There’s a short piece on eBay over at the Wall Street Journal that’s hugely instructive about strategy and technology in a non-technology company. So many lessons in such a small space…

1. Adequate technology hobbles the business;
2. A strong technological backbone opens up new opportunities;
3. Technological short-termism is really costly;
4. The business strategy needs to include the CTO;
5. All this is especially true of non-technology companies.

Setting the scene

Here’s how the WSJ kicks off the story:

As eBay Inc. prepares for a critical holiday shopping season, the company this week plans to unveil new elements of an overhaul in how shoppers find and buy products on its Web site.

Behind the new look, which includes eBay’s first major home-page redesign in nearly four years, is an urgent effort to close a technology gap that has caused the onetime Web pioneer to lag behind rivals like Amazon.com Inc. Amazon for years has had many of the same features that eBay is adding.

Not only is eBay playing catch-up, this kind of work is incredibly disruptive internally:

To change a website’s underlying technology is “one of the most difficult and dreaded things you can do” as an information-technology manager, says Rob Enderle, of tech consulting firm Enderle Group. […] “It’s like having the jet engines changed while the plane is flying,” [eBay technology chief Mark] Carges says.

They’re dealing with it, but still, it’s not a great position to be in. What can we learn from this…?

Lesson 1: Adequate technology hobbles the business

It’s not as if eBay’s technology is poor. After all, how many people can claim to have a system which handles  “hundreds of millions of users worldwide, over two billion page views a day, and petabytes of data”? Yet while it might have done the job, it clearly didn’t do anything more than that:

EBay’s system, which involved 25 million lines of inflexible code, soon became a liability. The company, for example, couldn’t figure out which of its hundreds of thousands of “iPod” listings were for a given model or for iPod accessories.

The original system was developed only with a the immediate business goal in mind, and each time a feature is implemented with only a short-term view it shuts another small door on a potential new development. Eventually you end up with an inflexible system and the only way to explore a new direction is a with a big, disruptive project.

The system has been continually developed, of course. It has grown to handle a huge userbase and it’s had many enhancements added along the way. But fundamentally it’s always has been developed to do the original job and little more. And as result all eBay, the business, could do was… more of the same.

Lesson 2: A strong technological backbone opens up new opportunities

While merely-adequate systems narrowed the company’s future, could it really have been any different? You can already find products on eBay, so why is it “building a product catalog for the millions of products sold on eBay”? What’s the big difference between finding an iPod in an auction, and finding all iPods of that model? Well, while eBay was focused on bringing each buyer to an individual seller

retailers like Amazon focused on new, fixed-price merchandise, relying on organized catalogs that let the online retailer keep track of what it was selling. That created the ability to cross-sell products and recommend other merchandise.

The big opportunity lost is the ability to cross-sell. If you can’t aggregate similar iPod models a whole avenue of customer insight is lost to you.

What’s interesting to me about this is that the business opportunity arises from strong information architecture within the product database, and pretty much no-one in the company other than a technologist is going to give more than two seconds thought to that kind of thing. Enabling the technologists to think beyond the immediate, and allowing them to build on this, might have meant eBay’s problem would have been avoided.

Lesson 3: Technological short-termism is really costly

Correcting this is more than a big project for eBay:

[CTO Mark Carges] ended up hiring 150 engineers. Mr. Carges also had eBay purchase Positronic Inc., which has built predictive models for financial-services clients.

I’d say that was pretty expensive.

Lesson 4: The business strategy needs to include the CTO

We can be pretty sure the senior team at eBay didn’t just wake up one morning and notice Amazon was leaping ahead of them. They’ll have worried about that for a very long time — Amazon have been cross-selling imaginatively since they started. So why weren’t eBay making these changes years ago…?

The effort has had to overcome cultural stumbling blocks. For years, tech staff didn’t attend key strategy meetings, including those in which eBay decided to emphasize fixed-priced goods.

Mr. Carges, the technology chief, is now a key voice within the company and encourages engineers to take the initiative in testing new ideas and adding features.

A strategy defined, which couldn’t be fully executed because one of the key players was missing from the conversation, and nobody noticed for years. It seems so obvious in hindsight, but it’s not when you’re there. eBay has always been run by really smart people — none of us are immune.

Lesson 5: All this is especially true of non-technology companies

Don’t mistake eBay for a tech company. It might do some amazing things with technology (check those scalability stats again) but it’s fundamentally not a technology company. If it were, then there’s no question that the tech staff would have been involved in all the key strategy meetings.

So these lessons cannot be dismissed. It can happen to any of us.

And any of us can learn the lessons:

“One of the most important things we had to do was become more of a technology-driven company,” says eBay Chief Executive John Donahoe.

Even with this major piece of work going on eBay is still in the same business it was before. It’s still not a technology company. But it is more technology-driven.

Let’s hear it for eBay

Finally, a tip of the hat to eBay for sharing their experiences. They’ll come out of this a better company, and everyone benefits from learning from them.