August 29, 2007, 12:00 AM

The eBay of tomorrow

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It’s a good thing that eBay is trying some new products and services, analysts say, because some believe the auction model won’t sustain growth for the eBay of the future. “The prospects are still OK, but it’s going to be tough,” Kessler says. “It’s hard to bring the fun back because the novelty has worn off after 10 years.”

The eBay of tomorrow needs to find a way to restore its original image as an innovator, Kessler argues. “If not, it will continue to lose e-commerce share and will have a hard time getting it back,” he says.

Analysts also note that eBay has lost luster among sellers. Perhaps most relevant to seller unhappiness is eBay’s fee structure, Patel and others say. As sellers become more demanding they are resisting eBay’s front-end listing fees and back-end commissions. The fees are driving some down new paths, such as setting up their own web stores and examining lower-cost options from competitors, including, which charges only a commission on sales.

EBay’s transaction revenue, which Deutsche Banks says reflects the fees charged to sellers, rose 19% year-over-year in the second quarter. “On the other hand, gross merchandise sales, or the value/sales created for sellers, increased 12% year-over-year,” the report says. “This seven-point spread clearly indicates sellers are having to meaningfully pay up for growth on eBay, as was the case in Q1 2007, and therefore could result in unprofitable sales for sellers, potential defections to other e-commerce/search venues, or limited growth in listings/business expansion on eBay.”

For sellers like Ty Schmidt, president of BidZirk LLC, eBay has proven fertile ground for product sales. His consignment business has evolved over the past four years from a physical drop-off store that sold people’s unwanted goods. But ever-increasing costs are driving sellers to seek other ways to attract customers to their web sites, he says. “They are not shy about fees,” Schmidt says. “In early 2006 they announced record earnings, along with a fee increase. That angered a lot of sellers.”

New sales outlets sells $50,000 to $60,000 a month through eBay, Schmidt says. He also is using for 5% to 10% of his sales because it provides a different outlet and helps his business sell products as quickly as it can.

EBay sellers haven’t historically had an issue paying fees, says Jonathan Garriss, owner of Gotham City Online, a web-only retailer of brand-name shoes for men and women, as long they got value in return. In the past two years, however, “sellers are getting less and less value for the fees,” Garriss says.

As the growth of shoppers on eBay slows, sellers are feeling the pinch of rising fees, says Garriss, who also is executive director of the Professional eBay Sellers Association. PeSA’s 500 members represent the biggest eBay sellers and account for $500 million in annual sales.

A June PeSA position paper warns that unless eBay delivers more for sellers’ fees, sellers will continue to find new channels through which to sell their wares. The paper charges that in the past two years, sellers have seen eBay’s fees increase “while the value received has diminished. Sellers, not eBay, have felt the impact of the additional cost and lower sales.”

The paper offers recommendations on eBay’s fee policy for sellers: “EBay needs to address the unique needs of each category when implementing fees, setting best practices and optimizing search. A fashion seller has very different economics than a CD seller or an electronics seller, but eBay requires them to use the same fee structure.”

A spokeswoman for eBay defends the company’s fee structure, while declining to be more specific. “If you go back over the last few years and look at the changes in our fees and our earnings you can see that our strategy is working,” she says.

While eBay is designed to benefit sellers, keeping everyone happy might not be possible, the spokeswoman says. “Our interests are aligned with our sellers and getting more buyers to use our site for their purchases benefits everybody,” she says. “With over 241 million users there are going to be some sellers who prefer different approaches, but our fundamental goal is to maximize the health of the overall marketplace.”

Victim of success

In some ways, eBay may be a victim of its own success, some industry observers say. Scot Wingo, president and CEO of ChannelAdvisor Corp., an online auction and marketplace services and software company, says eBay was a good introduction to neophytes looking to sell online, but those customers are now comfortable with other options and are leaving eBay behind.

In fact, they should be looking elsewhere, Wingo says. “They are missing out if eBay is the only thing they do,” he contends. “Sellers are spreading their wings and looking for other options, including paid search and search engines.”

To stem the exodus, eBay needs to provide a more visual experience, says Kessler, the analyst, “as opposed to just a listing. Users want more photos and some sellers are putting videos in their ads. EBay needs more color-like Amazon.”

Whether eBay changes its style or its business model, there’s one thing the company and its critics agree on: tomorrow’s eBay will be different from today’s.


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