The number of auctions on Yahoo!'s site has been cut almost in half since the company instituted listing fees. The move cleared out most of the spam and advertisements, however, and allows for a more meaningful comparison to eBay and other competitors.
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There are only about half as many auctions on Yahoo! (Nasdaq: YHOO) today as there were a couple of weeks ago. On Jan. 10, the world's number-one portal began charging for the privilege of listing on its previously free Yahoo! Auctions service. The fees range from $0.20 for items with starting prices under $10, to $1.50 for auctions beginning at $50 or more. There are also fees for reserve auctions and other features. The drastic drop in the count is not a surprise. John Wong, who closely follows the online auction industry and tracks the listings of various companies, says eBay (Nasdaq: EBAY) experienced large declines when it began charging for previously free auctions in Germany and England. Yahoo! no longer provides auction totals on its category index page like eBay does, so coming up with accurate counts requires much more effort. I checked some popular categories over the last several days and found the listings had dropped 40%-50%. This sizeable drop was also observed by Wong (who has a position in both companies, as do I). He says the Yahoo! total count now stands at about 1.2 million, down from 2.2 million just before the listing fees took effect. By comparison, eBay's count has rebounded from its traditional December dip and is now around the 5.5 million mark. eBay has charged listing fees in the U.S. since it first opened its virtual doors. Yahoo! won't confirm the totals but says its counts have indeed fallen. "There's been a drop-off," says spokesperson Nancy Gallinghouse. "We expected that. We knew it would eliminate the listings that were more like advertisements than true auctions. We expect more profit for the sellers now, because there's less stuff for the buyers to sort through." While that may sound like nothing but positive spin, Gallinghouse has a point. Before the fees, a search for an item like an MP3 player would produce dozens of listings that were no more than free advertisements for retailers. Some full pages of listings would have little or no bids. I searched today, however, and found at least half the auctions for MP3 players drawing bids, some with 40 or more. Not every category has shown such improvement, but it's a big step in the right direction. Barring some extraordinary events, however, eBay's lead is simply too much to overcome. Call it the network effect, the viral effect, or critical mass: Most of the sellers are on eBay because that's where most of the buyers are. Most of the buyers are there because that's where most of the sellers are, and therefore the greatest selection of items. It feeds on itself, and it's very tough for competitors to crack. While it's much easier to make valid business comparisons now that Yahoo! is charging, consider this: Each eBay auction is much more valuable because it charges an additional "success fee" -- as much as 5% of the closing price -- based on the value of the item sold. Yahoo! chose not to add such a fee at this time. On top of that, eBay has higher completion rates, meaning its items are much more likely to sell. In a move that shows off its leverage in the U. S. market and demonstrates the strength of critical mass, eBay raised its listing fees by a small amount just a few days after Yahoo! instituted them. This means that eBay will collect four times more high-margin revenue than Yahoo! for some items. Gallinghouse seems to have no illusions about eBay's lead. "Sure, we hope to take market share," she says, "but we think there's room to exist alongside eBay, Amazon (Nasdaq: AMZN), and the others." She also emphasizes that the decision to charge for auctions was not tied to the big downturn in online advertising, which accounts for about 80% of Yahoo!'s revenues. She says this decision was made well before that downturn, and the main motive was to improve the quality of the auction site. "If you drill down and really look at things," she says, "some of the top sellers are here on Yahoo! and are doing quite well."
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