eBay's Next Mistake

If you're a casual seller on eBay (Nasdaq: EBAY  ) -- the kind that only lists on the site when you clean out your garage or outgrow your designer jeans -- your world is about to change. Beginning June 16, the online marketplace will allow you to list your first five items in any given 30-day period for free.

There's a catch, of course. In lieu of listing fees, which typically set sellers back between $0.10 and $4 for every item posted, sellers will pay eBay 8.75% of the final value or $20 -- whichever is lower -- of the final value on successful items. That is higher than eBay's current fee on completed auctions for items that sell for more than $25.

In nightclub terms, the cover charges are gone, but eBay is slightly jacking up the drink prices once you're inside. Taking the metaphor one step closer to the beer goggles, you may not like the way the dance floor looks once the velvet rope and bouncer are gone.

Sure, this may sound like great news for the casual seller who has ditched eBay over the years, but eBay was never supposed to be the price leader. Magnetic websites like Yahoo! (Nasdaq: YHOO  ) , Amazon.com (Nasdaq: AMZN  ) , and Overstock.com (Nasdaq: OSTK  ) have failed over the years to win traffic to their fledgling auction sites by charging less. Dedicated sites like Liquidity Services' (Nasdaq: LQDT  ) Liquidation.com and the adrenaline-tickling Bidz.com (Nasdaq: BIDZ  ) are clawing away hard, but are still distant afterthoughts. eBay's success -- and recent lack thereof -- has been the result of the network effect. Sellers go where the buyers are. Buyers go where the sellers pitch their virtual kiosks.

This move is risky because it threatens to clutter the site with noise. If a casual seller gets five free swings every month, they may as well swing for the fences. Maybe I can get $500 for a Pikachu card in near0mint condition. Let's start my Best of Dexys Midnight Runners CD at $75. If you want my Bipartisanship.com domain name, I'm going to draw the starting line at $20,000.

See the problem? Wacky pricing sensibilities will be time-eaters for those browsing the site.

eBay has seen this in action. Until 2004, it traditionally offered free listings for an entire day -- typically a day or two after Christmas. I was one of the many cheapskates looking forward to that day to load up the site with freebie listings. Eventually I realized that few of the items were selling, because the site was overrun with everyone else looking to unload wares. Five years ago, eBay put in a token tollbooth, charging just $0.10 for every item during what was historically its day for free listings.

Thankfully, eBay is restricting the new offer to just five insertions over 30 days. This should help both trim the number of unmarketable listings and spread them out over longer periods of time.

Clearly eBay needs to mix things up. Marketplace revenue fell 18% this past quarter, and that is with the company's non-eBay.com classified and trading sites offsetting deeper weakness at the flagship site. The site has alienated power sellers and bored casual buyers. Normally I applaud anything that strays from the status-quo path for a fading company, but I've seen this eBay before.

Stroll through eBay.com today. Come back and stroll through the site in five weeks. I don't think you will appreciate the difference.  

If "buy it now" doesn't work, how about "read it now"?

Amazon.com and eBay are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user with 177 positive feedbacks to show for it. He does not own shares in any of the companies in this story. He is also 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 (10) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 13, 2009, at 6:09 PM, bayrefugees wrote:

    Typical eBay. Lower 1 fee and increase another making things more expensive. No wonder the small sellers are still leaving eBay.

  • Report this Comment On May 13, 2009, at 7:18 PM, rexxsales wrote:

    Again eBay is disadvantaging their customers for sellers that do not pay much in fees. When will they learn to find ways to make eBay better for their regular and professional sellers?

    http://www.rexxindustrialparts.com

  • Report this Comment On May 13, 2009, at 8:39 PM, nin4086 wrote:

    I like this change. I never listed on ebay because I did not want to pay fees if the item did not sell for the reserve price I set and I did not want to sell the item for a very low price. I used Amazon but would prefer Ebay because of its wider network. I am sure there are more people like me.

    >>

    This move is risky because it threatens to clutter the site with noise.

    >>

    I don't agree. Seller ratings already provide a very good way to separate noise.

    And this move hardly makes Ebay a price leader. It is charging more for these listings if the item sells. It is a win-win for all.

    In short, to keep growing Ebay needs to try out new ideas and this one is worth trying.

  • Report this Comment On May 13, 2009, at 9:56 PM, dgmennie wrote:

    This new eBay policy is more right than wrong because it will encourage people to list odd, unusual, and uncommon stuff. I collect phonograph records and have used eBay for over ten years to find great items that are simply NEVER offered at ANY PRICE elsewhere. This is the magic of eBay. It should not be dismissed as noise or clutter. You want the crazy stuff and plenty of it, otherwise you might as well shop at Wal-Mart.

