Home Trouble at eBay

Trouble at eBay

“I think [fixed prices] will disappear online, simply because it is possible – cheap and easy – to vary prices online.” That was MIT Media Lab’s Patti Maes in 1999, at a time when eBay’s business was booming and auctions were seen as the future of ecommerce. Flash forward 9 years, and BusinessWeek is today calling online auctions a dying breed, Nick Carr is wondering if auctions were a fad. Indeed, the fixed price (“Buy it Now” only) format is beginning to dominate eBay, and the company has taken recent steps push fixed price even harder. But the death knell of the online auction format is not eBay’s biggest problem — no, that would be the small exodus of sellers from the site.

eBay’s business is still booming — the company reported net revenue of $2.19 billion in the first quarter of this year, up 24% over the same period last year (that includes revenue from Skype, PayPal, and other eBay shopping businesses) — but there are signs that trouble may loom in the core business. Fixed price BIN-only listings now account for 42% of the gross merchandise volume on the site, and the fixed price format has been growing at a much faster rate than auctions over the past 6 years.

In and of itself, that’s not a huge deal. eBay is making moves to put more emphasis on the BIN-only format to guard against the slipping popularity of web auctions — if auctions do turn out to have been just a fad, eBay is making preparations to reinvent itself as a traditional fixed price marketplace in the vein of Amazon. What should be of greater worry for eBay, though, is the number of sellers dissatisfied with moves the company has made over the past few months — many made in part to push BIN pricing. Without sellers it doesn’t matter which is the dominant pricing format.

eBay would argue that the number of active users has actually increased year-over-year by about a million. eBay’s measurement of “active users,” though, includes any user that has “bid on, bought, or listed an item in the previous 12-month period.” So recent changes won’t catch up to that measurement for awhile.

Sellers at Odds with eBay

We reported in February about a seller revolt at eBay that caused eBay listings to dip as many as 13%. It’s impossible to tell if the boycott by sellers was the actual cause of any drop in total listings, but the larger point is that sellers felt the need to organize a boycott at all. That boycott was specifically about two policy changes at eBay that increased back end fees on auctions (which favors the BIN-only pricing) and changes to the feedback system that now prohibits sellers from leaving negative feedback for buyers.

But those aren’t the only changes eBay has made recently that have put the company at odds with some of its most prolific sellers. One of the biggest was the switch to “Best Match” as the default search results view in a large number of categories on the site earlier this year. Many sellers railed against the switch, with some saying that the search algorithm had caused their sell through rates to fall dramatically. eBay’s site wide sell through rates appear to actually be at the lowest point in many years.

That could be due to the company’s recent partnership with Buy.com, who has flooded the site with fixed price listings (around 500,000 at any one time), with an abysmal sell through rate hovering around 5%. The Buy.com deal is indicative of eBay’s slow transition away from its core auction format toward a more Amazon-like marketplace. But it comes at the expense of sellers in the categories in which Buy.com sells, many of whom have seen their sell through rates and visibility hurt by the flood of Buy.com listings.

At an eBay presentation to shareholders in January, the company showed off a prototype of a new split screen listings page that splits BIN-only listings off from auction listings and pushes buyers toward accepting a BIN (pictured above). Though only an idea that eBay is considering, the potential design change has some sellers worried.

“The sellers are leaving, with each new change you can see more posts on the eBay message boards where they are posting they are done, closed their eBay stores, ended their listings and are off,” eBay seller nancybusinraleigh, who has been selling on the site for 10 years, told me. “And since eBay is doing the ‘death by a thousand cuts’ approach, this will continue.” Nancy herself has stopped selling on eBay in favor of her own storefront.


Competing with Amazon on fixed price sales may be difficult for eBay. Amazon’s sales increased 37% to $4.13 billion in the first quarter, eBay’s net revenue from its “Marketplaces” (primarily eBay and Half.com) rose 14% to $1.26 billion. And if sellers are really leaving the site, then there is a potential that eBay could see a drop in volume. Fewer seller options, no product reviews, and no “Amazon option” that offers free shipping could spell trouble for eBay when attempting to compete seriously in the fixed price market. Major deals with large retailers like Buy.com notwithstanding, alienating the small sellers and auctioneers who helped build the site is probably not a smart move for eBay.

eBay’s real future may lie with PayPal, though. PayPal accounted for just $559.7 million of eBay’s total revenue last quarter (approximately a quarter), but year-over-year revenue has increased 34% — the best year-over-year growth rate of any division at the company except Skype (which makes up just a tiny fraction of the overall business).

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