NYT: eBay's Joy Ride: Going Once ...
Stormlx
March 6, 2005
EBay's Joy Ride: Going Once ...
By GARY RIVLIN
Photo 1:
http://tinyurl.com/54qua
Caption:
Peter DaSilva for The New York Times
Meg Whitman, eBay's chief executive, has been unfazed by the lively protests
from sellers over fee increases.
Market chart:
http://tinyurl.com/6msvk
Multimedia:
http://tinyurl.com/4qsrm
Photo 2:
http://tinyurl.com/6lvsl
Caption:
Susan Stava for The New York Times
Chel Ramsey, who had a children's clothing store on eBay, is setting up her
own site instead. The fees, she said, were nibbling away her profits.
San Jose, Calif.
THE open revolt began almost instantly among eBay's sellers - a hodgepodge
of hobbyists, slick entrepreneurs and quirky collectors who conduct daily
virtual auctions of everything from samurai swords and refrigerator magnets
to an unread copy of an "Archie and Veronica" comic book (Volume 55). In
January, eBay announced steep fee increases, which took effect two weeks
ago, prompting sellers to post caustic comments on community bulletin boards
both on and off the company's Web site. Petitions have been circulated,
sellers have debated an eBay boycott and those unhappy with the company seem
evenly split over whether "FeeBay" or "GreedBay" is the most apt epithet for
it.
Inside eBay, the reaction to all this is: So what else is new?
Five times in five years, the company has raised the price of doing business
on its site, and each increase - whether a bump in the charge for listing an
auction item or a jump in the commission the company collects on a completed
sale - has provoked strident outbursts. The practiced nonchalance with which
eBay executives greet even these harshest of pronouncements starts with the
chief executive, Meg Whitman, possibly the most powerful woman in corporate
America today. Speaking at the company headquarters here last week, she
sounded almost nostalgic when talking about past protests, like the "Million
Auction March," hatched in 2000 by those who were upset when eBay announced
that it would be selling banner advertisements on its site.
"The thing to know about the eBay community," she said, "is that it's been
vocal from Day 1." Ms. Whitman allowed that the dissatisfied had lately
"perhaps been a tad more vocal than in the past." But to her mind, that is
because eBay is so much more vast today than it was only a few years ago.
Despite the Million Auction March and what William C. Cobb, who oversees the
company's North American operations, called the "constant drone" of
complaints on the company's message boards, the collective worth of
merchandise sold through eBay has surged since 2000, to $33.8 billion from
$5.2 billion.
Even so, others in the eBay universe are convinced that the company has a
far bigger problem on its hands than it is willing to acknowledge. They
include many longtime sellers and Wall Street analysts, long bullish on
eBay, who now say they are uncertain about the company's ability to sustain
its torrid rate of growth. As they see it, Newtonian physics may finally be
catching up with eBay after one of the most magical rides ever for the stock
of a young company.
It is too early to assess the fallout from the recent furor over fees, but
this much is clear: the company has never before imposed so sharp a rate
climb. Hardest hit were those who operate virtual stores on the eBay
worldwide mall. As of Feb. 18, store owners must pay eBay an 8 percent
commission on each sale, up from 5.25 percent.
"Imagine the reaction if a state raised its sales tax by nearly three
percentage points," said Ina Steiner, the editor and publisher of
AuctionBytes.com, an online newsletter that has reported on the online
auction world since 1999. It is no surprise, Ms. Steiner said, that in
recent weeks she has heard an outcry not only from those who tend to bark
loudly whenever eBay raises a fee, but also from those who "might have
rolled their eyes over a fee increase in the past but kept selling."
SINCE the end of January, more than 24,000 people have added their names to
an online petition protesting the new fees. A according to
PowerSellersUnite.com, a site run by a fed-up former eBay seller, more than
7,000 eBay stores have shut down in the five weeks since the company
announced the fee increase. EBay said it had 161,000 stores on its North
American site at the end of 2004.
"People stay on eBay because they get value from it," Ms. Steiner said. But
Ms. Steiner, among others, worries that dishonest practices by sellers -
shipping a knock-off instead of the genuine article, for example - are
eroding the trust essential to eBay's continued health. EBay says it now has
more than 1,000 employees working to eradicate fraud, but Ms. Steiner says
she is convinced that the problem is getting worse.
