In its second-largest acquisition, Amazon buys the company for $970 million.
Finally picking up speed, eBay is enticing merchants with lower rates and new shopper-friendly features.
Since taking over as CEO from Meg Whitman two years ago, John Donahoe has changed course several times, trying to put some wind into the sales of eBay Inc. Even as once-mighty eBay showed signs of finally getting back into the race, the captain made more significant course corrections this year.
Some of the changes aim to improve the sometimes confusing experience of shopping on eBay.com. And a new pricing schedule is designed to lure more merchants, including larger ones, to list lots of items at fixed price.
The theory is that more consumers will shop at eBay if they find a lot of deeply discounted items, and that requires making eBay a more attractive option for retailers, especially those seeking to dispose of excess and out-of-season items. EBay made similar changes in its fee structure in Europe in 2008 and doubled the number of listings on its sites in the United Kingdom and Germany, says Dinesh Lathi, eBay vice president of seller and buyer experience.
The desired impact
The new fees likely will have the desired impact on OpticsPlanet Inc., which now lists more than 10,000 products on eBay. OpticsPlanet will save $4,400 a month under the new pricing plan, and that will lead it to offer many more products on eBay, says Andrew Mironov, special channels team leader for the online retailer of sport optics, tactical and military gear, microscopes, and eyewear.
“Not only will it be cheaper but those savings will allow us to expand our product offerings to see what works and doesn’t work on eBay,” Mironov says. The savings come because the retailer, after paying a $299.95 monthly Premium-level subscription fee, will be able to list each item for 3 cents, instead of 50 cents.
While the new prices benefit merchants with a lot of merchandise to sell, it could hurt smaller sellers who are likely to face stiffer competition from bigger merchants. And merchants that specialize in auction-format sales could see their fees go up.
But Donahoe recognizes eBay needs to become more than just a place to sell items gathering dust in the basement if it is to compete with the top online retailers, notably Amazon.com Inc., but also the new online marketplaces that giant retail chains Wal-Mart Stores Inc. and Sears Holdings Corp. have added to their web sites in recent months.
Of late, Donahoe has taken to comparing eBay to the bricks-and-mortar warehouse clubs that have carved out a successful niche in offline discount retailing.
“If you take a look at the offline retailer world discount-market segment, look at Wal-Mart,” Donahoe told attendees at a conference this year organized by investment bank Goldman Sachs. “Costco is another winner in the offline retail segment. [They have a] slightly different business model. They co-exist very successfully with Wal-Mart.”
Sales pick up
Donahoe finally can point to some evidence that the changes he’s made in course and crew since 2008 are showing results. The company’s Net Promoter score, a measure of the degree to which customers promote or disparage a site, improved from 61% in 2008 to 65% in 2009. And the value of goods sold through its online marketplaces, excluding autos, increased 24% year over year in the fourth quarter to $14.2 billion from $11.5 billion. That represented improvement over its 7% growth in the third quarter, the first quarter in a year in which eBay’s quarterly gross merchandise sales increased.
Some Wall Street analysts remain skeptical. Part of the reason for that strong fourth quarter increase was its easier year-over-year comparison because the recession stifled 2008 fourth quarter spending on eBay, says analyst Aaron Kessler of Kauffman Bros.
And eBay still must make a stronger case to consumers, says Colin Sebastian of Lazard Capital Markets. “There’s still some confusion among buyers about what eBay is useful for,” he says.
Evidence of that consumer ambivalence about eBay shows up in traffic statistics for 2009: while eBay was the most-visited retail site for much of the early part of the year, Amazon surged ahead in the crucial final four months of the year. In December, Amazon’s 66.47 million unique visitors were 30% greater than eBay’s total of 51.02 million, and Amazon’s December traffic grew 9% year over year, while eBay’s declined 11%, according to Nielsen Online, which tracks web traffic.
Wooing more consumers to eBay is the ultimate goal. To accomplish that, eBay implemented significant changes in two areas: revising the merchant pricing structure to broaden the selection on eBay, and taking steps to address shortcomings in the consumer experience.
A new pricing plan
The fee changes, which were to take effect March 30, somewhat simplify the complex price options available to merchants selling on eBay. The changes reflect eBay’s attempt to appeal to two distinct types of sellers-professional merchants who generally use the site’s fixed- price format and hobbyists who are more likely to use its auction feature-on its online marketplace, says Scot Wingo, CEO of ChannelAdvisor Corp., which provides technology and services that help retailers sell through eBay and other online channels.
EBay is raising the cost to insert any fixed-price item from 15 cents (for a book, music, DVD, movie or video game) or 35 cents (for everything else) to 50 cents. But substantial discounts are available with three monthly subscription levels-Basic ($15.95 per month), Anchor ($49.95 per month) and Premium ($299.95 per month). The subscriptions reduce the fixed-price listing fees per product from 50 cents to 20 cents for Basic subscribers, 5 cents for Anchor merchants and 3 cents for Premium stores.
Subscribers also get additional inventory management features and can insert eBay-hosted pictures for free. EBay isn’t changing its commission percentages-except for electronics and computer products, which will both rise. EBay takes a commission on a fixed-price item of 8% to 15% of the first $50 of the selling price, between 5% and 9% from $50 to $1,000 and 2% for the value above $1,000.