Icarus Scoring System for eBay is below. I don't want to give it all away as buying the book or the new chapter is worth the cost. It explains in detail the Icarus scoring position. I have given a brief summary below of the scoring. Under each section the score is multiplied by the weight to come up with the weighted score for that section. Then you tally all the weighted scores to get the total score.
Each item is related high, medium or low, scored 5, 3 and 1 respectively. Focus stands for strategic focus and success stands for marketplace success to date. These scores come from the second quarter of 1999 by the authors of the revised edition. It is important to remember that we are now a quarter beyond that and have entered into the fourth quarter. I don't think it makes these scores moot as eBay is chugging right along. More adjustment might have to be given to Amazon since they have added things to their site since the authors did this scoring earlier this year. However eBay is similar today. The authors say this about eBay:
"One interesting thing to note here is that, according to our review, by applying more focus to branding and stickiness, eBay should be able to increase its valuation. This is the sort of hypothesis that an investor could use to track management's performance over the next few quarters."
My Foolish numbers from eBay's August 9, 10-Q seem to suggest that eBay's continued execution would support the branding power and stickiness of eBay. We'll have to revisit the numbers in November when the are released as well as the following quarters.
The authors go on to say this:
"Finally, we should note that this analytical framework ranks the combined GAPs and CAPs of the four investments in the following order: AOL, eBay, Amazon and Yahoo!. Again, whether this ranking is 'correct' or not is not the primary issue. What it does force is a discussion about why this sequence. In our case, this leads us to draw attention to AOL's first-mover advantage in terms of its market mass, eBay's ability to leverage the one business model we think is truly gorilla-like, and Amazon's and Yahoo!'s lower switching costs, which give them exposure to long-term brand erosion and commoditization."
How about that? The authors like the eBay model and see gorilla-like symptoms.
eBay
Switchboard/exchange
Focus - H
Success - H
Score - 10
Weight - 10
Weighted Score - 100
Brand
Focus - M
Success - H
Score - 8
Weight - 8
Weighted Score - 64
Value Chain Position
Weight - 8
Specialization
Weight - 8
Stickiness
Focus - L
Success - H
Score - 6
Weight - 6
Weighted Score - 36
Low-cost business design
Focus - H
Success - H
Score - 10
Weight - 10
Weighted Score - 40
Experience Curve
Weight - 4
Total Score - 240
Since the second quarter and using the numbers from the August 10-Q we could begin to consider raising the scores on eBay brand and stickiness a notch or two. I would suggest we wait until this quarter's numbers to do that. After this excercise of above and reading the book, it is interesting to me that what I envisioned as the weakest business model of the big four Godzillas - actually turns out to be the strongest. After all, eBay is making a healthy profit.
Bottom line. I think this company as an investment, despite the fear of it being a Godzilla and the stigma of the Internutz, actually is a model of a stellar business that is worthy of review on this board. Remember to view the numbers once again on my previous post of the 10-Q August report and how they meet and beat the 5 Foolish criteria.
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