eBay Is Ready to Challenge Amazon's Dominance

In the minds of many a buyer and seller, Amazon (NASDAQ: AMZN  ) long ago passed Internet retail pioneer eBay (NASDAQ: EBAY  ) . Today, Amazon's third-party marketplace is a core enabler of the company's expanding margins and rising profits. It's the perfect catch -- a slice of every item sold, and minimal selling costs, all while providing a best-in-class experience for its 2-million-plus seller population. But now, eBay has decided to narrow the gap and adopt similar seller terms. If the auctioneer is successful in stealing these independent e-store owners, there could be big trouble ahead for Amazon.

Change in terms
For eBay, the seller agreement was long overdue for an overhaul, and it's a big reason Amazon was able to expand its third-party marketplace as quickly as it did. At eBay, sellers fall into two categories: store owners and non-store owners. Traditionally, non-store owners paid a $0.50 listing fee in addition to what the company calls a "final value fee" -- a variable number that depended on the amount the item was sold for. For store owners, eBay charged a monthly subscription fee in addition to the typical listing fees and final value fee.

To many sellers, both store and non-store, this was not nearly as attractive as Amazon's fee-less listings, for obvious reasons.

This week brought a major policy shift, and on the heels of eBay's record fourth-quarter marketplace sales of $2 billion. And the folks over at Amazon likely aren't thrilled.

Now, for non-store owners on eBay, there is just one final-value-fee of 10%, capped at $250. Each seller receives 50 free listings per month, with a $0.30 insertion fee thereafter. Store owners now have the option of a discounted annual subscription fee, starting at under $200 per year, with 150 free listings per month. If you opt for the top-of-the-line "anchor" store, you pay roughly $2,160 per month, with 2,500 free listings. Final value fees are as following:

  • 4% for computers, tablets, and gaming consoles
  • 6% for consumer electronics (think cameras)
  • 7% for musical instruments
  • 8% for motor parts and accessories
  • 9% for basically anything else you can think of

On the surface, some of these figures are more appealing than Amazon's current fee schedule, which can be as high as 20 % for sports collectibles and jewelry.

eBay is clearly trying to steal away some of that robust Amazon marketplace, but will it work?

Maybe, kind of
It won't be a clear-cut case of lower fees wins out. Sellers have preferred Amazon for a number of reasons, including its better reputation for quality and authenticity, all-in-one pricing schemes, seller protection, and higher sales prices. By becoming a somewhat less expensive outlet, eBay has not eliminated all of its sellers' concerns. Also, eBay's fees do not include PayPal processing fees, which narrow the gap between Amazon and eBay pricing.

This may appeal to e-store newcomers, who will be shopping both options closely and may sway in favor of eBay's new fee schedule. Buyers love eBay for the potential to get a real bargain -- something that Amazon cannot often offer. This dedicated audience gives eBay a unique proposition to sellers, even if they may not get top-dollar for their items.

How much of Amazon's current marketplace will be convinced to switch over? It will be interesting to see. I do not think, by any means, that there will be a mass exodus. Established Amazon sellers will not be eager to close up their e-shops to move next door for marginally lower rates (except maybe antique Rolex stores).

But, the thing is, eBay doesn't need tremendous marketplace growth like Amazon does. It has PayPal, which is the Ol' Bessie of cash cows. Though on its surface, eBay is the go-to online auction house and seller of stuff you hope is what it says it is, it is really a play on payment processing and security. PayPal is far and away the greatest at what it does. By keeping its marketplace growing comfortably, it's enough to make the company increasingly profitable and attractive to investors.

Who benefits the most?
In this move, it probably isn't the sellers who are winning big, but the company. eBay has little downside risk, here, if any. The company has a chance to further its reputation as an outlet for sellers, and make a mint on multiple ends -- subscriptions, listings, and payment processing. Amazon is the one at risk of losing market share, and as mentioned, it needs big-time marketplace growth to keep margins propped up, bottom lines juicy, and investors satisfied.

The coming quarters will be interesting for both companies. Investors ought to keep a close eye on marketplace numbers to see just how this will affect the businesses.

Everyone knows Amazon is the big, bad wolf in the retail world right now, but at its sky-high valuation, most investors are worried it's due for a correction. The Motley Fool's new premium report will tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

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