eBay Throws in the Towel

They're ripping out gavels and replacing them with cash registers.

Leading online marketplace eBay (Nasdaq: EBAY  ) is dramatically shifting its fee structure on fixed-price listings, lowering initial listing fees by more than 70%, extending those submissions to a month instead of a week, and then slightly bumping up the final value fees on successful transactions. The new rates kick in come Sept. 16.

The timing of the move is intentional. Charging sellers a flat $0.35 insertion fee on longer listings will stock eBay's virtual marketplace with a ton of fixed-priced goodies in time for the holidays, when shoppers need a little more certainty than the adrenaline-pumping fervor of its flagship auction format.

Priced to move, over
The new pricing also means that the traditional bidding wars will be harder to find on the site, robbing eBay of the excitement that it has invested so heavily to promote. Wasn't it just a few months ago that eBay's "shop victoriously" televised ads were promising that "it's better when you win"? Windorphins, anyone?

For better or worse, eBay will become more like a haggle-free flea market than a competitive bidding floor. In short, it's going to start looking a lot like mainstream online retailers like Amazon.com (Nasdaq: AMZN  ) and Overstock.com (Nasdaq: OSTK  ) . The unfortunate difference? eBay's only real mysteries lie in the quality of the merchandise and the authenticity of its seller. 

eBay has cleaned up on that front in recent years, but it certainly doesn't help to have Tiffany (NYSE: TIF  ) hollering about counterfeit jewelry being sold through eBay, or PayPal having to promote its ramped-up buyer protections. The new pricing strategy may be a fresh paint job over the high school with a notoriously violent reputation, but the metal detectors at the entrance tell a different story.

The reinvention revolution
It's never too late for eBay to reinvent itself. priceline.com (Nasdaq: PCLN  ) is an encouraging example. The company was doing fine with its "name your own price" model, where aspiring travelers bid on how much they were willing to pay for a certain airfare, overnight stay, or car rental. However, priceline is doing even better these days, now that it is offering a more conventional booking engine alongside its "name your own price" system, giving travelers the option to book a trip without the head games.

The key is mastering the delicate balance. If eBay becomes better known as a fixed-price haven than a place to bid on garage-sale Picassos, it will have a hard time distinguishing itself from sites like Amazon and Yahoo! (Nasdaq: YHOO  ) , which have set up merchant storefronts for years.

eBay has spent more than a decade establishing its identity. How many companies have the honor of being verbs? The last thing it would want is to open up the playing field for a niche auctioneer like Bidz.com (Nasdaq: BIDZ  ) to become the new standard.

Perhaps the bigger potential pitfall in dropping its listing fees on fixed prices will be out-of-whack price tags. If listing costs just $0.35 for a month of visibility, how many people will put up items at ridiculously high prices? There may be the occasional great deals, but too many sellers will aim for the moon. That would kill eBay, wouldn't it? If strolling through the site's virtual categories becomes a fruitless exercise of skimming past overpriced junk -- because all of the good deals get snapped up quickly, while the rest collect cobwebs -- it will dent eBay's already roughed-up brand.

Yes, eBay has to do something. Consumer listings have been running stagnant on the site in recent quarters. However, just because something must be done, doesn't mean that just anything should be done.

I don't mind going out on a limb in predicting that eBay will regret this move. If I can ruffle through my pocket lint until I find $0.35 in spare change, I may very well pay to list that prediction on the eBay site for a month.

More items in the eBay playbook:

priceline.com, eBay, and Amazon.com are Motley Fool Stock Advisor recommendations. Get full, free access to this newsletter for 30 days and see how you can get on the road to a better way to invest.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user with 173 positive feedbacks to show for it. He does not own shares in any of the companies in this story. He is a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (6)

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  • Report this Comment On August 20, 2008, at 2:54 PM, ayamore wrote:

    Sorry! I do not agree with you and your prediction!

    I think this new move will generate millions and millions of new listings for eBay and Millions more in profit! I think the stock will go through the roof.

    Competition between eBay sellers of same items will keep prices in check and or drive prices lower not higher as you predict. Many sellers will now come back!

    eBay shoppers regularly compare prices on Amazon and Overstock.

    With only a 35 cent listing fee for any Buy-Now item I would think that sellers could actually sell a few dollars cheaper, or give Free-Shipping.

    In my opinion eBay has made the right move!

    More and more eBay sellers are big companies. Car Dealers- manufacturers-Retailers-Wholesalers-Liquidators.

    The days of Ma and Pa only selling on eBay have long gone!

    I would like to see eBay sell more groceries!

    Banana Boxes of Groceries are tradionally sold by Liquidators. These same items could be sold on eBay.

    eBay has the potential to become even bigger! Try Gigantic!

    Pay-Pal makes a fortune and will continue to make money for eBay!

    I predict that eBay will be in the $50.00 range next year. And should eBay decide to pay a dividend to their investors then I predict $60.00 or higher next year!

    Watch and see!

    Fourth Quarter will be a blow out!

  • Report this Comment On August 20, 2008, at 5:34 PM, centralsiberian wrote:

    EBay's revenue will suffer in the short run, but they are already committed to this move. They spent the last three years booting out the garage-sale and mom-and-pop sellers. The old eBay is already gone, and the customers are starting to notice. So eBay needs to do more, and quickly. The effort to reposition the company is wasted if most people think it's the same old eBay. It is time to ditch the old logo and eliminate the "membership" for casual buyers. And then they need to start making deals with billion-dollar sellers. The trouble there is that Amazon.com got there ten years ahead of them, so this may be a rough transition.