Sellers, Ms. Steiner said, "feel there are so many problems, including
fraud, including technical issues, including frustration that eBay is great
at bringing on more sellers but not as good at bringing more buyers. I don't
think people would seriously consider leaving eBay, or at least expanding
beyond eBay, if they felt eBay was improving in the areas they care about."
In other words, the short-lived repercussions from the unpopular fee
increases may be the least of eBay's problems. For months, sellers have been
fulminating over a long list of complaints, from fraud to fewer bidders per
auction and lower selling prices to poor service from eBay.
"My complaint with eBay isn't that I'm paying more," said Candice Darr, who
since 2000 has made her living on eBay selling software at a store she named
Darrsoft. "The way I look at it, rent goes up. That's just reality. My
complaint is that my rent is going up but I'm getting less for my money."
Ms. Whitman likes to reminisce about the early days of eBay, when skeptics
dismissed the company as a niche player that would have roughly the same
impact on Internet commerce as a flea market on a town's economy. EBay went
public in September 1998, during the madness of the dot-com bubble, but as
Ms. Whitman recalls it, as many as half the prospective investors who
attended the road show preceding its stock offering declined to buy shares.
Back then, Amazon.com and Yahoo, not eBay, were the darlings of those
interested in becoming rich from the consumer Internet.
Now eBay reigns as one of the kings of Internet commerce. Amazon.com has
twice eBay's revenue, but it operates warehouses around the world and
carries inventory, while eBay basically sells nothing other than a spot in
its worldwide bazaar. As a result, eBay is nearly three times more
profitable than Amazon, and its market capitalization, at $56 billion, is
nearly four times as great. And though Google's market cap is almost as
large, eBay posted twice the profits last year.
Yahoo is eBay's competitor for the crown. Yahoo booked slightly more revenue
and profit than eBay did in 2004, but eBay's market cap is 25 percent larger
than Yahoo's. EBay boasts that it is "the most valuable e-commerce franchise
in the world," and it may be just that.
EBay has 66 million registered users in the United States and 135 million
worldwide, and its revenue has grown 70 percent a year, annualized, since
going public in 1998. And the company's share price has moved accordingly,
increasing 21-fold since the initial public offering. The company went
public at a split-adjusted $1.97 a share and now trades at $41.75.
Yet eBay is again facing skeptics. Among the analysts who wonder aloud if
its stock market ride has come to an end, at least temporarily, are Derek
Brown at Pacific Growth Equities and Safa Rashtchy at Piper Jaffray, both
based in San Francisco. Mr. Brown described eBay as "one of the most
extraordinary engines to emerge on the Internet," but since the fall of 2003
he has had an underweight recommendation on the company. And Mr. Rashtchy,
though he used the word "phenomenal" to sum up eBay's business, recently
downgraded eBay to market perform from buy.
Both check in periodically with those who make their living through eBay,
like sellers or those in the business of providing technical help and other
support services for sellers. Mr. Rashtchy, for instance, had dinner last
month with a group of top eBay sellers, and Mr. Brown speaks regularly with
a group of 10, including several "seller-service providers who in turn are
in touch with hundreds, if not thousands, of sellers."
"They've taken on a much more negative tone in the last 12 to 18 months,"
Mr. Brown said of sellers. "They have a variety of different complaints, but
the bottom line is that our research indicates customers have grown
increasingly frustrated and disenchanted with the platform. Many of them
have indicated to us that they're running twice as hard to stand in place."
Mr. Brown also began seeing signs that people were not just complaining;
they were acting on their disenchantment. He noticed that the average number
of items per seller was decreasing, as was the growth rate in another
important statistic: the revenue that eBay generates on everything but the
commission on a sale, from the basic cost of listing an item to a long list
of optional features like a "buy it now" button.
AT the same time, he and others spotted data that suggested an abrupt
slowdown in the growth of the company's North American site, such as a sharp
decline in the number of new sellers joining the site.
Yet in 2004, eBay's stock climbed by an extraordinary 80 percent. "I'm
watching the degradation of the metrics, and I'm hearing the grumblings by
sellers get louder and louder and louder, and the stock was hitting 52-week
highs," Mr. Brown said. "There was a disconnect between perception and
reality."
Then, on Jan. 19, eBay announced its results for the fourth quarter of 2004.
