WSJ: As eBay Grows, Site Disappoints Some Big Retailers
Tam
February 26, 2004
PAGE ONE
As eBay Grows, Site Disappoints Some Big Retailers
Offering Many Identical Items Undercuts Price for Sellers Like
Inventory Liquidators
By NICK WINGFIELD
Staff Reporter of THE WALL STREET JOURNAL
To fans of eBay Inc., growth opportunities for the giant online bazaar
have long seemed as inexhaustible as the heaps of old cameras, clothes
and other unwanted stuff in attics and storerooms.
Yet some important eBay merchants are discovering one of the first
potentially significant limits of the site as it seeks to expand: It
hasn't always been a good place for corporations to move big volumes
of identical items.
Two years ago, ReturnBuy Inc. was busy using eBay to liquidate unsold
merchandise for electronics retailers and manufacturers. For a time,
ReturnBuy had one of the highest eBay sales tallies of any merchant on
the site. But it hit a wall: Whenever it tried to sell more than a few
dozen digital cameras, laptops, or other lookalike items, it
effectively crashed the price. Last year, ReturnBuy filed for
bankruptcy and sold its assets.
The issue is basic economics. Because of limited demand for any
particular item from users of the eBay auction site, merchants that
offer a big supply of identical items often drive the price way down,
just as a stock sinks if an investor dumps a large block on the
market. On the flip side, some big sellers that trickle goods onto
eBay have found they can't sell enough to make the site worth their
while.
EBay officials acknowledge they often don't have enough buyer demand
to soak up tons of look-alike merchandise. "If you want to move a
thousand of the same computer in a day, eBay may not be one of the
most effective channels," says eBay's chief executive, Meg Whitman.
Walt Shill, the former chief of ReturnBuy, puts it differently: "EBay
is two inches deep and miles wide."
This limit is curbing eBay's appeal for some large companies, many of
which have experimented with the site as a way to shed excess
inventory. Fortunately for eBay, the demand ceilings aren't a serious
hitch for its legions of smaller merchants -- who sell wide selections
of goods such as antiques and used CDs. EBay is still thriving, thanks
to its continued appeal among that class of merchants. But at some
point in the future, as it seeks to keep up its torrid growth rate, it
may need to depend more on big-business sellers.
EBay says its sellers, on the whole, are doing well, a claim backed up
by eBay's financial performance: Earnings last year jumped 77% to $
442 million, on revenue that rose 79% to $2.17 billion.
The adaptability of its business -- in new markets such as cars and
new regions such as Asia -- has made eBay a Wall Street favorite. Its
stock-market value is more than $43 billion, nearly equaling the
combined value of retailers Best Buy Co., Costco Wholesale Corp. and
Sears, Roebuck & Co. EBay's stock is up 73% in 12 months and trades at
a lofty 65 times this year's projected earnings, compared with 18 for
the S&P 500. The stock, adjusted for splits, is higher than during the
dot-com boom -- a distinction that richly valued Internet peers such
as Amazon.com Inc. and Yahoo Inc. can't claim.
Starting several years ago, eBay made a push to get big retailers and
manufacturers to sell on its site, hoping to tap the vast supplies of
out-of-season and returned goods. It was part of a larger drive to
move beyond the original base of hard-core collectors and lure more
shoppers for everyday items such as computers and sporting goods. Some
big retailers signed on, and some of those say they continue to sell
enthusiastically on the site. Among them are Sears, Sharper Image
Corp. and Hewlett-Packard Co.
Others have been disappointed. About a year ago, Home Depot Inc. says,
it stopped listing tools and such for auction on eBay after it found
it could sell more through its own Web site. Last spring, Omaha Steaks
International Inc. halted two years of selling meat on eBay because it
couldn't get high enough prices to make a profit. It decided to try a
more traditional online retailer, Amazon.
Just this month, consulting firm Accenture Ltd. decided to shutter a
venture that helped companies sell large volumes through eBay by
handling their listing, shipment and other details. The venture,
Connection to eBay, began two years ago amid hearty endorsements from
eBay executives. Accenture says it couldn't find enough clients to
commit to using eBay for significant amounts of merchandise.
Competitive Market
Competition on eBay from sellers large and small has also made the
site a more challenging place to do business. In recent years, sellers
have poured goods into big eBay categories such as electronics and
sporting goods, crimping the prices some sellers used to get. When it
started selling on eBay several years ago, Allwall Technologies Co.'s
Art.com would list 8,000 or so products a week for auction. It has
scaled back, in part because of an explosion of smaller rivals in the
eBay site's art category. "It's to the point where we can list only a
few hundred products on eBay and do that profitably," says Michael
Marston, Art.com's chief strategy officer, who says business on the
company's own Web site is thriving.