  • Report this Comment On August 20, 2008, at 8:08 PM, cowbellzulu wrote:

    I feel this article brings up valid concerns. This is particularly the supply questions and the quality of that supply, which will then affect demand. To boost # of listings this works, but I do think there will be a cost to eBay buyers and sellers. I agree that if sellers have such a drastically smaller price (just .35 cents across any price you set for an item) to pay to put up on eBay it will result in more active listings and more all types of users selling… which in the end will result in more deadstock and “overpriced junk”... or even nice items but less price motivated sellers (due to the cheap cost to leave up on eBay). More active listings will give more sales, but I think as a permanent change and down the road, it will decrease eBay’s reputation as a place to go for the deals. Perhaps, I think maybe eBay should concentrate on, in addition to already in place seller’s feedback DSR’s, is also a seller’s percentage of successful sales. Perhaps, that is next.

    I wonder if anyone knows what eBay’s average total successful listing sales percentage is in total (counting all listing formats)? I also wonder how that successful sales percentage has changed throughout the years, and how it changed last since the last reduced graduated per price insertion fee changes? .

  • Report this Comment On August 20, 2008, at 10:03 PM, sunk818 wrote:

    > is also a seller’s percentage of

    > successful sales. Perhaps, that is next.

    Aka conversion rate (CR) or sell-through rate (STR). The fee change before today's announced was specifically targeted at auction sellers that had 100% sell-through rate. Since eBay has implemented Best Match where STR could be an algorithmic variable.

    > If listing costs just $0.35 for a month of visibility,

    > how many people will put up items at ridiculously high prices?

    You have a point. eBay's counter to this is to sort items differently based on the category. So, search results (using Best Match) for Collectibles may favor auction format, while fixed price format would be favored in Computers & Electronics.

    http://www.auctionbytes.com/cab/abn/y08/m08/i20/s03

    --- start quote ---

    In addition, eBay will expose auction or fixed-price listings more heavily in search results, depending on the category. For example, it would likely show more auction listings than fixed-price listings in collectibles categories. The changes are designed to ensure that auction listings are not buried underneath Fixed-Price listings.

    eBay will also create a new factor for its Best Match search algorithm for fixed-price listings only, called "Recent Sales." This will reward multiple-quantity listings that have had recent sales over single- and multiple-quantity listings with fewer or no recent sales.

    --- end quote ---

  • Report this Comment On August 21, 2008, at 11:40 AM, cowbellzulu wrote:

    <Aka conversion rate (CR) or sell-through rate (STR). The fee change before today's announced was specifically targeted at auction sellers that had 100% sell-through rate. Since eBay has implemented Best Match where STR could be an algorithmic variable.>

    If the fee change before today's announced was specifically targeted to auction sellers that had 100% sell-through rate, then eBay's company wide total average sold listing success % rate would have go up, right? Is that average success listing % published? The big question is did it then, and will it now with these more reduced insertion fee changes?

  • Report this Comment On August 21, 2008, at 2:27 PM, whatzit2ya wrote:

    For sellers of items with an median retail around $10 the take rate, between paypal and ebay is 18% and a skosh... 35 cents to list on ebay and the obligatory 30 cent transaction origination fee on paypal... let's see, 65 cents on $10 actually adds 6.5%, so we're talking almost 25%.

    To sell a $10 item, let's assume it costs you $5, but you had to pay S&H to bring it in, so overall cost is $5.25 add your packing materials... low average here is 50 cents. I've not even gone into accounting and incidentals like printer ink, paper, etc. Add a damaged item or a couple returns here and there and you totally negate any profit whatever.

    For some time now ebay and paypal have been exerting pressure for free shipping and now also limiting what can be charged for shipping. A sword that cuts both ways. More final value fees and commissions to the two entities and even less in profit to seller.

    Do the math and you will see that ebay and paypal in concert now make more, and do a heck of a lot less, than the seller.

    I buy wholesale and sell on ebay, but very infrequently am I able to double the cost of my items. This leads me to ask if ebay has an ulterior motive. I should think it begs the same question of investors.

  • Report this Comment On August 22, 2008, at 10:20 AM, mprystock wrote:

    Remember a month ago when eBay announced it was closing down eBay Live Auctions? There is a lawsuit against eBay filed by buyers for shill bidding and now lawsuits have been filed against eBay Live for offering a competitive edge to a few live auction sellers who may have reaped millions in revenues by using an option/tool to flood the front of eBay core categories (during the last few years). The story is being followed at http://www.legaleagles.wordpress.com

    There's much more to this story then anyone could have imagined.

  • Report this Comment On August 22, 2008, at 5:09 PM, jillybart2dogs wrote:

    eBay announced on August 20 that beginning in September they will no longer except personal paper checks, cashiers checks, money orders, and/or wire transfers. Your only option is to use PayPal (which they own) or merchant card. Small Sellers and quite a few of the larger sellers cannot afford the fee's of many if not all Merchant Cards. PayPal will be the ONLY way to pay. One of their top talking heads stated in a informational forum that if you accept any of the above payments after the cut off date you could/would be sanctioned. Does this sound like a company that is trying to keep the "little folks" and auction type selling?

    Ironic that this announcement follows on the heels of Buy.com coming on board.

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