Understanding Nothing

Ebay’s latest financial reports reveal that:

• over one and half million new items get listed every day
• these generate almost $2.5m per day revenue
• on top of this they earn about another $10m per month from third parties (advertising and other services)
• they spent almost $25m in the quarter on the development of the software behind site and seller tools.

I’ve never really understood how companies like this spend quite so much money on “product development”. The last time I added it up (about a year ago), Amazon had spent over $1bn on this (although they include content licensing costs in theirs). Ebay’s run to date is coming up on about $200m. From what I can see this doesn’t include costs for hardware or hosting etc (other than for equipment used for development) – the majority of it is staff and contractor costs.

$25m/quarter pays for the equivalent of 1,000 developers at $100k/year each. Take off even a sizeable chunk for their equipment, and make some of them managers and support staff, and you still have a ludicrously large team. As I don’t believe they have anywhere near that many developers I can only assume that a huge chunk of this is going on software licenses.

Amazon announce last year that moving to Linux saved them around $17m in technology expenses in the quarter. At BlackStar we managed to keep lots of our costs very low by building everything around a LAMP platform. I think some other people need to learn these lessons…

In Q4 2001, Amazon managed to save $22m in costs by tweaking its fulfillment operations. As well as the obvious fine tuning of its predictive software, it seems that one of the most effective changes was to rearrange the layout of their warehouses to make it quicker to pick goods that often get ordered together. I’m not sure what percentage of that the $22m that accounted for, but even if it was 10%, that one piece of software will save them somewhere in the region of $10m in a year.

Nice return for a fairly simple idea…