EBay executives won't comment on specific customers but say the site
isn't yet a big enough source of sales to hold the interest of some
large companies. "Unless we can deliver sales of $20 million to $30
million" a year to big companies, says Ms. Whitman, "it's probably not
worth their time from an investment point of view."
ReturnBuy's experience shows the problem. Founded in 1999 by two
business-school friends, it had a simple goal: Help retailers and
manufacturers get more for returned and overstocked merchandise than
by selling it for pennies on the dollar to liquidators. The answer was
to put it on eBay. The idea sparked interest at eBay, and the San
Jose, Calif., company invested in ReturnBuy alongside venture-capital
firms.
ReturnBuy opened a giant warehouse in Columbia, S.C., to store the
computers, DVD players and other goods that flooded in. It hired
dozens of workers to take photos for eBay listings and respond to
bidders. ReturnBuy's sales jumped to about $25 million in 2002 as it
signed up clients such as Palm Inc. and Electronic Arts Inc.,
according to Mr. Shill, the former ReturnBuy chief executive.
At the Consumer Electronics Show in Las Vegas in early 2002, he says,
eBay executives such as Ms. Whitman joined him in wooing Alan
McCollough, chief executive of Circuit City Stores Inc. The big
electronics retailer agreed to let ReturnBuy market a portion of store
returns on a two-month trial.
Often, ReturnBuy had hundreds of identical items from Circuit City to
sell. They flooded the eBay market, depressing prices bidders were
willing to pay. Though eBay limits to 10 the number of identical
auctions any one seller can have going at a time, Mr. Shill says
ReturnBuy easily got around the cap. It bundled some products with
accessories. and it offered some goods for fixed prices, an option
available on the eBay site.
With its stacks of digital cameras, laptops and such, ReturnBuy found
it could get acceptable prices for just the first 20% or so of its
merchandise. Mr. Shill reviewed the figures with dismay. "We said,
'Holy cow, this isn't working,' " he recalls. Circuit City sharply
scaled back its business with ReturnBuy, Mr. Shill says. Circuit City
declined to comment.
ReturnBuy filed for Chapter 11 bankruptcy protection early in 2003.
Though the company made mistakes such as spending too much on its
warehouse, Mr. Shill says, its fatal miscalculation was how much it
could push through eBay. "We were outstripping demand," he says.
Some sellers in other categories have faced similar problems. Callaway
Golf Pre-Owned, which has a deal with Callaway Golf Co. to sell clubs
traded in by buyers of new ones, started selling on eBay several years
ago. It was initially pleased, says David Schofman, president of the
used-clubs retailer, a unit of Trade Up Commerce Inc. of Austin,
Texas. He says about 18 months ago, eBay encouraged his firm to
increase its listings.
Callaway Golf Pre-Owned hired a team of programmers to tie its
inventory systems in with the eBay site. It more than tripled the
number of clubs it listed. The impact was swift: The proportion of
listings that found buyers fell to 50% from about 90%. Yet under the
eBay system, it had to pay fees to list items even if they didn't
sell. "We're not happy with their ability to move product in any kind
of volume," Mr. Schofman says. "We really hit the wall with them."
Callaway Golf Pre-Owned has trimmed its eBay sales and is emphasizing
its own Web site.
Mom and Pop
In the near term, eBay doesn't need bigger companies to sell through
the site. It has plenty of smaller ones. Its core merchants remain
mom-and-pop entrepreneurs who run steady eBay businesses. EBay
estimates that its 95 million registered users include more than
430,000 full- and part-time sellers on the site. It figures these
types of sellers accounted for 95% of the $24 billion in goods
merchants sold through the site last year.
While some of these merchants have warehouses and small staffs, many
face little in the way of overhead expenses, operating out of their
homes and working long hours. The small merchants sell a variety of
flea-market and yard-sale goods and can change the mix if competition
chews away the profits in a category. There are also countless people
who just use eBay to clear their closets, with minimal concern for how
much they make.
Among big businesses, eBay executives say those with diverse products
-- different models or categories of merchandise -- do best on the
site. The company's general merchandise manager, Michael Dearing, says
sellers who stumble usually have operational problems in their own
businesses or don't have unique or well-priced products.
EBay says its top sellers overall are doing more business than ever:
The sales total required to be one of the site's top 10,000 merchants
has doubled over two years, to the low six figures. "The good news is
the growers outnumber the slowers by a wide margin," Mr. Dearing says.