    Too bad the writer of this article does not understand why eBay has been a huge success, despite (mostly) incompetent upper management. I say get rid of the listing fees altogether. Yes, eBay is entitled to a fair commission, but that's it! The small sellers are the ones who do the real work that makes online auction sales special and exciting. They deserve a break. Their funds should not be used to let eBay's egomaniacs buy themselves billion-dollar high-tech toys like Skype.

  • Report this Comment On May 13, 2009, at 11:10 PM, southard wrote:

    This particular author has pinned one negative article about EBAY after another. He probably list about one negative article a week. Reminds me of Herb Greenberg back in the days when he would trash companies over and over again that the partial owners of the street.com were short on. Something stinks here!

  • Report this Comment On May 14, 2009, at 1:08 AM, BellasPosting wrote:

    Hate to burst your bubble, eBay fans, but their site is already overrun with junk. And this promo will just add more worthless junk to a website already bogged down with junk.

    EBay had it right years ago, but changed their strategy later on. They raised the fees for store sellers and got most of the garbage listings off of the site. Lower listing fees, or worse, no listing fees at all, will just encourage more junky listings. Now everyone with an old eight track tape collection will be throwing them on eBay. Wonderful.

  • Report this Comment On May 14, 2009, at 8:31 AM, RicRoe wrote:

    eBay call's it a sale when they lower the front end then raise the back end. For a few seconds, sellers were even cheering until they realized that the 8.75 final value fee in the majority of cases will be significantly higher than if they listed under the existing fee structure.

    Once again, the eBay masters of less than honest communication have struck. The mandatory first 5 listing policy for every seller is another attempt by eBay to generate higher revenue while traffic declines.

    eBay recently stated they were in the auction business for keeps, attempting to belay the rumor they were looking to eliminate the format in favor of fixed price goods. They sure have a funny way of showing it.

    It is now apparent that eBay intends to financially dissuade sellers from utilizing the auction format, by increasing the final value fee for the first 5 auctions every month, and offering no option fro the seller to opt out of the sale.

    The only answer for sellerslooking to avoid the eBay 'sale' is to download turbo lister or utilize a third party listing tool since the "discount" does not apply to listings created with third party applications.

    With all the holes they have shot in their feet, 2 things about eBay continue to amaze me. One they continue shooting, and two, they do not see how their own hand with regard to significant fee increases is the reason sales are down across the board.

    Apparently, CEO Donahoe's plan will be to continue to squeeze small sellers with higher fees until each and every last one has left the marketplace.

    The plan to break the company up into seperate units seems to be getting more and more traction. With every move eBay makes, it becomes more clear that either the company is being prepped for a break up, or the CEO is completely inept and has absolutly no idea how to rebuild eBay.

  • Report this Comment On May 14, 2009, at 8:43 AM, ARJTurgot wrote:

    >> See the problem? Wacky pricing sensibilities will be time-eaters for those browsing the site.

    No, actually, I don't. Somehow increasing volume seems to be the point. Used ebay for many years, never had a problem with too much volume. Try refining your search predicates...

  • Report this Comment On May 14, 2009, at 11:49 AM, g3n3s1s wrote:

    Hasn't anybody guessed yet that EBAY is purposely being mismanaged so they can, in an orderly, & unnoticeable way push the company into either a position of liquidation or takeover for pennies on the dollar by one of the other internet big wigs. Then Donahoe & his mismanagement gang can take their Golden parachutes & exit bonuses & jump ship. Then they can relax & retire & live off of all the earlier investors money [Under the table Blood money.] for the rest of their lives ;o)

    I've never seen a Company with such great promise managed so poorly & ineffectively.

  • Report this Comment On May 15, 2009, at 1:39 PM, teddychan wrote:

    I will guarantee you that close to half of eBay's biggest sellers report little or none of their sales as income. And probably at least 3/4 do not collect proper sales tax on sales WITHIN THEIR OWN STATE (which they are required to do by law). All of these people are running illegal businesses. Right now all you need to sell is a CC # and an e-mail address. No SS #, no business license, no seller's permit.

    eBay's latest "promotion" is another attempt to get casual sellers to list more items. 90% or more of these casual sellers won't bother reporting any of their sales.

    eBay knows their business is based largely on tax evaders and is lobbying aggressively to stop any new legislation. Eventually they will lose and eBay will drop like a rock.

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