In its second-largest acquisition, Amazon buys the company for $970 million.
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So far, eBay has shown it can manage categories, even as they grow. So much so, in fact, that it is now helping sellers keep up with the pace of category growth. To that end, eBay has introduced tools, such as Sales Assistant and Turbo Lister, designed to make their listings more effective. In addition, eBay maintains a program that designates “preferred solutions providers,” such as ChannelAdvisor and FairMarket.
In addition, eBay’s own category managers often suggest ways that sellers can better promote their products. “EBay has to be the coach,” says seller Craig Zimmer, who says eBay category managers along with ChannelAdvisor helped him organize his listings of laptops and handheld devices, resulting in monthly sales growth from $25,000 a year ago to $150,000 today.
More revenue opportunities
Category management also offers eBay new revenue opportunities. As categories expand and get deeper, sellers will have to differentiate themselves. One way to do that is by paying for the special category features that eBay offers.
EBay’s fees are broken down into several segments. It charges a “final value fee,” ranging between 1.5% and 5.25% of the final sale amount. It also charges separate fixed fees ranging from 30 cents to $3.30 based on the value of an opening bid of an auction or the value of a fixed-price sale. It charges fees for placement in special categories, such as $40 for motor vehicles. And it charges special treatment fees, such as $99.95 if a product is listed in a “Special Featured” section and rotated on the eBay home page, or $5 if an item is emphasized with a color band. Still other fees ranging from $10 to $500 are charged for individual store portals.
Another revenue opportunity that eBay is just beginning to explore in a pilot program is the sale of warranties, beginning with computers and consumer electronics. It’s working with warranty provider N.E.W. Customer Service Cos. Inc. under a program intended both to increase consumer demand for products and to increase revenue opportunities for sellers through finder’s fees that can be as high as half of the final value fee that eBay levies on each sale. Although eBay may eventually derive direct revenue from the warranty program, it’s now offering it only as a value-added option to sellers and buyers, says Mike Rudolph, director of strategic development.
While eBay attracts major retailers, some fear those sellers by their sheer size will overshadow the entrepreneurial small sellers, who are widely recognized as providing the heart and soul of eBay. “EBay’s greatest risk is in angering the small merchants,” says Carrie Johnson, analyst with Forrester Research Inc. “The troops are getting restless because they think eBay is abandoning them.”
Others say that there will always be a place for small sellers who are good merchandisers. Wingo of ChannelAdvisor says groups of sellers and product categories will always flow in and out of eBay. For example, he says, in recent years there were hundreds of sellers of products like DVDs, music videos and digital cameras, but the number sank quickly as the best and most efficient sellers grabbed market share. But as some categories shrink in terms of sellers, others arise, he says. He points to building supplies and tools as an area attracting a new crop of sellers.
He says small sellers have the opportunity to move up in scale, though he admits it’s not easy. “You have to commit 100% time and energy, and you have to constantly reevaluate and reinvent what you’re doing,” says Zimmer, a ChannelAdvisor client that competes with brand-name companies. Zimmer says he pays about $30 a month to ChannelAdvisor for hosting and connecting his site to eBay and for order management and e-mail management.
A test bed
Whether small sellers like it or not, the big guys are on eBay to stay, and it’s not just because it’s an effective selling medium. They also benefit from the few-holds-barred atmosphere of eBay because it gives them a chance to test prices and selling techniques and because the cachet of eBay allows them to launch marketing initiatives with flair.
For instance, eBay is emerging as a marketplace that can quickly determine consumer demand for new products or establish the market value of a difficult-to-value product. “EBay does really well with the early lifecycle of product sales or end of lifecycle,” says Lorna Borenstein, vice president and general manager of women’s apparel and home furnishings categories for eBay.
Take BMW. Borenstein notes that when the German carmaker wanted to introduce its new X4 roadster to the U.S. market this year, it sold the first one over eBay-fetching more than five times the manufacturer’s suggested retail price of $33,000 and creating a huge amount of market buzz.
Likewise, soft drink company Dr. Pepper/Seven Up Inc. used eBay to introduce its new dnL caffeinated soda this fall and created a bigger splash than it had expected. The first case sold at auction for $5,100, and the company fetched more than $9,000 for 31 cases in all, 12 times the retail price of $750.
The beverage company says it chose eBay for its product launch because it wanted to attract a large audience of young people. “EBay certainly produced the targeted demographic of teens and young adults,” a spokesman for Dr. Pepper/Seven Up says. “It made sense for us to fish where the fish are.”
Yet the high prices it received were an unexpected bonus, because Dr. Pepper’s intention was to build an awareness of its new soft drink, whose logo is an upside-down version of the 7 Up brand, not to sell at the highest price. Dr. Pepper also hoped to burnish its image with the young crowd by donating proceeds of the dnL auctions to Rock the Boat, an organization that encourages young people to register to vote. The auctions were done in association with FairMarket.