eBay, Hike, and Other 4-Letter Words

It never fails. Whenever online auctioneer eBay (Nasdaq: EBAY  ) inches up its fees -- as it did last week -- you hear a grumble from the masses along with loud proclamations declaring that eBay has finally stretched the limits of its pricing elasticity.

Yet organizing a revolt against eBay is a lot like trying to boycott air. It's hard to get folks to rally against something they have grown used to. You may as well stage a coup d'etat against drinking water or ankles.

It's not that I think the world can't live without eBay. It used to, right? It's just that if fees were all that mattered in the auction space you would have thought lower-priced auction platforms such as Yahoo! (Nasdaq: YHOO  ) and Amazon (Nasdaq: AMZN  ) would actually matter.

But those two popular sites with auctioneering ghost towns are notable in that they have each done a decent job of enabling the small entrepreneur to grow an online presence through Yahoo! Stores and Amazon's zShops respectively for as little as $39.95 a month. That's why it's interesting that eBay's latest fee hike hits the virtual storefronts of eBay Stores merchants the hardest.

While eBay hiking its tenant fees from $9.95 a month to $15.95 a month next month may seem petty relative to its rivals, eBay's transaction charges on completed sales run much steeper (and that gap will grow even wider as the new fee scale has eBay collecting a larger chunk of the final value of completed sales). In other words, this move has the potential of driving away some of its most successful volume dealers, and that's certainly not a good thing. While no one has been able to stand up to eBay on the consumer-to-consumer auction side, it may be biting off more than it can chew by getting greedy on the more competitive retailing side.

Hopefully, eBay will be shedding some more light on its price hike decision when it reports earnings tomorrow afternoon, even though we are three months away from truly knowing how eBay users will take to the 2005 hikes. If the transition goes smoothly, analysts will have little doubt but to revise their profit and margin targets higher. Again.

But is eBay susceptibly mortal? While the company's third-quarter results indicated a healthy 38% spike in active users and a 48% uptick in listings over last year's performance, its stateside transaction revenue rose by just 29%. A lot rests on the company's assumption that eBay sellers may shout their throats hoarse at the new fees but will ultimately swallow the eBay pill. That's been the case in the past because the site works and the moves are transparent to the buyers beyond any price hikes that the sellers and auctioneers pass on to the end user. Yet there has never been a company with infinite pricing elasticity -- even the makers of air, drinking water, and ankles.

Will higher fees at eBay turn you away as a seller? What are your alternatives? How wide is eBay's pricing flexibility? All this and more -- in the eBay discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user -- with 100% favorable feedback through 144 transactions. He does not own shares in any of the companies mentioned in this story and he is a member of theRule Breakersanalytical team, seeking out the next great growth stock early in its stage of defiance.