Its earnings per share fell a penny short of analyst expectations, largely
because of a sluggish start to the holiday buying season. The company's
stock fell 19 percent the next day as a half-dozen investment banks cut
their ratings. The shares are down 28 percent so far this year - and Mr.
Rashtchy is among those who doubt that eBay can continue to grow at anywhere
near the pace it set in its first six years as a publicly traded company.
"The market kept the valuation of eBay very high because people could be
confident that the company could grow into the numbers," Mr. Rashtchy said.
"But with a stock like eBay, when it keeps going up and up, investors are
always nervous. They always have in the back of their minds that the company
will eventually hit a wall." When it misses the numbers, he said, it is hit
hard.
Jonathan Garriss is the co-founder of Gotham City Online, an online shoe
store that does so robust a business on eBay that he paid the company nearly
$500,000 in fees last year. Given the fee increases, he figures, he will pay
an additional $75,000 in 2005, assuming the same volume in sales. By
contrast, Chel Ramsey is a mother of three who until recently was paying
only a few hundred dollars in fees each month to operate a children's
clothing store called ScuttleBugs on eBay.
Both discovered their inner retailer courtesy of eBay - and yet both are now
keenly frustrated with a service that has meant so much to their lives.
Ms. Ramsey, who recently decided to move her store to its own site off of
eBay, lamented that her eBay business was suffering a slow death from a
thousand nicks. Eighteen months ago, she figured that she earned $800 to
$1,200 a month selling children's clothes through eBay. Her profit, she
said, dropped to $400 to $500 in recent months.
"They get you when you list, they get you when you sell, they get you when
somebody pays," Ms. Ramsey said. "They even take a bite out of shipping."
First there is the monthly $15.95 that eBay charges to be a host of a store
on its site - compared with $9.95 a month until the most recent fee
increase. Ms. Ramsey paid an additional $10 a month to show pictures of her
inventory, largely children's clothes costing 99 cents to $3.99 an item.
Listing each item for sale costs only 2 cents but that's only the start,
she said. The eBay search engine typically points shoppers only to auction
items, not to fixed-price items sold in its stores. So Ms. Ramsey put a
dozen or more items on auction each month to drive traffic to her site, and
the listing fees on those, she said, ranged from 55 cents to $1.25 an item.
Often, she ended up selling those items for less than cost - an advertising
expense, as she saw it.
She typically racked up several more charges on a sale, beyond the
commission. Virtually all her customers used an eBay payment service called
PayPal that serves as a middleman between seller and shopper and charges the
seller a fee, as a credit card company would. For the typical seller, that
runs 2.9 percent of the total charged, including shipping and handling. Ms.
Ramsey also used eBay's shipping features, which meant paying an additional
20 cents for every label printed.
The e-mail that satisfied customers sometimes sent to her was free, but she
worried that the message they often conveyed might have a price. She said,
"They'll say: 'I'm so happy to have found an honest seller. I was ready to
give up on eBay.' "
Where Ms. Ramsey said she felt "nickeled and dimed," Mr. Garriss, of Gotham
City Online, who has been selling shoes on eBay since 1999, described
deterioration of another important measurement inside the world of eBay: the
average selling price of an item. Mr. Garriss is also the executive director
of the Professional eBay Sellers Alliance, a trade group started in 2003 for
eBay sellers who do at least $25,000 in business each month.
EBay executives contend that the average selling price has gone up in some
categories. But that does not seem to be the experience of most of the 600
or so sellers who belong to Mr. Garriss's trade organization.
"For a lot of our sellers, the average selling price is getting less and
less and their eBay fees continue to go up," he said. "So their
profitability is declining." As a result, he said, "a lot of sellers have
disappeared off eBay" - a trend that eBay's "aggressive" fee increases, he
said, are likely to accelerate.
Where will they go? Some sellers will do what he did, Mr. Garriss said:
realize that it is much more economical to operate your own online store and
to buy keywords from search companies like Google and Yahoo to point
potential buyers to your site. He maintains a presence on eBay, he said, but
outside the confines of eBay, where hard-to-believe deals are the coin of
the realm, he can charge more for the same shoes.
Others will do as R. J. Moore did. Mr. Moore, who started doing business on
eBay in 1999, was selling $2 million to $3 million in jewelry a year. But
increased competition, he said, cut into profits, and last June he left eBay
altogether. He now sells his jewelry at a smaller eBay rival, Bid4Assets.
