April 1, 2005, 12:00 AM

Follow that margin

(Page 2 of 3)

In January, eBay announced changes in its fee structure that boosted the listing fee for a 10-day auction to 40 cents from 20 cents, and raised the fee for a basic eBay store subscription to $15.95 per month from $9.95. It increased the final value fee on items sold from eBay stores in a tiered scale that rose from the original 5.25% to 8% of the value of items priced at up to $25. Above $25, it`s now 5% up to $1,000 and 3% of the remaining balance, up from 2.75% to $1,000 plus 1.5% of the remaining balance to (see box).

An experiment

But it was the fee increases for the gallery and Buy It Now features that got Wieber`s attention. Gallery fees that permit sellers to post photos of an item rose to 35 cents from 25 cents per listing, while Buy It Now fees went from a flat rate to being tied to the value of the listed item. The new Buy It Now fees are 5 cents for items priced at under $10, 10 cents for items priced at $10 to $24.99, 20 cents for items priced at $25 to $49.99, and 25 cents for items priced at $50 or above.

All told, "If we had not changed any of our listing strategies on eBay, the last increases would have meant about a $55,000 increase in our eBay fees," says Wieber. "We stopped using gallery and we stopped using Buy It Now."

Besides getting Wieber to reduce his spending on some eBay seller features, the fee hikes also have accelerated an upgrade of LaptopBroker.com, which currently operates as a Channel Advisor storefront, and sparked an experiment in selling on Amazon. Currently LaptopBroker lists about 115 items on Amazon as a selected merchant. It hopes to increase that number to 2,000 by June. Amazon charges a flat fee and no listing fee to sellers using that format, and it offers something else: a different kind of buyer than frequents bargain-focused eBay. "Amazon can deliver full retail price buyers. For some products, we can almost double and sometimes triple what we get on Amazon from what we get on eBay," Wieber says.

Wieber adds that after the site upgrade, LaptopBroker expects to branch out into paid search marketing and getting onto shopping comparison sites. "It`ll be expensive at first, because we are going to be paying per click, paying Amazon, and paying eBay. But I see our sales on eBay going down and us converting that spending to PPC," he says.

Hytechgear.com, a marketer of professional sound and lighting equipment, launches auctions on eBay with the services of provider Vendio Services Inc. CEO Eric Johnson is also looking for sales channel alternatives to eBay, which represents about 25% of sales, with the balance from the company`s web site, telephone orders and a small amount of walk-in business.

Johnson finds that what sells on eBay has lower margins than what sells on the site and on the phone. "When I put an item on eBay and everything`s said and done, I`ve sold the item and pretty much just covered the cost of marketing it," he says. While the margins may be less profitable, however, Johnson notes that eBay provides much broader marketplace exposure than he would have on just his own site. "For us, eBay is paid advertising," he says. "It`s a way of letting people know you`re there and allowing them to make a purchase from a vendor they didn`t know before. I have a 20,000-person mailing list that was acquired by being on eBay."

Unbeatable market reach

Johnson`s experience shows that while sellers may complain of fee increases, they recognize that nothing beats eBay`s market reach. It`s the largest e-commerce platform, getting 10.6 million unique visitors on an average day, according to February figures from comScore Networks Inc. Though it`s a goal of retailers such as Rath to eventually use eBay primarily as a liquidation channel, eBay also remains a better market for specialized merchandise that requires a big marketplace to move, left-handed golf clubs, for example. "I will never ignore the millions of hits eBay gets in a day," Rath says. "I`ll always have product on eBay for brand recognition, and to acquire customers."

While it makes intuitive sense to follow the margins to the commerce platforms where they are best realized, plenty of retailers selling on eBay haven`t yet reached the point of distributing sales across multiple online outlets or swapping out eBay fees to spend more on PPC advertising. That`s for a couple of good reasons. Mike Effle, executive vice president of sales management at Vendio, points out that eBay requires a minimal upfront investment to start realizing revenue immediately. "The business owner lists today, sells within seven days, and realizes the cash from that sale quickly after that. It may not be the margin he desires, but the pump works," Effle says.

By contrast, moving beyond eBay to other platforms requires retailers to invest now for returns that won`t happen for months or into the next year. "Some decide it`s worth the broader investment if they have a good source of supply, a unique product, or otherwise want to create a brand for themselves," Effle says.

While continuing fee increases and opportunities elsewhere are causing some retail sellers to look beyond eBay, eBay, for its part, has set its sights on increasing its share of e-commerce in the U.S. Counting all eBay transactions in all formats, that`s already about 24% of all e-commerce in the country, according to figures from IDC. To achieve that, eBay has outlined a strategy that seeks to brings more new sellers and buyers into its platform, for instance, by continued innovation in trading formats such as its new Want It Now and Best Offer features.

Doing things right

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