eBay Gets Even Cheaper

The online auctioneer singles out cheap media for new fee cuts.

Rick Munarriz
Rick Munarriz
Feb 12, 2008 at 12:00AM

The bar is getting even lower at eBay (Nasdaq: EBAY), but it may not be enough to appease incensed sellers.

In an effort to please its riled-up community, the online marketplace is once again shaving its listing insertion fees. The difference this time is that the new wave of cuts is limited to media items with a starting price of $25 or less.

A little color is in order. Just days after alerting investors during last month's conference call that it would be overhauling its pricing strategy, eBay announced a new fee schedule that shaves as much as 50% off listing insertion fees, but offsets those seller savings by jacking up the percentage it collects from the final values of successful auctions.

The new pricing approach is ironic in that it penalizes successful sellers.

Let's flesh it out with a real-world example. Let's say that you list a book for a fixed price of $20. Until the new prices go into effect a week from Wednesday, you would pay $0.60 for the listing. If it sells, you would pay 5.25% of the price -- or another $1.05 -- in fees. In short, you paid $1.65 to eBay to sell a $20 book.

Before yesterday's media-specific revision, that same sale would have run the seller $2.30 starting next week. The insertion fee had dropped to $0.55 a share, but the final value percentage is going up to 8.75%. Yes, new listings include free use of eBay's photo-friendly Gallery, but it's easy to see where a bookseller just getting by under the old rates would be crushed under the new pricing structure.

eBay portrayed the pricing move as a rebalancing. The media called it reductions. Sellers saw through that, especially frequent sellers of low-priced media merchandise like DVDs, CDs, and books.

Yesterday's announcement would drop the listing fee on the same auction to just $0.35. The final commission would be a still-stiff $2.10, but it's more cost-effective than the old rate if less than a third of a seller's items smoke out buyers.

This is a bold move for eBay, especially when you pair it with other new features to the site, such as penalizing poor sellers in its search results or limiting the payment options for new sellers.

eBay doesn't have much of a choice. It's competing against giants such as Google (Nasdaq: GOOG) and Yahoo! (Nasdaq: YHOO) that can deliver paid-search leads to sellers for as little as pennies for each introduction.

It's also facing competition coming from cheaper auction listings on Overstock (Nasdaq: OSTK), free classified listings on Craigslist, and the reality that many of these media items may one day be swapped digitally with little need for eBay as a transactional enabler.

Yes, companies such as Amazon.com (Nasdaq: AMZN) and Apple (Nasdaq: AAPL) would love nothing more than to serve you media downloads and rentals. That may not be the reason why eBay chose to single out the media category for its revised price cut, but it obviously doesn't want to price itself out of the market while there is still a market to be priced out of.

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