A few years ago, eBay (EBAY) was getting battered by the likes of Amazon.com and was dismissed as an auctions has-been. Its technology was long in the tooth. And it was losing its iconic CEO, Meg Whitman, whose political ambitions led to a run for California governor this year.

Now eBay is betting its future on whipping its technology into shape as it navigates the limp recovery and red-hot competition from rival Amazon and hundreds of smaller, specialized retail sites.

He also audaciously moved to pick the brains of rivals on how to improve customer service — people such as Tony Hsieh, CEO of shoe and apparel e-tailer Zappos.com, and Ron Johnson, who oversees the Apple Store chain.

“EBay had enjoyed enormous success, but the environment around us was changing, and buyers and sellers have higher expectations,” says Donahoe, an ardent eBay shopper who typically is first to sign up for beta tests of new eBay products and services.

Donahoe admits plenty of work remains to be done. “At the end of 2009, I said on a scale of one to 10, we moved from two to four for being customer-driven and innovative,” Donahoe says. “In 2010, we went from four to six. We will never get to 10, but that is the goal.”

Even though eBay had made its name on innovation, the eBay that Donahoe took over as CEO in early 2008 had become creatively stagnant, and its top-heavy bureaucracy made it difficult to acquire small, hot start-ups, according to analysts such as Weide and tech executives such as Scot Wingo, CEO of ChannelAdvisor, a software company that retailers use to sell on marketplaces such as eBay and Amazon.com, and according to executives of start-ups who talked to eBay but spurned buyouts, and former eBay employees. The execs and employees asked not to be named because they still do business with eBay.

Technology, they say, was overlooked in the last few years of the Whitman era as she became more deeply involved in politics. She worked on John McCain‘s 2008 presidential campaign, ran unsuccessfully for California governor this year and reportedly is weighing a U.S. Senate bid in 2012.

The results of Donahoe’s stewardship:

•PayPal expects to handle more than $700 million in mobile transactions this year — compared with just $30 million two years ago — though that still is less than 1% of the money processed through PayPal.

PayPal accounts for more than a third of eBay’s global revenue, raking in $838 million in the third quarter, and at its current growth rate would pass parent eBay in revenue around 2014.

“We want to have the culture of the largest start-up on Earth,” says PayPal President Scott Thompson.

•The company this month introduced Deal Finder, an online tool that lets shoppers compare eBay listings with the same products on Amazon.com, BestBuy.com and other sites. The tool lets shoppers scan more than 50,000 deals for savings on movies, video games, electronics, music and books.

Big eBay sellers such as Jack Sheng say they have benefited from the recent changes, especially in search and cataloging of products. Sheng is CEO of eForCity, which specializes in electronic accessories.

“I have seen more dramatic changes in the last three years at eBay than in the previous 10 years,” says Sheng, who launched eForCity out of his garage 10 years ago and now employs nearly 200. Sheng was the first eBay seller to hit 1 million, then 2 million, in user feedback comments.

EBay has somewhat offset its shortcomings, he says, by opening the PayPal platform to developers. That has led to new applications such as Twitpay on Twitter and a recent upgrade that lets iPhone users deposit money in their PayPal accounts by photographing a personal check.

BestBuy.com has polished its mobile offerings with a site, m.bestbuy.com, and iPhone/Android apps such as Shopkick and Tecca, says John Thompson, general manger of BestBuy.com.

In an era of social media and real-time customer service, eBay has done a “remarkable job” focusing on innovation and opening the PayPal platform, says former eBay executive Maynard Webb, now CEO of cloud-computing company LiveOps.