Some corporate sellers have held back merchandise to avoid flooding
the eBay market. Motorola Inc. began selling cellphones,
walkie-talkies and other products on eBay in April 2002. This was
profitable for Motorola, says Chip Yager, its director of channel
development. But Motorola pulled the plug on auctions of individual
goods when it decided it couldn't increase its eBay sales without
hurting prices. "There was no way it was ever going to scale to be
anything meaningful for us," Mr. Yager says.
Motorola tried a different tack on eBay. With the help of
ChannelAdvisor Corp., a firm that assists large eBay sellers, Motorola
shifted its activities to an area called eBay Wholesale, where
merchants auction items in bulk.
That didn't work out, either. Last year, Motorola began moving the
majority of its bulk auctions to a private auction site operated for
it by ChannelAdvisor. The reason: It wanted to avoid the hassle of
eBay bidders who don't pay for auctions they win. These aren't a
problem on a private auction, where bidders come by invitation only.
Mr. Yager also disliked the widespread eBay phenomenon of "sniping,"
in which shoppers submit last-second bids and give others no time to
counter before the auction closes. In Motorola's private auctions,
bidding is extended if someone submits an offer in the last few
minutes of an auction. Mr. Yager considers Motorola a graduate, of
sorts, from eBay. The site "was the right place for us to start" in
online auctions, he says.
Some executives close to eBay, such as ChannelAdvisor CEO Scot Wingo,
say the site could do more to spur demand when a seller has hundreds
or thousands of an item to unload. Mr. Wingo says eBay could promote
the sales on its home page, as do some Internet retailers that
specialize in liquidation merchandise such as Overstock.com Inc. EBay
allows sellers to advertise auction listings on the home page, but Mr.
Wingo says his clients don't want to pay extra for this.
EBay's longstanding "level playing field" policy prohibits giving big
sellers special perks or fee discounts. Mr. Wingo, in whose company
eBay invests, suggests eBay might need to rethink its policy if it
wants to encourage large businesses to use the site. "There could come
a day when it has to change for eBay to keep growing at the rate it's
growing at," he says. EBay says it has no intention of modifying the
policy.
URL for this article:
http://online.wsj.com/article/0,,SB107774820022339304,00.html
Rita Ä Berkowitz
"Tam" <tamsu...@yahoo.ca> wrote in message
news:645cf12c.04022...@posting.google.com...
> For comment:
>
> February 26, 2004
> PAGE ONE
>
> As eBay Grows, Site Disappoints Some Big Retailers
> Offering Many Identical Items Undercuts Price for Sellers Like
> Inventory Liquidators
>
> By NICK WINGFIELD
> Staff Reporter of THE WALL STREET JOURNAL
Tam, they are just finding this out at the WSJ? The regular contributors of
this group stated pretty much everything said in that article. What really
surprises me is that some of the major corporations finally realized that
they were losing money after two years? It's no surprise that they were
since they were competing against themselves by listing too many similar
items at the same time. It doesn't take extensive market research and years
to figure out that this a strategy guaranteeing failure for anyone using it.
At least Walmart is business savvy enough to not to make this stupid
mistake.
Rita
my-wings
>
> February 26, 2004
> PAGE ONE
>
> As eBay Grows, Site Disappoints Some Big Retailers
> Offering Many Identical Items Undercuts Price for Sellers Like
> Inventory Liquidators
>
> By NICK WINGFIELD
> Staff Reporter of THE WALL STREET JOURNAL
>
>
> EBay says its sellers, on the whole, are doing well, a claim backed up
> by eBay's financial performance: Earnings last year jumped 77% to $
> 442 million, on revenue that rose 79% to $2.17 billion.
>
This is like one of those little problems they give you when you take a
class in logic. Find the flaw.
> URL for this article:
> http://online.wsj.com/article/0,,SB107774820022339304,00.html
Interesting article. Thanks for posting it.
Alice
R. Totale
>Walt Shill, the former chief of ReturnBuy, puts it differently: "EBay
>is two inches deep and miles wide."
Shilling never works on eBay, just ask Donbot.
>This limit is curbing eBay's appeal for some large companies, many of
>which have experimented with the site as a way to shed excess
>inventory.
Thank the heavens. The sooner that crap gets off the site, the better.
>EBay's longstanding "level playing field" policy prohibits giving big
>sellers special perks or fee discounts.
They did get to keep their URL usernames, though - see hifi.com for
example.
