressing these issues in earnest about five years ago. They slowly rolled out improvements like transliteration (plurals), as well as some experiments with “generic keywords” like DVDs.

Why slowly? Well, the problem is, tinkering with a multi-billion dollar economy is, to lack a better word, scary. It’s scary because you have millions of sellers who have already adapted to the old search engine. You have billions of dollars of purchasing at stake, which means a 1% blip in finding efficiency can mean the difference of tens of millions of dollars in revenue for the company. And last, but not least, it’s scary because it’s hard to objectively find a measure of success that everyone can agree on.

How do you measure the success of search? When a buyer does more searches, is that a good thing or a bad thing? If a buyer views more items, does that mean you’ve done a good job showing them relevant items, or a bad job because they have to click through a lot of items to find one they want?

This gets even more complicated when you take into account the financial relationship between eBay and its sellers. eBay gets paid basically two ways: fees paid up-front when listing the item, and fees paid when an item sells. As a result, sellers pay eBay an up-front amount assuming a certain amount of visibility for their item. eBay does not guarantee impressions, clicks, or sales, but over time, sellers get used to the rough economics of their activities on eBay. They learn which keywords, which categories, which items get them enough clicks and sales to make their business works. That’s how they decide when and where to pay eBay it’s fees.

In any case, those changes merely affected the results that were returned by eBay’s search engine when the buyer performed a search (Step 3). It didn’t affect the sort order, which determines which items are on the first page of a buyer’s search results.

Unfortunately, changing the sort order was just a matter of time. “Time Remaining” is a very good sort for auction items, but it is almost meaningless for fixed price items. Over time, as eBay grew, more and more items on eBay were fixed price. In fact, if you include eBay Stores, eBay has had vastly more fixed price items than auction items for some time. What’s more, all the Step 3 changes mentioned above added more items to the search results, making it even less likely that you’d get good results on your first page.

If you are familiar with internet search, then you know sorting your items to provide the best possible results on the first page is incredibly important. And a meaningless sort for a majority of your listings is just not going to be sustainable without sacrificing a significant amount of your buyer experience and sales.

So, this rollout of Best Match is a big deal. Best Match does not change the results that are returned by eBay for a given keyword, but it does change what appears on that first page. It is a new way to sort items. And that, by itself, is huge.

Not surprisingly, sellers have noticed. Randy’s blog post quotes a seller who has purportedly seen a 40% drop in sales. It’s certainly possible. Best Match will alter the amount of time that listings will have at the top of results. Some sellers might see no change in their activity. Most will see small changes. But there will be a few who see huge swings from their existing metrics.

Most interestingly, it is practically impossible to predict what the outcome will be for any particular seller. To be sure, eBay will guide Best Match to increase overall sales for the site. That means, more items will receive bids and be bought. The economic pie will be bigger for the eBay selling community. But there is no known way to effectively simulate what the outcome will be for any particular seller with their existing listings.

This is a fundamental challenge for eBay. eBay has stated they will focus on improving the buyer experience. eBay will also continue to manage the marketplace to a greater number of sales. However, that won’t change the fact that some sellers will do better under this new system, and others will do worse.

Don’t be surprised to see sellers start to dissect public patent applications for clues on how eBay Best Match works. This is their lifeblood, as much as Google PageRank is the lifeblood for content websites. There is huge economic value in “cracking the code”, and one thing is for sure, the eBay community is full of entrepreneurs who will try to harvest some of that value. Like Google PageRank, Best Match is designed to be opaque. As a result, eBay will make no guarantees about how it functions, and they will actively change it over time to improve it and to prevent abuse.

Also, don’t be surprised when sellers are, in the aggregate, upset about this change. This adds uncertainty to their business, and even though every other site out there is based on relevance sort, they hold eBay to a different standard, and for good reason.

The version of Best Match that eBay is rolling out now has gone through more testing than any new piece of functionality that eBay has ever released. They have gone through numerous versions of the technology, numerous experiments with different factors and systems, and elaborate economic experiments to ensure that it results in higher sales for the marketplace and happier eBay buyers.

And now the real test begins. The eBay Finding team will need to listen, learn & react more in 2008 than they ever have before. It will not be easy, for anyone. But then again, the most important changes never are.

Update (1/24/2008): It looks like this post was picked up in the internal Weekly Gazette inside of eBay. I am, of course, flattered to be highlighted. Of course, I am not an unbiased source, since it was on eBay Express that we first discovered the need to move away from “ending soonest” and “lowest price” sorts, and launched the very first, crude version of Best Match.

For years, eBay ruled the e-commerce roost. Each holiday season, more visitors spent more time and looked at more pages on eBay.com than on any of its rivals, including Amazon.com. It made sense; eBay is a wide open forum for every kind of seller and item, while Amazon has traditionally pushed a selection of products through its network of physical warehouses.

But all that is now slowly changing. Amazon has opened its site to independent sellers, while eBay’s auction model is running into problems with fee-fatigued sellers and buyers wary of fraud and counterfeit items.

Now the latest audience figures from Nielsen Online confirm that the e-commerce traffic crown has changed heads. For the month of December, for the first time, more Americans clicked over to Amazon.com (59,624,000) than eBay (59,374,000).

Despite the slim margin between the two companies, eBay’s visitor count is particularly alarming. According to the Nielsen data, the number of visitors to eBay.com dropped 10 percent from December 2006 to December 2007.

The full article is here.

