March 31, 2011, 12:00 AM

eBay bets on free shipping

(Page 2 of 3)

Simone Klein, an occasional seller on eBay and owner of DesignKandy.com, says eBay is punishing all sellers for the actions of a small group of sellers that sell items at rock-bottom prices but then jack up the cost of shipping, thereby avoiding paying fees to eBay. For example, a seller might charge 1 cent for a pair of socks but then charge $20 to ship them and pocket the real shipping balance and avoid paying fees to eBay. “There are a few bad apples out there that make money off of shipping by adding huge amounts of handling charges, but most sellers are pretty fair," she says. The only winner here is eBay.”

The fee changes will impact sellers differently, depending on the price point at which they sell and the cost at which they ship, says Scot Wingo, CEO of ChannelAdvisor Corp., which helps retailers sell through online marketplaces, search engines and comparison shopping sites.

Sellers of low-priced items could pay a lot more. A CD merchant, for example, who sells a $3 CD and charges $3 for shipping pays eBay 45 cents (15% of $3) under the current structure, whereas a month from nowshe will pay 78 cents (13% of $6). An extra 33 cents may not seem like much, but for sellers who sell 100,000 CDs a month this could have an enormous impact.

The new rules will also impact merchants that sell large, bulky items that are difficult to ship. When the high shipping costs of these types of items are lumped in with the item price, eBay will charge a much larger commission, Wingo says.

Sellers in these low-priced and high shipping cost categories will likely raise prices to offset the higher commissions eBay will charge, essentially passing on fee increases to the online marketplace shopper. "There are maybe 10% of the sellers that are in that bucket," Wingo says. "For those kinds of items, it will make it tough for eBay to be price-competitive."

Keep 'em loyal

In another move to gain loyal, repeat shoppers, eBay last year rolled out a cashback loyalty program called eBay Bucks after a year of testing. During that time, shoppers enrolled in the rewards program spent five times as much on eBay.com as other consumers, eBay says. Members also purchased more often and bought higher-priced items, an eBay spokeswoman says.

With eBay Bucks, shoppers who buy qualifying items on eBay.com and pay with eBay's online payments system, PayPal, have 2% of the purchase price deposited into their eBay accounts. At the end of each quarter, buyers have 30 days to redeem their bucks through PayPal purchases on eBay.com.

EBay said when it launched eBay Bucks that the company wanted to keep the program simple. The average U.S. household has 13 loyalty program memberships, eBay said, so eBay tried to keep the program easy to manage by automatically depositing the rewards currency into accounts.

The program represents another way for eBay to drive consumers to use PayPal, says Wingo of ChannelAdvisor. "It is yet another lock-in that eBay has built that gives that payment mechanism a near monopoly on the site," he says.

While not the only way to pay on eBay, PayPal clearly has gained a premier position. EBay in recent years stopped letting sellers accept checks, cash and money orders. And while eBay does allow merchants to accept credit and debit cards, it does its best to downplay that fact, Wingo says, with plenty of PayPal branding coupled with making the other options harder to find. He adds that the quick expiration date on eBay Bucks may irk some consumers. "It has an earn-and-burn timeframe that as a buyer I have found to be very inconvenient," Wingo says.

Plus, he adds, the percentage back is small compared with other web-based cashback programs. "If you go to eBates or another program, you'll find much higher rates. EBay needs to really juice the program," he says.

Shining stars

Where eBay has been investing its juice is in PayPal and mobile—including pushing PayPal in mobile.

The ease of use of PayPal—a consumer need only enter her PayPal account log-in, not card numbers and billing and shipping addresses—is especially appealing when consumers are buying on smartphones. That appeal was evident in the last holiday season. PayPal's mobile payment volume rose 300% Nov. 15 to Dec. 15 of last year compared with the same period in 2009, eBay says.

Overall, eBay projects PayPal revenue will increase from $2 billion in 2010 to $6 billion to $7 billion by 2013. If those numbers come to fruition, PayPal revenue will rival that of eBay's Marketplace business, eBay officials say. Meanwhile, eBay has reported the highest mobile sales of any retailer, $750 million in 2010, and projects that will reach $2 billion this year.

One reason for eBay's big mobile sales is all the ways eBay gives mobile consumers to buy. With a mission to launch "apps for every occasion," it has unveiled a deals app, a fashion app and foreign-language apps, to name a few—and that's on top of its mobile site. EBay says a purchase is made every second through its mobile apps. Mobile shoppers place 94 bids every minute via the apps and three to four Ferraris are purchased every month on eBay through those mobile apps.