R. Totale
<night_...@worldnet.att.net> wrote:
>> EBay says its sellers, on the whole, are doing well, a claim backed up
>> by eBay's financial performance: Earnings last year jumped 77% to $
>> 442 million, on revenue that rose 79% to $2.17 billion.
>>
>
>This is like one of those little problems they give you when you take a
>class in logic. Find the flaw.
It's right there in the article...
>>The proportion of
>>listings that found buyers fell to 50% from about 90%. Yet under the
>>eBay system, it had to pay fees to list items even if they didn't sell.
Try a hard one next time ;)
Deborah Stevenson
>Walt Shill, the former chief of ReturnBuy,
I bet he never tired of jokes about that.
What's interesting is this is somewhat contrary to the opinions that
several sellers have been expressing here about eBay's direction.
--
Deborah Stevenson
dste...@OBSTACLESuiuc.edu
[eliminate OBSTACLES to email me]
Jonathan Sachs
news:c1l2ug$81t$7...@reader2.panix.com...
> What's interesting is this is somewhat contrary to the opinions that
> several sellers have been expressing here about eBay's direction.
Gee whiz, since eBay is probably promoting its service to every big retailer
distributor and manufacturer it can find, it isn't surprising that some of
them end up pleased and others don't.
My main reaction is if enough big retailers become unhappy with eBay, they
might have the resources to underwrite a viable competitor. At the very
least, this could force eBay to compete for _somebody's_ business, and some
of the benefits might trickle down to us. If we were really, really lucky,
we might even get to play.
bl...@adelphia.com
What does it tell you about these computers, cell phones and cameras?
Maybe....they just manufactured too many? If ebay can depress the
price with a relatvely small number of any one item, maybe they are
priced to high?
Further.....buying a NEW item from Circuit city can be a sad
experience. Buying an item that has already been returned by a
customer has got to be appealing to only a few very brave individuals.
Much of this stuff is hopelessly damaged or been in storage so long
its obsolete.
bl...@adelphia.com
wrote:
I wonder if that represents all buyers, or just the big companies
discussed in the article. If so, where was the cutoff...at 1000
listings a week? 10000?
Funny how these stats are not available from ebay but the WSJ gets
'em.
Rita Ä Berkowitz
"Deborah Stevenson" <dste...@OBSTACLESuiuc.edu> wrote in message
news:c1l2ug$81t$7...@reader2.panix.com...
> In <645cf12c.04022...@posting.google.com> tamsu...@yahoo.ca
(Tam) writes:
>
> >Walt Shill, the former chief of ReturnBuy,
>
> I bet he never tired of jokes about that.
>
> What's interesting is this is somewhat contrary to the opinions that
> several sellers have been expressing here about eBay's direction.
>
Well, eBay is moving forward at a blinding pace, just not for some
companies. Their stock is on a continual rise. The problem with some of
these "big" companies is that they want eBay to be something it can never
be, an outlet to move massive quantities of merchandise at retail prices.
They soon realize that most people using eBay are subscribing to the "flea
market" and "swap fest" mentality and don't want to pay retail. In the end,
eBay will finally realize that the high volumes of small sellers are the
golden egg.
Rita
my-wings
"R. Totale" <slang...@yahoo.com> wrote in message
news:d03s3055q6q2ls7g5...@4ax.com...
You definitely win on internal supporting evidence. The article's logic
seems to be that eBay's financial performance is in direct relation to the
financial success of its sellers.
eBay's financial performance will be good if and only if eBay sellers are
doing well.
eBay's financial performance is good, therefore eBay sellers are doing well.
As you pointed out, however, eBay makes money on every transaction, even
though the sellers don't.
I'd like to know just how much of eBay's income comes from listing fees vs.
FVF's. The article isn't clear whether or not that 50% number is only for
the big stores, or if it's for all of eBay.
Alice
Tam
> Well, eBay is moving forward at a blinding pace, just not for some
> companies. Their stock is on a continual rise. The problem with some of
> these "big" companies is that they want eBay to be something it can never
> be, an outlet to move massive quantities of merchandise at retail prices.
> They soon realize that most people using eBay are subscribing to the "flea
> market" and "swap fest" mentality and don't want to pay retail. In the end,
> eBay will finally realize that the high volumes of small sellers are the
> golden egg.
I have been doing some legal-journalistic research on PayPal. I think
they may come to regret paying $1.4 bn for that. It is an unregulated
financial services enterprise, and it is apparently being used for
moneylaundering. It and Western Union and the various hawalas are
likely to be caught up in the anti-terrorism battle. I know that
Citibank has tried and failed to develop a viable competition for it.