Now, in all fairness, Amazon’s rise in traffic isn’t all good news for them.  After all, the GMV (gross merchandise volume) on eBay is much higher than on Amazon, which means Amazon is far less efficient at converting traffic into dollars of sales.  In addition, given Amazon’s overall profit margins, it also looks like Amazon takes more traffic to generate a dollar of profits than eBay, by quite a bit.

Still, this is a really significant milestone for Amazon, and a significant warning sign for eBay.  Amazon’s ability to grow into categories through it’s seller marketplace is now hitting it’s stride, and it’s pretty clear that as e-commerce matures, it will be fixed-price e-commerce, and not auctions, that dominate the market.

eBay has a tremendous amount of fixed price capability at its disposal, but the fixed price market is about trust and convenience, not just about selection and value.   Merchandising and product promotion is also crucial, and these are areas eBay will need to invest in heavily.

Here’s hoping 2008 is a year where eBay hits some new milestones of its own.

Since I left eBay in May 2007, I’ve tried to be careful here on this blog with regards to eBay.  It’s hard sometimes, when you read a column online that is wildly off base, to not want to jump in and “set the record straight”.  Of course, when you work for the company, you tend not to do this because it’s hard to separate a personal rebuttal from an official company response.  Ironically, when you leave the company, you also really aren’t free to respond, because it now isn’t your place to fight those battles.

I read an article this week, on Auctionbytes, about the new Detailed Seller Ratings and the relatively low ranking of the Top 25 eBay Sellers, and I felt I had to comment.

In case you are unfamilar, eBay rolled out new “Detailed Seller Rankings” to their feedback page last year, in one of the biggest enhancements to the feedback system since it’s debut.  These detailed ratings allow buyers to rate sellers on four additional dimensions, from 1-5:

• Item as described
• Communication
• Shipping time
• Shipping & Handling charges

Seems like an obvious improvement to most buyers.  However, no part of the eBay ecosystem is simple to modify, and there has been considerable angst and discussion among top sellers about this new improvement.

I’m not going to get into the debate and issues that sellers have raised with the new system.   I’m not an expert on the system, and I haven’t read all the arguments in detail.  The fact is, the original feedback system did not gather any structured data about the end-to-end service offered by eBay sellers, and this system is definitely a first step in attempting to gather that data.  For a company that wants to focus on a great buyer experience, this is absolutely necessary.

Instead, I want to comment on the article, largely because of its conclusion:

A study of eBay’s top sellers reveals they rank poorly in terms of the detailed ratings left anonymously by their customers, with most falling in the bottom 25 percent of all sellers for such ratings.

… It’s troublesome to see that eBay’s top sellers perform poorly with DSRs, and AuctionBytes believes the data indicates eBay needs to reevaluate the new rating system and reconsider its decision to use DSRs to punish and disadvantage sellers. It should also provide much more information about the results – on an ongoing basis – so sellers have a better understanding of how the new system is affecting purchasing decisions and sales.

(BTW The article looks at the Top 500 sellers, according to Nortica.)

Fundamentally, I agree with this line:

It’s troublesome to see that eBay’s top sellers perform poorly with DSRs

But I disagree with the resulting conclusion:

AuctionBytes believes the data indicates eBay needs to reevaluate the new rating system.

In response to this, let me ask the following question:

What if the top sellers on eBay, as measured by feedback score and/or sales volume, actually are not offering the best customer experience to buyers?

Too often at eBay, I would see these two things confused together.  There was an assumption that the top sellers, always measured by GMV (gross merchandise volume) or Feedback score got that way by being the best for the end customer, the buyers.  However, in order to believe this, you have to believe that you can only build GMV and Feedback with a great customer experience.  What if that’s not true?

What if the DSRs are telling us that eBay’s “top sellers” are actually offering buyers a below average customer experience?

Well, I’m a just an eBay seller now myself.  I don’t do huge volume, but I have almost 800 feedback, and I flirt constantly with being a bronze PowerSeller.  I have an eBay Store, and I use eBay’s Selling Manager.

My DSRs to date are (based on 81 sales with ratings):

• Item as described: 4.9
• Communication: 4.9
• Shipping time: 4.9
• Shipping and handling charges: 4.7

So it looks like I’m in the Top 25% of buyer experience on these ratings (well, above median for S&H).

What if these DSR’s are saying that buyers have a better experience buying from me than when they buy from one of the eBay Top 500 sellers?

Since that post continues to be one of the favorites on this blog, I decided to add the content there as an update.  But since many people only consume the new articles via RSS, I’m putting this post up here as a quick link to the update.

Enjoy.

Here’s what happened. Yesterday, Citigroup analyst Prashant Bhatia wrote an extremely negative report on E*Trade based on their announcement of exposure to mortgage securities where he put the likelihood of bankruptcy at 15%. How he calculated this, I don’t know. Maybe he estimated their exposure and risk curve for their portfolio, and then he ran monte carlo simulations of possible futures. More likely, he squinted his eyes, held up his thumb, and said “1 in 7″.

More coverage here in Business Week.

In any case, I’ve had a few people email me today about whether or not their money is safe at E*Trade.

Here is what I know:

1) If you have bank accounts, they are FDIC insured up to $100,000. So if E*Trade folded tomorrow, you’d be able to open up a new account elsewhere, and the FDIC would wire money in (up to $100,000) within a matter of days.

2) The brokerage accounts are protected by SIPC up to $500,000. Not sure how the re-imbursement works, but I’m guessing it’s something like an insurance claim.

3) The brokerage accounts are protected by a separate insurance policy for up to $150M per brokerage account.

None of these scenarios are likely – other brokerages & banks would be completely moronic to not buy E*Trade or it’s accounts for customer acquisition. E*Trade’s brokerage and bank business is doing quite well at this point.