"There's far less action there," Mr. Moore said, "but they offer a much
better deal."
More recently, Bob Lee decided to do the same. Mr. Lee had sold video games
via eBay but decided to shut down his eBay store after calculating that his
fees would be rising by hundreds of dollars each month. He knew that it was
time to leave, he said, "when I figured out that eBay would be making more
money on each video game we sold than we were."
Ms. Whitman, eBay's chief executive, said she felt the pain of sellers who
believe that eBay no longer offers the same money-making opportunities as it
did in the past. When told about the plight of people working so much harder
to remain in place, she nodded her head, a slightly pained expression on her
face. She spends part of each day, she said, reading the company's message
boards. She appreciates, she said, that a lot of people are disappointed
that once-thriving eBay businesses have fallen on hard times.
But her job, Ms. Whitman said, is to maintain the overall health of the
wider eBay ecosystem, not to worry about individuals. To make her point, she
recalled the dust storm that sellers kicked up a few years earlier, when the
selling price of collectibles fell.
"People asked us what we were going to do about that," she said. "The answer
was, we're not going to do anything." Since then, of course, eBay has
continued to thrive and grow, and plenty of people are now making a good
living in the collectibles category.
That is the laissez-faire nature of life on eBay, as Ms. Whitman and others
explain it. A few homesteaders staking out a new category may feel as if
they have struck gold in their first months, but their good fortune is
guaranteed to pique the interest of other entrepreneurs. The entry of others
causes prices to fall - but if they fall too steeply, sellers stop selling,
thereby driving prices back up. In this view, eBay is a perfect
manifestation of capitalism as perceived by Adam Smith, efficient and
self-correcting. Ms. Whitman's job - and the job of those who work for her -
is to help people buy and sell but otherwise to stay out of the way.
Some sellers contend that there has been a decline in the percentage of
auctions that end in a sale. If that were true, Ms. Whitman said, she would
be worried. But she maintains that the percentage of auctions that end
successfully has remained fairly constant. "That has not swung very much
since the day I walked in the door in 1998," she said.
Indeed, it was a concern for the "balance of the marketplace," not a desire
to bump up eBay's bottom line, that explains the most recent set of fee
increases, said Mr. Cobb, who runs eBay's North American operations. The
feeling inside eBay, he said, was that a kind of equilibrium needed to be
restored between those using auctions and those selling items for a flat
price in an eBay store. A sharp increase in the commission charged on all
store sales, this reasoning went, would lead more sellers to embrace the
auction model.
The company also said it believed that too large a proportion of sellers
were using the "gallery" feature - choosing to have a picture accompany a
listing - so the company raised its fee for the feature by 40 percent to
restore its premium status.
DESPITE the hailstorm of criticism, Mr. Cobb sticks by the fee increases,
saying only that he could have done a better job in explaining all this to
what everyone inside eBay calls simply "the community." As a kind of
penance, the company announced last month that it would provide telephone
customer service to every shop owner - a service previously reserved for
high-volume eBay vendors known as power sellers - defined as the top 2
percent in sales - and would not charge the $15.95 monthly rent for April.
Mr. Cobb also promised to slow down the rate at which the company introduces
new features on the site. The frequent addition of new bells and whistles
has been blamed for the broken links and other technical difficulties that
eBay sellers have been complaining about.
If nothing else, the fee increase has demonstrated to eBay executives that
they do not have quite the pricing power that they thought. Ultimately,
however, the company's fortunes hinge less on the growth rate of the
company's American site than on its foreign operations and the use of PayPal
beyond the eBay site.
PayPal is the default method of payment on the American site, and it is
slowly gaining momentum as eBay struggles, country by country, to translate
the service into a foreign language while seeking approval from local
regulators to operate within their borders. Already, it accounts for
one-quarter of eBay's revenue, which the company expects to reach roughly
$4.3 billion this year.
But the company's deepest hope for PayPal, which eBay bought for $1.5
billion in 2002, is that more and more Web sites not related to eBay will
adopt it as a preferred payment method. According to data provided by eBay,
only about 2 percent of the Web's small- and medium-size outposts - which
the company defines as sites doing less than $5 million in e-commerce a year
- offer buyers the PayPal option.