If Citibank gets more serious, they will pay less attention to the
promotion of their own money transfer service and start throwing money
at lawyers on the basis that eBay's combination with PayPal is a
monopoly.
Or so it seems to me, at this early stage of my research. As of now
there are very few PayPal law cases (I checked Lexis and Westlaw), and
lots of complaints on the Internet (paypalsucks.com, etc.)
Andrew L. J. Heenan
> Well, eBay is moving forward at a blinding pace, just not for some
> companies. Their stock is on a continual rise. The problem with some of
> these "big" companies is that they want eBay to be something it can never
> be, an outlet to move massive quantities of merchandise at retail prices.
> They soon realize that most people using eBay are subscribing to the "flea
> market" and "swap fest" mentality and don't want to pay retail. In the
end,
> eBay will finally realize that the high volumes of small sellers are the
> golden egg.
Ebay don't really care who pays them listing fees and FVF - and any quick
search confirms that as each year passes, the 'little man' (and woman) is
being squeezed by bigger and bigger 'powersellers', who are happy to sell at
fixed price - or with one bid. If they weren't getting enough, they'd stop
listing ... but more and more sellers are big boys.
Thrift stores and garage sale prices have gone up as people scoured them for
ebay, while the bulk buying power of the biggies has allowed them to
compete.
ebay buyers might prefer to buy from little people - but what they really
want is value for money.
In many categories, you'll see the prices drop to nothing - the little man
cannot do well on 10% (Ask Don), while the powerseller can thrive on 5%.
No amount of nostalgia will change that, and ebay doesn't care - why would
they?
The future of ebay is big business - the future of the 'little man' in ebay
is niche selling by experts - the personal service that the big boys don't
want (too resource-heavy).
--
Andrew
eBay Weirdities
http://www.weirdity.com/ebay/
Frank Provasek
Visa and Mastercard recently reached a $3 billion settlement with retailers
for their
branded debit cards which charge the retailers the same rates as the credit
cards (with their associated loss rates) when the money is actually 100%
assured since it come from someone's checking account. This is exactly
what Paypal does by charging business accounts the same 2.7% whether the
money comes from a credit card or simply a Paypal balance.
Eric Bustad
The difference is that to take credit cards at all, you pretty much had
to go along with taking these debit cards as though they were also
credit cards. There are many other options for taking credit cards
besides Paypal.
= Eric
Rita Ä Berkowitz
> Maybe....they just manufactured too many? If ebay can depress the
> price with a relatvely small number of any one item, maybe they are
> priced to high?
>
The price depression you talk about is not caused by eBay it's all about
supply and demand with competition from other sellers factored into the
equation.
> Further.....buying a NEW item from Circuit city can be a sad
> experience. Buying an item that has already been returned by a
> customer has got to be appealing to only a few very brave individuals.
> Much of this stuff is hopelessly damaged or been in storage so long
> its obsolete.
This is the prime reason I have never been in a Circuit City store in over
10-years.
Rita
Rita Ä Berkowitz
retailers
> for their
> branded debit cards which charge the retailers the same rates as the
credit
> cards (with their associated loss rates) when the money is actually 100%
> assured since it come from someone's checking account. This is exactly
> what Paypal does by charging business accounts the same 2.7% whether the
> money comes from a credit card or simply a Paypal balance.
>
This is a totally different issue than what you are assuming PayPal is
doing. All these electronic transfers take the same amount of work and use
the same amount of resources no matter how they are funded. I agree that
PayPal should charge for all "business" related transactions no matter how
they are funded, same with Visa/MC for business related transactions. As a
business owner you are paying for the "service" to transfer funds to your
account. What is unfair about that? If you were using a personal account
to send your brother or friend a few bucks there should be no charge, which
there isn't.
Rita
Ian Stirling
>> What does it tell you about these computers, cell phones and cameras?
>> Maybe....they just manufactured too many? If ebay can depress the
>> price with a relatvely small number of any one item, maybe they are
>> priced to high?
>>
>
> The price depression you talk about is not caused by eBay it's all about
> supply and demand with competition from other sellers factored into the
> equation.
It can be very noticable for stuff that normally is available in
small quantities.
For example, I have two toshiba 3110CT laptops bought off ebay.
This was a long run of maybe 100 laptops being sold 4 or 5 a day.
The price at the end of the run was some 10-15% down.
There are only going to be so many people looking for a certain item
on ebay at a given time.
If you saturate the market so that you've given most of the interested
people their goods, then your price will drop.