The eBay Flip Flop

February 2nd, 2008

Wasn’t it just 2 years ago that eBay wanted to bring back the “vibrancy” to core by encouraging 99 cent starting bids? In 2006 they decreased the listing fee for the 99 cent starting bid while increasing the costs for eBay store listings. eBay felt the need to go back to their roots – the auction format.

So it was with shock that I read the new fee structure. eBay’s 99 cent auction sellers are no longer the darlings of eBay. They have been hit the hardest by the new fee structure. Because the traditional 99 cent auction sellers generally have a very high sell through rate, they are being hit hardest by the large increase in Final Value Fees.  Although their insertion fee has decreased by 5 cents it’s nowhere large enough to make up for the 3.5% increase on the backend.

Yet Fixed Price sellers, who generally have a low sell through rate, have seen their insertion fees decrease greatly, especially the majority who use gallery.  They still pay the increased FVF, but the decreased insertion fees will more than make up for the increase in FVF’s for those seller with sell through rates below 50%.

I call this the “eBay flip flop”. Just like a politician, eBay can’t make up their minds if they want to be an auction site or a fixed price site. They tried to have a separate format for fixed price, ie eBay Express, which has been such a failure that it is being discontinued in the UK.

When did eBay make this sudden turn to woo Fixed Price sellers? Was it in 2007 when they noticed Amazon’s third party marketplace suddenly grow by leaps and bounds? eBay started getting worried that they were losing market share, not auction market share, but Fixed Price market share. This seems to have come as quite a surprise to eBay management. Suddenly they realized that Fixed Price listings make up 40% of all listings. Yet sellers are flocking to sell on Amazon.

In order to compete with the Amazon Marketplace, it appears that eBay has decided to throw their true auction sellers to the wolves and woo back the Fixed Price sellers. Yet this does not seem to be a very good long-term strategy. Has eBay not noticed all of the niche auction sites? There are auction sites for baseball cards, shoes, liquidation items, etc. What are you going to do eBay? Wait for these niche auction sites to take away your true auction sellers and then do another flip flop in order to woo them back? At least one very large traditional auction seller is seriously considering either starting his own auction site, or negotiating with other auction sites to move all of his auctions and customers away from eBay. It’s been done successfully before, and it will continue to be done until eBay gets a clue and starts treating these two formats differently.

What will it take for eBay to realize that pure auctions and fixed price listings are two different animals that require different fee structures? They seem to understand now that there are buyers that prefer auctions and there are buyers that prefer Fixed Price, yet they still charge the same fees for both.

I say this because I was recently thrown into one of eBay’s search tests. My results were shown in two columns, one with Fixed Price listings and one with Auction listings. This is a good start, but does not go far enough. Different fees should be charged to recognize the differences in selling in each format. If eBay doesn’t realize this and make this needed change, they will continue to lose their large sellers. Last year they lost Fixed Price sellers, this year they will lose large auction sellers.

Why different fees?  Because the needs of Fixed Price sellers are different than true Auction Sellers.  Sellers with multiples of items need lower insertion fees so they can afford to list all of their items at all times.  Let them pay for success – when an items sells.  eBay has started to “get” this.

However, true Auction Sellers have close to 100% sell through, so why penalize them for  selling by charging such a high back end fee?  Charge them a higher insertion fee, since you know their item will sell, and lower back end fees.  This will encourage the auction sellers to stay and to list higher value items at lower starting prices which will encourage auction buyers to stay on the site and continue bidding.  The auction buyers are the backbone of eBay; by chasing away the true auction sellers, eBay chases away the auction buyers.  And that is bad for every eBay seller.

Cyn

Entry Filed under: Amazon, eBay

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