In fact, here is an article suggesting that this might be a great buying opportunity for the stock.

So, unless you have more than $500K in securities at E*Trade and $100K in bank deposits at E*Trade, you are fine.

Update (11/13/2007): Wow. While E*Trade stock is now up almost $1.00 per share right now on Wall Street, I must not be the only one getting email on this issue. Look at what greeted me when I logged into E*Trade today:

Update (11/14/2007):  The following letter was updated on E*Trade today, which details the complete protection of brokerage accounts up to $150M.

To All E*TRADE Customers:

The old adage “there is no such thing as bad publicity” does not apply to E*TRADE FINANCIAL this week. Seemingly by the stroke of a pen… or a few clicks from a keyboard… a Company with a core business that has generated impressive growth quarter after quarter has been bombarded by rumored reports of its imminent demise.

Well, we want customers to know that the entire E*TRADE team has come together with resolve and commitment, taking appropriate and decisive action to manage through this issue and to ensure that E*TRADE FINANCIAL continues to deliver the best value in the marketplace for our customers.

I have spoken with scores of customers over the past week. Many of you have openly expressed your confidence in E*TRADE. It is genuinely gratifying to know that our retail customers—the heart of our business—understand the value in our model and the strength of the franchise.

Many of you have also asked me about asset protection, so to be clear—your money is safe at E*TRADE FINANCIAL. Here are the facts:

• FDIC insures all E*TRADE Bank accounts to at least $100,000 and Extended Insurance Sweep Deposit Accounts to $500,000.
• SIPC protects E*TRADE Securities customers up to $500,000 (including $100,000 for claims for cash).
• Additional E*TRADE Securities protection provides up to $150 million per brokerage account, underwritten by London insurers (aggregate $600 million).
• E*TRADE is well-capitalized by regulatory standards.

E*TRADE was founded on the concept of empowering the individual investor. This value is still at the heart of our business. We look forward to continuing to provide you with the products, pricing, service and functionality you have come to expect in order to help you manage your financial world.

We haven’t lost focus on our customers, our business or our future. The credit crunch has had a tremendous impact, but we are taking appropriate and decisive action to manage through it.

Thank you for your continued business,

—Jarrett Lilien
President, COO and Director, E*TRADE FINANCIAL

Here is the AuctionBytes article:

eBay Moves to Longer Lasting BIN Auctions

Actually, eBay began testing this back in July, but just recently expanded it to quite a few more categories.  Here is the original note from Sohil Gilani, the Product Manager who has spent a lot of time over the past two years studying and implementing this change:

Hi everyone, I’m Sohil Gilani with our Buyer Experience team. Over the years, we’ve routinely been asked why the Buy It Now option disappears from a listing when the first bid is placed. Our reason has been concern that it would create a confusing experience for a buyer, who could place a bid on an item, but then have someone Buy It Now (BIN) out from under them before the end of the auction. That said, we’ve done some extensive research that suggests keeping the BIN option available on a listing longer will increase the chance that a buyer wins the item and that it will close at a higher price for the seller. As a result, we’re looking at ways to change how BIN works that balance both buyer and seller needs.

In case it isn’t clear, let me explain the problem:

Ever since eBay launched the ability to add a “Buy It Now” button to an auction, it has disappeared as soon as anyone placed a bid.  So, for example, if you were auctioning a cell phone with a starting bid of $0.99 and a Buy-It-Now price of $99.99, a single bid of $1.00 would make the Buy-It-Now price disappear.

The idea is that a buyer has the chance to “snap up” the item for a fixed price set by the seller, or place a bid to try to win it at auction.  Usually, the motivation to place a bid is the belief that the bidder will get it for a lower price.

The problem is, once the Buy It Now button disappears, every future potential buyer is deprived of two things:

1. The ability to immediately buy the item, without waiting for the auction to end
2. The ability to see what the seller thought a fair “fixed price” was for the item

Many people, for a very long time, have asked why eBay makes the BIN button disappear after one bid.   Usually, they focus on issue (1).  After all, the need to wait for an auction to end is a major disincentive for a potential buyer.  eBay is likely losing quite a few buyers to the fact that useful BIN buttons are disappearing.  Sellers are also losing the ability to close a sale quickly, for a fair price that they have assigned.  Even worse, sellers actually pay eBay a fee to place that BIN button there in the first place.

The problem lies with issue (2).  As a former employee, I can’t reveal the actual number, but you would be shocked at how many auctions actually close at a price higher  than the original Buy It Now price.  This happens for a couple reasons.  First, sellers may not be very efficient at setting their own fixed prices – auctions are likely much better at fairly pricing the item.  Second, the original bidder who “knocks out” the BIN button is not likely the one who bids above that price.  Every future bidder has now lost that information, and as a result, is free to bid whatever they think is fair.  Apparently, in a large minority of cases, bidders end up with a price that is higher than the seller expected.

So, eBay has a dilemma:

• If they keep the disappearing BIN button, they are likely losing sales AND velocity (the time it takes to close a sale).  They are also encouraging sellers to use a higher starting price (to avoid losing the BIN quickly), use reserve prices (to keep the BIN), or to not use BIN at all (which is a fee-generating feature) – all bad things that hurt the likelihood of a sale.
• If they make the BIN sticky, aka “Persistent BIN”, they might actually decapitate the final selling price on millions of auctions.  That would hurt both eBay sellers and eBay itself, since both make money based on the final sales price.

The solution that eBay is testing finally allows eBay to gain some empirical data in real situations on how to best control the way the BIN price disappears.

