December 31, 2002, 12:00 AM

eBay Redraws Retailing’s Map

(Page 2 of 4)

That platform is vital now to eBay’s success as it evolves far beyond its early roots as an online tool for selling unusual products by unknown and at times distrusted individual sellers with cute online monikers. Although its early format as a bazaar for individual sellers discouraged participation by companies heavily invested in brands, eBay has since become as well known as a place to buy and sell major national brands as it is for garage-sale items. “EBay has made itself a very good place for large companies like Dell Computer Corp. to do business,” says Mark Sutton, director of marketing and business development for FairMarket Inc., which provides auction platforms for Dell, IBM Corp. and others that sell excess products over eBay. “It doesn’t tarnish their brands at all. Those worries are nowhere in sight these days.”

David Schofman, CEO of FrogTrader Inc., which channels sales on eBay for brand-name companies such as Callaway Golf Co., says eBay meets two crucial demands for selling branded products: a huge universe of buyers, including 21 million unique monthly visitors, and a system for supporting a brand’s image. Indeed, large numbers of sellers alone won’t do the job, he says. EBay’s category managers and its technology platform provide ways of promoting a brand’s image, such as by enabling sellers to build an “About Me” section of promotional information, similar to having a personal floor rep or the tags on a garment sold in a store. “It’s very much a relationship business,” Schofman says.

More purchasing options

Although eBay applies the same fee structure to large and small sellers, regardless of their sales volume, it offers major brands opportunities to toot their horns. In merchandising options intended for companies with generous marketing budgets, eBay offers them multiple ways to call attention to brands and individual eBay stores. For example, retailers can pay about $500 per month to be listed as an “anchor store,” causing their linked icon to appear in a separate box when a shopper searches for a particular product category.

EBay says that major brands account for 3-4% of sales, and that it expects brands to account for as much as 10% over the next several years, as it expands beyond the 20 or so major retailers and manufacturers currently selling on eBay. Welcoming brands to eBay is one example of eBay’s willingness to walk down new avenues. As a result, shoppers browsing through eBay stores as well as other sections find more purchasing options than in the past. Instead of just auctions, buyers can opt to purchase many products through a “Buy It Now” mechanism that lets them skip a product’s auction and pay a pre-set price. Fixed-price sales account for about 22% of eBay’s overall revenues and as much as 32% of listings. Although eBay expects fixed-price sales to grow, it figures they will be incremental to auction sales and not rise significantly as a percentage of overall sales.

The strategy of promoting fixed-price sales and sales by brand-name companies is also taking root at sites that compete with eBay. But none appears to be approaching eBay’s scale in both its multiple product categories and its modes of selling. At uBid Inc.’s uBid.com, for instance, consumer-to-consumer sales have been discontinued in favor of sales, both auction and fixed-price, of products owned and shipped by uBid. And a new Electronics SuperStore at uBid is selling consumer electronics only at fixed prices. (see box, page 18.)

Other primarily fixed-price competitors, such as Yahoo and Amazon, have dabbled with auctions, but have not drawn eBay’s level of activity. “Amazon and Yahoo auctions are not getting nearly as much traction as eBay as far as buyers go,” says Sutton of FairMarket.

Although fixed-price sales are becoming more common, eBay expects them to account for no more than today’s 22% of sales. And to many observers that’s a smart approach. “A lot of people think fixed-price is why more people are selling on eBay now, but you can’t be successful selling on eBay using just fixed-price,” says Wingo of ChannelAdvisor. “EBay will always have need for auctions, because that’s their heritage. If you don’t have auctions, you’ll lose of lot of eBay buyers.”

Good organizational skills

Even as eBay continues to stress the importance of auctions, its retail business is growing. And as it grows, eBay will have to become smarter in running the business like a retailer. To achieve that growth, though, category management will become more and more crucial, says Jordan, the head of eBay U.S. “In most categories, we have small shares of the total market,” he says. For example, eBay may already channel more used car sales than anyone, but its expected $3 billion this year isn’t even 1% of all U.S. used car sales.

Jordan says he also sees broad new opportunities to sell in categories such as tools, home improvement, health-and-beauty and vertical business markets such as agricultural equipment.

So far, eBay has done a good job of controlling its rapid development, largely because of its ability to effectively organize its growing number of products and categories, says Wingo of ChannelAdvisor. As product categories mushroom in scope, eBay managers quickly organize them in complex groups of categories, he says.

Printing equipment is a great example, says Jordan Glazier, general manager of eBay’s business and industrial sales. At first, he expected the printer category to include a modest selection of computer printers. But the category quickly blossomed into more than 20,000 listings of all types of business and industrial printers and related equipment. So eBay built a system of subcategories to better organize and provide for easier searches, he says. But, analysts say, one of eBay’s major challenges going forward will be to hire talented category managers who can keep control of a rapidly growing business.

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