Whitman’s eBay Legacy Could Help, Haunt Bid

Former eBay CEO Meg Whitman
Former eBay CEO Meg Whitman
Source: Reuters

By the numbers, Meg Whitman’s decade at eBay was a resounding triumph. The once-fledgling startup had less than $5 million in revenue when Whitman took over as CEO, but grew to a $7.67 billion business by her last full year at the helm.

Now that Whitman has thrown her hat into the ring to succeed Arnold Schwarzenegger as governor of California in 2010, it’s likely that tenure could play an important role in shaping public opinion around her candidacy.

Her campaign comes as the economy remains at the forefront of political debate. California faces a budget shortfall of around $40 billion, a microcosm of the blight lawmakers are wrangling with at the federal level.

As a result, Whitman seems likely to trade heavily on the business acumen she exhibited throughout her 10 years at the helm of eBay (NASDAQ: EBAY), turning a startup with a quirky business model into a multibillion-dollar household name.

“California faces challenges unlike any other time in its history — a weak and faltering economy, massive job losses and an exploding state budget deficit,” Whitman said in a statement announcing her exploratory committee. “California is better than this, and I refuse to stand by and watch it fail.”

Early polling casts Whitman, a Republican, as a front-runner in what could be a crowded field. According to a recent survey by Probolsky Research and the California newspaper Capital Weekly, 14 percent of likely Republican voters said they backed Whitman, trailing only Tom Campbell, a business professor and former congressman, with 15 percent of likely voters.

Whitman will also lock horns with California Insurance Commissioner Steve Poizner, another Silicon-Valley billionaire who has announced his candidacy.

On the Democratic side, Sen. Dianne Feinstein, who has not yet formally announced her intention to run, enjoys an early lead in the Probolsky poll with the support of 36 percent of likely voters.

A mixed legacy from the eBay years

But how much of eBay’s success was inevitable? While Whitman can be expected to weave her stewardship of the firm into a rags-to-riches political narrative, her political foes might retort that eBay’s winning concept, brought to market when e-commerce was only beginning to gather steam, made its meteoric rise a foregone conclusion, regardless of who was calling the shots.

“I think that there is definitely an argument that her opponents will make that she led the company when the expression inside the company was, ‘Even a monkey could drive this train,'” said Ina Steiner, a long-time eBay watcher who runs the Web site AuctionBytes.com.

[cob:Special_Report]Nevertheless, Whitman, who presided over the company’s international expansion, can claim credit for having the right people in the right place to ensure that eBay didn’t end up on the ash heap of startups with cool concepts done in by weak management.

But eBay is not the darling of the Web that it once was. Increased competition from Amazon and a host of smaller auction sites have taken their toll, while the bruising economic climate saw the company’s revenue decline for the first time last quarter.

The auction giant has also come under fire from some who had once been among its most loyal supporters — its sellers.

Page 2: Pros and cons of tying Whitman’s image to eBay

Former eBay CEO Meg Whitman
Former eBay CEO Meg Whitman
Source: Reuters

Page 2 of 2

“Meg was very popular for a long time among eBay sellers because she was running the company in a way that let them make money in ways that they otherwise wouldn’t have been able to,” Steiner told InternetNews.com.

“That’s shifted, because each year they’ve increased fees, and it became more difficult to sell on eBay and make a profit.”

Nevertheless, Whitman will be able to trade on the innumerable success stories of individual sellers who, thanks to eBay, had an opportunity to go into business for themselves. But with many sellers in open revolt over increasing fees and restrictions on eBay’s marketplace, Whitman will not be able to count on the goodwill of the entire online auction community.

“A lot of the sellers would argue that eBay ultimately failed them. The eBay of 2005 is long gone,” Steiner said.

Whitman spokesman Henry Gomez declined to comment on any potential trouble spots from her career at eBay.

“We’re confident that once Californians look at Meg’s background, her success at creating jobs, and most of all, her positions on key issues, she’ll be a very strong candidate,” he told InternetNews.com.

But tying Whitman’s political image to her tenure at eBay could have some other political ramifications. The free-wheeling auction process that characterized eBay’s early years has given rise to allegations of widespread fraud, bringing the site under fire from industry groups, such as the Software Information and Industry Association, which has threatened suit against eBay and sued many dozens of sellers for copyright infringement.

eBay has numerous policies in place to deter fraud, but has claimed in several court cases that it is not responsible for policing its site for fakes. This stance has drawn the ire of groups working to curb the trade of counterfeit and pirated goods, and, presumably, the police trying to bring fraudsters to justice.

Still, Whitman may have bought herself some goodwill with the law enforcement community last year, when she contributed $250,000 to a committee working to defeat California Proposition 5, which favored treatment programs over incarceration for drug offenders.

Whitman, who by Steiner’s account had “few scandals” to mar her name, might have to answer questions over alleged improprieties dating back to the late ’90s.

The issue was stock spinning, a now-illegal practice where an investment bank offered its preferred clients a sweetheart deal in the form of an early buy-in to shares of a company it is about to take public. A suit brought by eBay shareholders alleged that Whitman and other executives had cashed in on pre-IPO shares of several tech companies between 1999 and 2001, thanks to Goldman Sachs, the investment bank that took eBay public in 1998, and at the time counted Whitman as a board member.

The plaintiffs argued that all of eBay’s shareholders — not just the top executives — should have benefited from the windfall from the pre-market shares.

The parties reached a settlement in 2005, in which Whitman, eBay founder Pierre Omidyar and Jeffrey Skoll, the company’s former president, agreed to pay $3 million back to the shareholders.

Whitman and the others didn’t have to admit any wrongdoing as part of the settlement, and spinning was legal at the time. But that doesn’t mean the issue won’t resurface in the California campaign, Steiner said. All’s fair in love, war and politics, after all.

News Around the Web