• Do you let the BIN button stay until a fixed dollar amount?
• Do you let the BIN button stay until a fixed percentage of the final price?
• Are the results different in different categories?  For different starting prices?

Well, all I can tell you is that, as an eBay seller, I was tickled pink to see this on my latest cell phone auction this week:

As you can see, I start all my auctions with a starting price of $0.99.  Normally, I lose that BIN button very quickly.  But in this case, the BIN button stayed, even after a bid of $0.99.  In fact, the button stayed until the bidding reached $50.00, giving buyers ample opportunity to buy my phone for fixed price.  The difference?  Literally 6 days of BIN button goodness were added, since my auction didn’t clear that price until the 7th day.

(Wow, that sounds like a biblical reference.  It was evening and it was morning, and the BIN button worked for 6 days and 6 nights, but on the 7th day, the BIN button rested…”)

Anyway, I’m glad to see eBay continuing to push its understanding of one of its most popular formats.  And a big congratulations to Sohil for seeing this effort through to live-to-site.  Count me as a big fan.

BTW If you are wondering why I bother buying the BIN feature on my auctions, even though it disappears so quickly, it’s a fair question.  In my selling experience, adding the BIN button not only increases the chances of my auction selling quickly, I also tend to set it for a higher-than-average price based on my research.  The way I see it, a buyer who wants it right now tends to be willing to pay a bit more for the privilege.  If not, they can always bid.

https://store.linkedin.com

One of the best parts of working at a startup is that you get to participate in all sorts of company activities.  In this case, all of the “models” in the store are actual LinkedIn employees.

For example, you may recognize the guy talking here on the LinkedIn fleece vest page:

If you hover over the “Adam Nash” link on the real website, it says “Props to our Product team”. 

I guess with the new store, our CEO may have to modify his explanation of our business.  Technically now we have four revenue streams.

Order your LinkedIn merchandise today!

I don’t usually post or forward urban legends or humor emails I receive. Truth be told, I don’t get many of these any more – it’s as if the world went through 10 years of forwarding silly email as they got used to the medium, and that silliness has past.

I thought this email was fake, but I did this Google search, and I was able to verify that this was, truly, a legitimate Craigslist posting recently, and a legitimate response. So enjoy… it has exactly the right mix of humor, social commentary, and financial reference for my tast.

Here is the original Craigslist posting:

What am I doing wrong?

Okay, I’m tired of beating around the bush. I’m a beautiful
(spectacularly beautiful) 25 year old girl. I’m articulate and classy.
I’m not from New York. I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 – 250. But that’s where I seem to hit a roadblock. 250,000 won’t get me to central park west. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and she’s not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level?

Here are my questions specifically:

- Where do you single rich men hang out? Give me specifics- bars, restaurants, gyms

-What are you looking for in a mate? Be honest guys, you won’t hurt my feelings

-Is there an age range I should be targeting (I’m 25)?

- Why are some of the women living lavish lifestyles on the upper east side so plain? I’ve seen really ‘plain jane’ boring types who have nothing to offer married to incredibly wealthy guys. I’ve seen drop dead gorgeous girls in singles bars in the east village. What’s the story there?

- Jobs I should look out for? Everyone knows – lawyer, investment
banker, doctor. How much do those guys really make? And where do they hang out? Where do the hedge fund guys hang out?

- How you decide marriage vs. just a girlfriend? I am looking for
MARRIAGE ONLY

Please hold your insults – I’m putting myself out there in an honest
way. Most beautiful women are superficial; at least I’m being up front about it. I wouldn’t be searching for these kind of guys if I wasn’t able to match them – in looks, culture, sophistication, and keeping a nice home and hearth.

it’s NOT ok to contact this poster with services or other commercial interests
PostingID: 432279810

Alright. Funny, right? Sick? Disgusting? Ridiculous? Hilarious? New York? Yes. Yes. Yes. Yes. Yes.

This post received a number of responses. However, this one is worth reading.

THE ANSWER
Dear Pers-431649184:

I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament.

Firstly, I’m not wasting your time, I qualify as a guy who fits your
bill; that is I make more than $500K per year. That said here’s how I see it.

Your offer, from the prospective of a guy like me, is plain and simple a crappy business deal. Here’s why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here’s the rub, your looks will fade and my money will likely continue into perpetuity…in fact, it is very likely that my income increases but it is an absolute certainty that you won’t be getting any more beautiful!

So, in economic terms you are a depreciating asset and I am an earning asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you’re 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!

So in Wall Street terms, we would call you a trading position, not a buy and hold…hence the rub…marriage. It doesn’t make good business sense to “buy you” (which is what you’re asking) so I’d rather lease. In case you think I’m being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It’s as simple as that. So a deal that makes sense is dating, not marriage.

Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as “articulate, classy and spectacularly beautiful” as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn’t found you, if not only for a tryout.

By the way, you could always find a way to make your own money and then we wouldn’t need to have this difficult conversation.

With all that said, I must say you’re going about it the right way. Classic “pump and dump.”

I hope this is helpful, and if you want to enter into some sort of lease, let me know.

New York is a magical place.

Update (12/1/2007): I’ve been meaning to post this for a while. It turns out that this woman ignored the obvious right thing to do, and decided to respond. Her use of technical financial terms is bizarre and incorrect, but I’m guessing she was paraphrasing with some help from friends who had more knowledge about high end finance. In any case, I’ll let you judge for yourself.

