In what has become an anticipated and beloved annual rite, on February 2nd of each year thousands of people descend on a small Pennsylvania town to see Punxsutawney Phil. According to local lore, the presence or absence of the renowned rodent’s shadow on that day can predict the weather in the ensuing six weeks.
Far less beloved yet equally anticipated is the announcement of eBay’s annual fee changes for sellers, which in recent years has been made at approximately the same time that Phil is making his trek from Gobbler’s Knob to Punxsutawney. This year was no exception, and, as has become tradition, the seller backlash was both severe and vocal.
This year’s changes saw auction insertion fees drop by 16-25% depending upon the starting price of the listing. What has sellers outraged, however, is the corresponding increase in the final value fees (FVF) that eBay collects on closed auctions. On the low end (items selling for between $.01 and $25), the percentage increased from 5.25% to 8.75%, a relative increase of nearly 67%. For items closing between $25 and $1,000, the FVF is 8.75% for the first $25, and increases from 3.25% to 3.5% on the remaining balance. (For the record, sellers are also outraged by eBay’s changes to its feedback policy â€“ which now prevents sellers from leaving negative feedback for buyers â€“ but I’ll save that for another discussion).
To understand how these changes affect sellers, I’ve put together the following table that shows the fees incurred in the old and new pricing structures assuming that an item opens at $.99 and sells for $40:
In this example, eBay fees on a $40 auction increased by $.86. While this may not seem like a lot to the eBayer who occasionally lists items that she finds in her basement, that $.86 actually represents a relative fee increase of 44%! For professional eBay sellers â€“ many of whom operate in high volume, low margin categories like CDs and books â€“ this increase might as well be a death knell for their businesses.
In response, many professional eBay sellers banded together last week to boycott eBay. Whereas coverage of previous such efforts was mainly limited to industry pubs like AuctionBytes, this year’s boycott garnered lots of national attention in the consumer publications and on many of the morning talk shows. And, while outlets like USA Today reported that the boycott caused a 13% drop in eBay’s listing count, eBay denies that the effort had any impact at all. In separate quotes attributed to both eBay’s Jose Malabo and eBay’s Jim Griffith, both men said that the boycott “hasn’t had any impact on our listings.”
These statements â€“ and the fee increase itself â€“ smack of both arrogance and myopia on the part of eBay. For years, eBay has held a monopoly in the online auction spaceâ€¦ and knows it. Accordingly, in the past when the business hasn’t scaled as quickly as desired, or when a disastrous acquisition (see Skype) started to drain the coffers, fee increases have always been a convenient safety valve to make the revenue picture rosier. “Sure, sellers might get mad,” goes the thinking, “But who cares? They’ve got nowhere else to go.”
Unfortunately, this thinking is right on the mark. Most eBay sellers don’t have a lot of other venues that offer the same options and upside as eBay. For all its warts, eBay offers sellers immediate and reasonably cheap access to millions of buyers around the world, providing a market for mass-produced and long tail items alike. This can’t be said of the two venues most frequently cited as eBay alternatives â€“ Amazon.com and a standalone website.
In the case of Amazon, there is no true auction platform, which makes it harder to find a market for some of the niche products sold by eBay Powersellers. Additionally, seller listings on Amazon appear alongside merchandise from Amazon.com itself, so these merchants are at a significant disadvantage from the get go. (Ina Steiner had a really interesting interview recently with Amazon’s director of business solutions Matt Williams — check it out here.)
As for moving off eBay and creating a standalone website, most large eBay sellers have already done this. In fact, ask the biggest eBay sellers and they’ll tell you that, given the small (sometimes negative) margins they realize on eBay, they view the platform as little more than a lead generation tool. Once they acquire a new customer via eBay, these sellers hope to recoup their initial loss by migrating customers’ future purchases directly to their websites. This is a tough road to hoe, and can take a while to pay off.
The other problem with the standalone website approach is that there is no “built-in” traffic like they get with eBay. To get eyeballs to their websites, these sellers must pay for traffic through sources like Google and Yahoo (or do a real bang-up job with search optimization). When factoring these traffic-driving costs, along with site maintenance costs, the margins these sellers realize may actually end up worse than on eBay, and with far less scalability potential.
For these reasons, the threat of an eBay boycott today is met with a collective yawn by the folks in San Jose. Not until a viable alternative surfaces will eBay have any reason to worry.
So what company can offer such an alternative? Just as the answer for almost any question asked of a child by a Sunday school teacher is “Jesus,” the answer to this, as most, questions about e-commerce is “Google.”
Google already has all of the pieces to mount a serious challenge to eBay’s dominance. With Adwords, Google basically owns the paid search space, and can drive as much traffic as it needs. Google Product Search offers a top-notch comparison search platform that can be leveraged. Google Base offers an open method for sellers to upload large quantities of data (like product feeds). With Google Checkout (a Paypal competitor), Google not only earns a percentage of each sale, but also has visibility into the payment stream, potentially allowing them to offer advertisers a virtually foolproof CPA advertising system. The only thing currently lacking is an auction engine, which I don’t believe will stump the eggheads at Google Labs.
I am hardly the first observer to point this out, which begs the question, “What is Google waiting for?” I must admit that I don’t have the answer. With Meg Whitman’s departure, middling financials, and sellers in an uproar, the time seems to be right for Google to make a strong play for the disenfranchised Powerseller. Yet, so far, Google has been mum.
Stay postedâ€¦ I think this is about to get interesting.
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