EBay now operates independent auction sites in 32 countries. The company's
footprint is especially wide in Europe, where it has had phenomenal annual
growth rates, reaching triple digits in some countries.
That overseas success has been largely factored into the company's stock
price. The battle now is over Asia. On the upside, eBay is strong in South
Korea and has first-mover advantage in China. On the downside, it has
conceded e-commerce in Japan to Yahoo, which is trying to parlay its
strength in Hong Kong and Taiwan to pursue the nascent Chinese e-commerce
market.
Earlier this year, eBay announced that its international arm would spend an
additional $100 million on the Chinese market, which Ms. Whitman has
declared "critical" to eBay's continued success.
For the moment, though, the company can at least take solace that people
care so much about eBay that they are bothering to rant at all about the
North America site. "What we've found over time is this is like when fans of
a team call in to a talk radio station," Mr. Cobb said. "For the most part,
while they're screaming at us they're also wearing that jersey for us on
Sunday and rooting for us, with paint on their face."
http://www.nytimes.com/2005/03/06/business/yourmoney/06ebay.html
jninc1114
This a very thought provoking and interesting article for anyone involved in
eBay, whether buying or selling.
I pasted the following paragraph from the article because it is the essence
of eBay.
I started on eBay selling computer parts because I had alot of PII comptuers
that had very reliable hard/cd drives. Not to mention, simms, and floppy
drives, etc. Then, when I ran out of computer parts, I started to look at
anything that might have value to someone searching on eBay. That value
might or might not be what I perceive as value, but with millions of
members, someone has a unique reason for needing what I might have to sell.
The item could even be broken, but there might be a need. It's a gut
feeling, a judgement call, a risk maybe. I get stuff to sell from friends,
family, curbside, wherever. I keep my eyes open and capitalize on
opportunities. Alot of it is free, so whatever I make is gravy. You see what
I mean? Selling on eBay is fun and work but I can make some money too. I
have found that the essence of eBay is to keep a keen eye, go with your gut
instinct , and don't be greedy! Buyers are looking for deals on eBay, plus
honest service. That's how eBay became what it is. We need to get rid of
those greedy folks who think this is a windfall with no effort and get back
to the mom and pop atmosphere that allowed eBay to blossom in the first
place.
"That is the laissez-faire nature of life on eBay, as Ms. Whitman and others
explain it. A few homesteaders staking out a new category may feel as if
they have struck gold in their first months, but their good fortune is
guaranteed to pique the interest of other entrepreneurs. The entry of others
causes prices to fall - but if they fall too steeply, sellers stop selling,
thereby driving prices back up. In this view, eBay is a perfect
manifestation of capitalism as perceived by Adam Smith, efficient and
self-correcting. Ms. Whitman's job - and the job of those who work for her -
is to help people buy and sell but otherwise to stay out of the way."
"Stormlx" <sdnsd...@yahoo.com> wrote in message
news:BE50FC5F.5C702%sdnsd...@yahoo.com...
kuac...@yahoo.com
was that unless the profit margin was huge I would be subject to
victimization by eBay: increased charges at will.
eBay needs to show year-to-year growth forever to justify its PE ratio
and resulting stock market price. At some point it becomes a
quasi-Ponzi (borrowing from the future to pay present shareholders),
collapses of its own weight, or finds that -- despite its advantage of
size and weight -- competitors like Yahoo and/or new technology move in
and break its monopoly.
Right now eBay is trying to discern -- and to grab -- what economists
call the "rent" from its monopoly position.
It seems to me the first to go will be the services that handle sales
for casual sellers. If they are charging 30%, another 10% or so may
make just throwing the stuff out in the dumpster a more attractive
proposition.
tlagiloi
which a lot of the new start up auction sites are also using.....
so if and when they switch to bidpay or some other new service
that's when we'll start seeing an effect on ebay......
ebay losing 7000 sellers is less than 1/2 of 1% right now.....
but if ebay is losing legitimate worthy profitable sellers.....
then the retribution to ebay is even more.....
when scam sellers still remain.....
Weird Beard
news:BE50FC5F.5C702%sdnsd...@yahoo.com:
<snip>
> Five times in five years, the company has raised the price of doing
> business on its site, and each increase - whether a bump in the charge
> for listing an auction item or a jump in the commission the company
> collects on a completed sale - has provoked strident outbursts.
If filling stations showed this kind of restraint, we'd be ecstatic.