From the “Best of Craigslist”, the post titled “To the gentleman who called me a depreciating asset“

To the gentleman who called me a depreciating asset
Date: 2007-10-11, 8:23AM EDT

Dear Sir,

I must confess that I was somewhat taken aback upon reading your email. Indeed, it has taken some time for me to sufficiently recuperate from my surprise. Lest your confidence quickly inflate for little reason (as we know is the predisposition for Wall St. types), allow me to hasten to reassure you that the source of my surprise was neither your candor nor the accuracy of your perception. Indeed, it is your “claimed” success in light of your poor grasp of economics which has me baffled. If the standards required to meet with financial success on Wall St. have sunk so low, perhaps I should indeed “make my own money”, except for the fact that the effort/reward ratio is far too high for my liking – especially when so many of your ilk have displayed a far more cogent grasp of market realities than you have.

By now you are likely scratching your ever-vanishing hairline in confusion, so allow me to elaborate, dear man. To build some credibility I will tell you a bit more about yourself. Though you did not mention the details of your occupation, it is clear that you are an investment banker and not a trader, as any good trader would understand that human courtships are based upon a semi-efficient open market, and not an investment banking cartel. However, your inability to grasp the realities of the dating market is not surprising, given that you have successfully employed the tools of collusion and market manipulation rather that true acumen in your supposed wealth generation.

If your grasp of finance were not a minority partner with your ego, you would realize that the “outflows” associated with my depreciating “assets” are quite certain, and therefore subject to a low discount rate when determining their present value. In addition, though your concept of economics evidentially failed to move past the 1950s, advancement in plastic surgery is not subject to the same limitation. Thus, with some additional capital expenditure, the overall lifetime of “outflows” generated by these assets is greatly increased. Sad that Ashton Kutcher has demonstrated understanding of the female asset class which you, in all of your financial “wisdom”, have not.

You, on the other hand, are, given the uncertainty of the Wall St. job market, more of an inflation-indexed junk bond with an underwater nested call option. Though you may argue that you are more of an equity investment, my monetary minimums required from you do not change, and if you are unable to pay them, I will liquidate you without the benefit of a chapter 11, just as you would me.

Because your outflows are so much more uncertain with respect to mine, I require additional compensation in the form of a underwater nested call option on your future assets. I say underwater because, even taking into account the value of your junk bond coupon payment to me, the value of my “outflow” is in excess of the market price of your equity (which is quite low due to its riskiness associated with your poor grasp of finance and my existing claim upon your junk bond coupon).

I must thank you though for raising the question, despite the reputation cost of subjecting your weak logic to such widespread scrutiny. This took either considerable courage or ignorance on your part- and we’ll give you the benefit of doubt, just this once. My current boyfriend (a trader who lives in Central Park West, of course) and I thoroughly enjoyed discussing your response and we wish you the best of luck in your unhappy pursuit of that elusive market inefficiency.

Since it’s on best of craigslist, once again, I have to assume it’s legit. Ah, New York.

eBay Countdown Widget (Beta)

I will self-admit, I’m more of a fixed-price buyer than an auction bidder, although I’ve done plenty of both on eBay.  But I like the idea of a smack-talking, action-packed, avatar-enabled feel to an online auction.  Captures some of the intensity and fun of a live auction, with the extra high tech coolness of a web-based widget.

We’ll see what people think, but I’m glad this idea came to life.  Special thanks for making it work on Firefox on the Mac!  Hats off to the Buyer Experience team, who I know have been cooking up ideas like this for the better part of a year.

It has been a while since my last eBay-related post, but this article crossed my news feed a few days ago, and I had to comment:

AuctionBytes: Shopping.com Merchants Can Opt to Post on eBay Express

Time moves fairly quickly on the web, and at this point, the last of the strategic features from our 2007 plan for eBay Express are rolling out to the site. It’s exciting to see Lara & the team bring them to life after months & months of planning & effort.

The AuctionBytes article is fairly understated, but I think it’s worth highlighting a bit of what is now possible on eBay Express:

1. For the first time, buyers have one site where they can search & purchase, in one seamless experience, items from eBay.com, eBay Stores, Half.com, and Shopping.com. This is with 24×7 customer service, PayPal-based checkout, and 100% buyer protection.
2. Robust Merchandising Platform. eBay Express is now delivering targeted, customizable, and in many cases, product-based merchandising through email and the site. It began with the new “Add to Cart” page that launched a few months ago, and has now been extended across the site and to regular emails to recurring buyers. More importantly, it’s a flexible platform that allows for experimentation and optimization based on the actual results the team sees from different merchandising techniques and different types of placements.

Hopefully, the eBay Express experience will deliver these in such a way that they will feel seamless and obvious to buyers. The goal is to never reveal the complexity of integrating three completely separate platforms for fixed-price items to buyers.

One last thing that is wonderful to see is the amount of experimentation that is going on with the site, as the team works to relentlessly improve buyer engagement and purchasing rates. Many people might not notice the improvements to the results set, the navigation controls on finding pages, the shopping cart presentation, eBay.com integration, and the catalog-based experience in the media categories, but I see them now live-to-site, and I know that each and every one of those small feature improvements makes the experience measurably better.

So congratulations again to the team on these feature launches. I think I may make a couple extra purchases today on the site just to celebrate.

Marc Andreessen’s Ning raises $44M – Social Network on a Freemium business model

Wow. $44M is a lot of money, and a $214M post-money is a lot for a company at the stage Ning is at financially. Not sure what the end game would be to justify it, unless they either see a multi-billion dollar company on the horizon of 3-5 years, or a quick flip for $500-750M in 2008.