In a sign of its commitment to mobile commerce, eBay made two significant acquisitions last year, buying bar code scanning app RedLaser for an undisclosed sum and paying $75 million for Milo.com, whose technology enables consumers to search for products from local bricks-and-mortar retailers on the web and through mobile devices. EBay has combined the two services so that a consumer in a physical store could scan the bar code of a product with her smartphone and see where else it's available locally and on the web, including at eBay.com.

Showing shoppers on eBay inventory and prices in local stores may sound like a bad idea to eBay sellers, as it might make consumers more likely to buy in stores, not at eBay. But eBay says it wants to be the first place consumers go when they begin shopping, and that means giving consumers what they want.

Comments | 4 Responses

  • What a STUPID statement. Surely no-one is dumb enough to believe there is such a thing as FREE SHIPPING. Sure, UPS and FEDEX are going to deliver packages for FREE. And the Tooth Fairy will drive the truck. FREE shipping doesn't exist. Sellers PAY a cost to ship everything. eBay may call it that. But Sellers will just increase the price of the item. Without Paypal eBay is gone.

  • ebay struggles in vain to boil the ocean. This doesn't have anything to do with buyer satisfaction. It's about ebay skimming more money off an already strained seller profit margin. Both ebay and Pay Pal now will now collect a commision on shipping charges while not providing any shipping services themselves. ebay operates in the grayest areas of the law this side of illegal. As for sellers being split? Sellers are split in that half of them are angry about the latest scam to rip them off and the other half are apathetic. Sellers that continue to do business with a unscrupulous entity like ebay deserve what they get. The author of this piece would do well to research the facts further before publishing. ebay has set shipping caps of 3 dollars on DVD's.

  • This is one eBay buyer who detests so-called 'free shipping". I often buy a number of items from a single seller at the same time and generally expect that seller to give me a discounted, combined shipping cost. With"free shipping", the actual shipping costs are hidden in the item cost, so there is nothing to discount. "Free shipping" works fine for one-shot buyers, but is horrible for the traditional eBay buyer. But Donahoe apparently doesn't care about us anyway.

  • Did someone mention PreyPal? “Bank customers of participating financial institutions will have the option to select a Visa account as the destination for funds when making a personal payment. By simply entering the recipient’s 16-digit Visa account, email address or mobile phone number, consumers can send funds directly from their bank account to a recipient’s Visa account.”—Visa (16 March 2011) Draft eBay Media Release re PayPal “It is with great sadness that eBay’s Chief Headless Turkey, John Donahoe, announces the probable demise of eBay’s most ugly adopted daughter, PayPal. Donahoe says that PayPal is expected to be soon stricken by particularly virulent strains of Visa/Mastercard simplified “online” payments processing, and these afflictions will be greatly aggravated by PayPal’s lack of any direct financial institutions support and a great deal of PayPal merchant dissatisfaction, particularly with respect to PayPal’s grossly unfair, “all responsibility avoiding” user agreement, most primitive risk management processes, and grossly unprofessional, buyer-biased and fraud-facilitating (indeed, effectively non existent) transactions mediation—to name just a few of the problems that PayPal “merchant” payees have to endure. “Donahoe says that following such affliction PayPal’s health may be expected to deteriorate rapidly and, if ultimately not completely incapacitated, will most likely be kept alive only with the aid of the “life support” provided by eBay’s mandating of PayPal’s use on what little there will eventually be left of the Donahoe-devastated eBay Marketplaces. There is no cure for this condition and the “eBafia Don” is particularly saddened by the inevitable presumption that it is unlikely that PayPal will be able to continue to underpin the eBay Marketplaces’ deteriorating revenues too far into the future.” Undoubtedly, if and when the retail banks decide they want to take the final step (and probably the increased risk and therefore the possible extra work involved) and offer a simpler, “online” payments process, similar to that which PayPal offers, to the many amateur merchants who may otherwise not want (or not qualify for) a bank credit card “merchant” account, and the banks offer that service in their usual professional manner via the likes of Visa/Mastercard, the clunky PayPal will very quickly disappear into the history books—there is simply nothing surer than the sun will rise in the morning. Enron / eBay / PayPal / Donahoe: Dead Men Walking.

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