This is one of the areas of Web 2.0, however, that eBay should be a part of. eBay, after all, was built on community. Not just one community, but thousands – coin collectors, auto parts dealers, book sellers.

When I look at Ning, I see a product that eBay should have built – a single profile for a user (much more Web 2.0 savvy and current than the current eBay My World product), and the ability for users to create and join as many groups as they want, with full social networking features. Rather than Google Adwords, the free groups could easily be featuring actually product & item recommendations. The natural search indexing benefits of the groups would be excellent. eBay could build features to help members share searches, classify products, highlight Stores, and make vibrant mini-communities on the eBay/Ning platform.

A couple of years ago, eBay tried to update it’s incredibly dated eBay Forums with the new eBay Groups product. But compare that effort to Ning, and I think you’ll see why I believe that eBay should be courting the Ning team actively. Ironically, the eBay Alumni network is on Ning already.

If the price is too high now, maybe there is a way for eBay to just do a deal to bring Ning functionality to its members, and merge the Ning profile with My World.

Try it out for yourself, and I think you’ll see. The combination of the eBay member base and the functionality of Ning could easily 10x the number of social networks on Ning, and bring the number of users into the tens of millions. The eBay community has always wanted to form social networks… they’ve just lacked modern tools to do so.  eBay & Ning could reach a scale together on a time table that wouldn’t be possible independently.

Please note: In the interest of full disclosure, I do have some good friends at Ning. And I do have some good friends at eBay. So, while I’m not a truly disinterested party, I have no financial stake in Ning. I am a current shareholder of eBay.

When I was growing up, I used to always hear about the patents filed by my grandfather (in the food business).  They were always a symbol of success, intelligence and pride in my family.

What patent is this, you might ask?  Well, with great thanks to Google for their new, searchable patent database, I have now for the first time had a chance to read it for myself.   It is patent #3108882, dated January 29, 1963, and is titled “Method of Preparing an Edible Fish Product“.  To translate from the legalese: it is the method of preparing & packing gefilte fish in glass jars with jelly.  Yes, you now know where that came from.

I know there are significant problems with the patent system as it stands today, particularly around software.  However, I can’t help feeling proud of the patents that I worked on at eBay, and grateful for their support shepherding them through the legal hurdles.

Patent applications only display on the US Patent Office website 18 months after the application is filed, so right now only two of the applications are showing up.  The rest will likely become visible over the next year or so.

Here is the link to my patent applications on the USPTO website.    Note the most recent one to show up, for “seller and item filters”, the backbone of the eBay Express website.

Click here to go to the site, now live in over 200 cities across the country.

It has been interesting to read the reactions and articles on the launch. It seems like the consensus is that while this is a smart move for eBay, as the online classifieds business continues to grow in potential, most people feel like Craigslist has nothing to fear.

Henry Blodget wrote on his blog the following:

Second, Craigslist is run by socialists who appear to have no interest in turning it into a real business. This means Craigslist is likely to be free or near-free in perpetuity. And this, in turn, means that if eBay ever tries to make Kijiji US a real business, the few buyers and sellers who ARE using Kijiji will probably laugh all the way to Craigslist.

Sorry, Henry. Kijiji has been quite successful for eBay outside the US, and that is without ever charging fees for listings except in very specific categories. (Craigslist, for example, does charge to post job listings).

What eBay does have on its hands is a platform that was designed to easily scale, to roll out new categories and cities across the world almost effortlessly, and one that was designed to be profitable. They have iterated on the model in global markets where classifieds are far more competitive with e-commerce than in the US, and they are now bringing those lessons to the US.

The eBay position described here, in this article, sounds about right:

Kijiji, a site eBay has operated overseas for two years, is now available in about 220 cities across the United States, spokesman Hani Durzy, said Tuesday.

“We’re targeting young people and young families looking for bargains locally,” Durzy said. “For now it’s a free service and our focus is on building the user experience…”

“I think Craigslist has been an incredible success but we think there is market for more players,” Durzy said.

Don Dodge seems to think that Craigslist has a secret-sauce, built around not running Classifieds like a business. It’s possible, but it’s also possible that Craig Newmark is quite happy running effectively a large lifestyle business, where he has a lot of influence, plenty of income, and complete control over his dominion.

eBay has challenges here, no doubt. There are network effects around the classifieds business, to be sure. It’s not like Kijiji in the Bay Area is going to be able to displace Craigslist.

However, where some people see strength in Craig Newmark’s resistance to profit-motive, I see a potential weakness.

Theoretically, eBay will push to innovate on the revenue model for classifieds more aggressively than Craigslist. Google innovated on their natural search business, and gave birth to a multi-billion dollar industry. It’s possible that the craigslist team is missing out on significant opportunity, largely because they aren’t interested in anything more than slight profitability.

It’s also likely that eBay will reinvest those dollars into continued enhancement of the Kijiji experience and business. For example, Kijiji will likely launch in far more cities than Craigslist. Since the network effects are local, Kijiji in a new city should have an outstanding chance at blocking others from expanding. eBay will likely also have more dollars to invest into real problems like Trust & Safety around classified ads.

Craiglist has been a phenomenal success, largely because it creates amazing value for its users. One weekend, as an experiment, I posted a Craiglist ad for two oak dressers and a table on Saturday night. I asked for $400, and that the buyers pick up the furniture no later than Sunday night.

By Sunday at 5pm, I had $400 cash in my wallet, and 3 buyers had come to pick up the furniture and take it away. Amazing.

The online classifieds business is for real, and despite the natural worries about cannibalization, it’s good to see eBay moving on this opportunity.

I guess I’m playing devil’s advocate here by saying that Kijiji could be a real business for eBay in the US, and more importantly, it could be real competition for Craigslist if they aren’t on their game.  Of course, this will only work for eBay if they aggressively invest their profits from the business back into the business, to keep pushing the bar higher for the online classifieds experience.

Quote:

In this map from Randall Munroe of XKCD.com, social networks and other online communities are represented by kingdoms. Myspace dominates this mythical world, the internet giants such as Yahoo and Microsoft are relegated to the “frozen north”, and blogs appear as a scattered archipelago. Now, all we need is this skin on a version of Risk, the global domination game, in which players can fling armies of users against their bitter rivals.

Of course, I can’t seem to find my favorite online communities, eBay & LinkedIn anywhere on this map. But still fun. I particularly like the Sea of Memes.

“Let a thousand flowers bloom,” I guess… (one of the most misunderstood quotations used around innovation, by the way.  Check out the source!)

In any case, I received my regular TidBITS digest email today, and it featured web-backup services for the Mac.  What was interesting was that the article featured primarily applications that use Amazon S3 as their backbone!  At $0.15 per GB, and $0.20 per GB/transfer, Amazon is a fairly cheap way to backup & store large libraries, like music & photos.

Several small software shops have built applications to help users do just that…

Here is the original TidBITS article.  The applications covered include:

• Jungle Disk.   This application is the most polished of the bunch.  It does not handle incremental backups, yet, but it does support scheduled backups.  It will cost $20 when it reaches 1.0, but it’s free right now in beta.  Jungle Disk is available for Mac OS X, Windows & Linux.
• S3 Backup.  This application, by Maluke, offers different named backups, as well as the ability to exclude files based on pattern matching.  However, it doesn’t offer scheduling or incremental backups, yet.  Still in beta.
• Bandwagon.  This application is tailored for music lovers who want to backup and maintain a large music library online, to be available to multiple machines or for safe keeping.  Very interesting because it offers menu-bar controls, and support for multiple “storage clouds”, including Amazon S3.

I remember a few years ago looking into online backup solutions, and being totally disillusioned with the low storage volumes and costs offered.  I have about 300GB of content to backup, with daily increments that vary from 10MB all the way up to 2-3GB on days I upload a new set of photos from my camera.

These solutions aren’t there yet, but they are closer.  And the pricing is closer too.

Anyone out there actually try one of these?  Or are you using Amazon S3 for anything else interesting?

First, I am still a Quicken addict. It has been thirteen years, I think, since I started using Quicken in earnest to track my finances, and I’m still at it. Despite absolutely terrible releases of the software, and lackluster Mac support, it’s still one of my must-have applications.

Second, I am a big fan of Prosper.com. I found Prosper when it was CircleOne, through some friends from eBay who left and joined the company. As a result, I’m a founding group leader (though not a very successful one), and a shareholder.

So, with those confessions out of the way, on to the good stuff.

If you don’t know what Prosper is, it’s basically a marketplace where you can easily borrow money or lend money to other people. Consumer debt is very expensive, so it’s potentially a way for individuals to get cheaper rates borrowing, and for lenders to make higher rates than normal saving options. Here is a Q&A on Prosper from Money Magazine. Here is a write-up in Forbes of some strategy when dealing with Prosper.

If this sounds crazy to you, here are some of the rates you can earn on Prosper. Note that even for the highest risk borrowers, right now the default rate is around 3%. 24% – 3% is a very good return, but only if you spread your money around with a lot of very small loans.

For the past year, I’ve been struggling with an appropriate strategy to track Prosper Loans in Quicken. I found some information through web searches that seemed appropriate for the Windows version of Quicken, but didn’t work for me on the Mac. The idea was to create an Asset account, which is the loan, and then to set up a loan paid from the asset back to the Prosper account. I couldn’t figure out how to do it.

Since I had trouble finding a solution for this online, I thought I’d post my solution here. Feel free to comment if you’ve found a better way to track Prosper loans in Quicken.

Step 1: Create a Security for each Prosper Loan. I name them after the unique Prosper Loan number, like “Prosper Loan 335″

Step 2: Create a Brokerage account for your Prosper account. Transfer the money from your checking account to this account when you move money to Prosper.

Step 3: When you make a loan for a certain amount, let’s say $100, then purchase the shares of the Prosper Loan security, at $1 per share. So, in this example, you would purchase 100 shares of “Prosper Loan 335″

Step 4: Whenever you want to update the account, use the following 3 transactions. Use a “Sell Shares” transaction to represent the principal re-payment. Use a “Interest Income” transaction to represent the receipt of the interest payment. Lastly, use a “Miscellaneous” transaction to record the Prosper fees charged.

This is likely too much work to do monthly, although you need to if you want Quicken’s IRR calculations to be accurate. Personally, I’ve decided just to update the account once every 3-6 months, which is sufficient for my needs.

Let me know what you think… if this helps even one Quicken addict out there, it will have been worth it.

Update (4/9/2007): This is why I love blogging. AMF posted my blog comment on a Prosper Board, and now there are good comments there too. Check it out!

Update (4/10/2007): RateLadder.com has their own solution… not as accurate as the one above, but worth linking to. I agree with them that it would be better for Prosper to offer a Quicken-compatible download format.

Update (4/10/2007): Are you interested in joining Prosper.com? If so, please join my group. I originally started it for my investment club, but I’m changing it to be an open group for friends & family. I feel a little lame right now because I only have 3 members in my group, and I am a founding group leader.

Update (4/10/2007): Rateladder.com has merged their approach with mine in a hybrid approach that tracks you entire Prosper portfolio as a single security. Only 3 entries per month! The only downside is you can’t track the performance of each loan this way. Check it out here.

Update (4/11/2007): OK, last update. But Rateladder.com has followed up with a finally post on the topic. Between the two of us, I think we’ve provided the best way to handle this until we convince Prosper to provide downloadable transactions.

Please check out this summary write-up on the O’Reilly site on the philosophy and theories of Amy Jo Kim, PhD, based on her discussion of Game Mechanics and Online Communities at ETech.

Kim discussed five key mechanics of game design, why they are important and powerful, and examined examples of how they can be used in other settings. The five game mechanics discussed were collecting things, earning points, providing feedback, exchanges, and customization.

Many of these mechanics speak to very primal response patterns inside the human psyche, which is why they can be so powerful. Another key point is that games are designed to be fun and engaging, and whenever you can make any system or appliation more fun you’ll likely improve the user experience and get them using the system more regularly and for longer times.

I can’t tell you how closely Kim’s assessment of how to build compelling engagement matches my own. In fact, some of her assessment of the mix of understanding of video games, behavioral finance, and online behavior vaguely mirrors my own concept and theme for this blog.

I’ve long believed that people have underestimated video games as a new medium not only for entertainment, but for engagement. Video games have often been on the forefront of experimental and exploratory attempts at bridging the gaps between new technology and human interaction. Audio, Color, 3D, economics, story telling… video games have managed to incorporate these elements in the human/technology interaction long before any other classes of technology products have.

Kim lines up five types of game mechanics in her talk that she directly traces to the success of online communities like MySpace:

• Collecting
• Points
• Feedback
• Exchanges
• Customization

It’s worth the full read here. Sounds like eBay, doesn’t it?

I’ve read some great material from Susan Wu at Charles River Ventures, and Wil Wright, creator of The Sims and Spore. But Kim’s overview is squarely aggregates quite a few of the insights I’ve been working to rationalize over the years.

I’ve got to look into this more deeply, as this captures so many of the threads in human computer interaction that I’ve personally been most interested in since my days in computer science at Stanford.

Update (4/5/2007):  Amy Jo Kim has a blog… why not go direct to the source?

Mitch was the original found of Lotus, and has been a significant figure in the software industry for the past 20+ years.  He also happened to be one of the venture capitalists who backed my friends at Reactivity.

Here is how Matt described Mitch’s comments:

Mitch’s presentation was one of my favorite of the day, and one of the thing he emphasized was that you should hire for diversity because diverse groups of people innovate more. Diversity here is defined as a function of experience, background, family status, as well as the traditional definitions like gender, et al. He says that one of the most common mistakes entrepreneurship makes is building “mirrortocracies” instead of meritocracies, meaning they tend to hire people like themselves rather than hiring the best people regardless of backgrounds, and the company suffers as a result.

Mark Zuckerberg is the 22-year old founder of Facebook.com, the private social-networking site that is the ultimate destination for every college student (including my sister, a senior at UC Berkeley). Here’s what Mark had to say:

Almost on cue, Mark started out by saying that the two most important things for a company is to have people who are “young and technical,” and his explanation of such was actually the entirety of his prepared remarks. (He arrived shortly before his presentation, so AFAIK hadn’t heard any of Mitch’s.) He made some fair arguments for biasing toward a technically inclined workforce, even in roles like marketing and support, however he didn’t really say anything compelling in support of youth, besides some vague references to many great creators and chessmasters being between 20 and 35 years old. But in no uncertain terms, he said they have a bias toward hiring young people at Facebook.

Sorry to be snarky, but is it really surprising that a 22-year old founder of a company valued at over $1 Billion dollars thinks that people in their 20s are the best?

Truth be told, when it comes to technical prowess, Mark has a point. Young, fresh engineers don’t have a lot of legacy baggage. They are immediately up on the latest trends in the market and in technology. They are pampered in University environments with endless computing power and bandwidth, and that lets them think freely about interesting services that might make sense once the rest of the market has those things. Math & science are also playgrounds for young, flexible minds, and it is true that most great mathematicians and physicists break out in the 20s.

That being said, those strengths are also weaknesses. Young engineers are usually tragically poor at estimating the resources and complexity of engineering effort. They can be excellent individuals, but work poorly on projects that require scale and teamwork. They also, being free from baggage, can lack perspective when the project and/or the company hit inevitable challenges.  They can also be surprised when the market moves more slowly than they expect, because they naturally tend to be several steps ahead in technology adoption than the mass market.

When I was in engineering, I was a big believer in mixed-age teams. One or two solid, senior members of the team to anchor it – add perspective, balance, and mentorship. Surround them with a ratio of around 5:1 really young, super-smart engineers who have the energy and passion to work the long hours and who lack the background to know some things aren’t possible.

Valleywag has a better quote from Zuckerberg on the subject.  My guess is that he’s getting a lot of flack for being 22 & successful.  The truth is, reading the quote, he has a good point, but he’s not really presenting it in a well-polished way.

Don’t worry, Mark.  That’ll come in time.

At least, they are on Dogster. Some days, I feel like all I am doing is accepting “Pup Pal” requests from other dogs, mostly beagles, for my giant beagles. I say giant because although they are papered 13″ Beagles, they have somehow ended up on the large side. Well, if you consider 17″ and 50+ pounds large.

I had read that Dogster had become a fairly popular site, with good revenue from ads. But I had no idea how many people find it entertaining to “connect” their puppy with other dogs.

In any case, if you have dogs, and you want to connect with Newton & Darwin, here is your chance.