eBay has always been known for creating high-stakes drama. Back in its heyday, the San Jose, Calif.-based online auction giant prompted countless consumers to bid on everything from one-of-a-kind Pez dispensers to high-priced Beanie Babies with never-before-seen frenzy. But yesteryear’s fast-paced, white-knuckled bidding has slowly given way to harsh criticism from disgruntled sellers.
“Please quit changing the site around,” wrote an angry seller named felicitydolls on eBay’s own community forum. “It’s bad enough that you changed the MyeBay page and made it harder for us sellers to navigate the site for our selling needs…When is this all going to stop?”
“The sellers should have a say in what goes on with eBay or start a petition against eBay to have some of our seller rights and rules back for us,” said a poster named warhorse20000. “Otherwise, I see a new ghost-town forming…And what will people do when they come to shop on eBay without sellers to choose from?”
But the drama doesn’t end there. In fact, displeased sellers are only part of the problem now facing eBay. At about $16.78 (as of publication date), eBay’s stock is trading not too far above its 52-week low of $10.28 and is down more than 50% in the past 12 months. Earlier this year, the company reported revenue of $2.07 billion, down 7% from a year ago—its first revenue decline since the company launched in 1995. And eBay’s net income also fell nearly 31% to $367 million in the fourth quarter, or 29 cents a share, compared with net income of $531 million, or 39 cents a share, a year earlier.
The economic meltdown is only partially to blame for eBay’s troubles. After all, competitors such as Amazon, Taobao in China and Gmarket in Korea are booming. So what’s ailing the world’s largest Internet auctioneer? The answer lies in a number of factors including increased competition, poorly thought-out policy changes, and the public’s growing disenchantment with online haggling.
Stuck in the middle
“Consumers are less interested now in the auction format,” says Scot Wingo, CEO of ChannelAdvisor, a North Carolina-based provider of software that helps online retailers sell across ecommerce channels such as eBay. “They want to receive what they’re after faster so fixed prices are definitely on the increase.” eBay has responded to this cultural shift in spending by introducing fixed price selling as well as classified ads for a more local flavor. In fact, the auction business only accounted for 26% of eBay’s fourth-quarter revenue of $2 billion. In contrast, fixed price sales accounted for 25%, and are on the rise.
Yet offering a mixed bag of goods – namely auction, fixed price and local listings – has ensconced eBay squarely between its two main competitors – Amazon and Craigslist – when it should be carving out a niche of its own.
“There’s a perception that eBay needs to compete against Amazon and walk this middle ground between Amazon and Craigslist and that’s a mistake,” says George Goodall, a senior analyst with research firm Info-Tech Research Group in Ontario, Canada. “Someone once said, ‘You never want to be between a rock and a hard place – the rock of Amazon and the hard place of Craiglist.’ eBay needs to change its vision and try to do something unique because if eBay solely tries to compete against these two players, it’s going to get crushed.”
Failing to measure up
But that’s not all. According to Wingo, eBay needs to seriously rethink its policies, from pricing to shipping, in order to gain a long-overdue leg-up on its competition. For example, Wingo says that by charging sellers to list their goods online, “eBay creates an economic hurdle. Conversely, Amazon doesn’t have a listing fee and encourages sellers to list their entire inventory. So in the end, Amazon has come up with a system that produces a greater selection [of goods] than eBay.”
In addition to offering innovative features such as one-click shopping and a pre-paid shipping program, Amazon has also taken steps to ensure that its third-party sellers produce a documented refund policy and user-friendly product return processes that embody the e-tailer’s own high standards. The result is a unified shopping experience that lends instant credibility to otherwise unknown vendors.
It’s a branding feat that eBay has been hard-pressed to reproduce, according to Goodall. “When you look at Amazon and its unified interface, it always looks as if you’re buying from Amazon and its big warehouse…when there are actually a whole variety of resellers in the Amazon ecosystem,” he says. “But there’s always that perception that you’re buying from Amazon and that there’s a vetting process which instils confidence in consumers.”
Rethinking the online shopping experience
Nor has eBay managed to create any real sense of unification among its disparate selling units, say experts. For example, Goodall points out that when an eBay member conducts a search for a particular product, ‘Buy It Now’ items (which allow a buyer to purchase an item at a set price) appear alongside auction items, which “are two very different ways of shopping.” Bargain-seekers interested in the thrill of the hunt find themselves face-to-face with storefront-like listings, while no-nonsense consumers are forced to sift through items up for auction.
Another error that requires correcting, according to eBay pundits: a recent spate of changes to its feedback mechanism. Under eBay’s new system, buyer feedback can significantly impact how much sellers pay for eBay’s services and how prominently the auction site displays their listings to buyers. By basing seller ratings on criteria such as a customer’s satisfaction with shipping costs, eBay has inadvertently stopped many vendors from selling internationally for fear of receiving negative feedback.
“[eBay’s competitors] have consistently improved the buying experience whereas eBay has fallen behind,” says Wingo. “eBay hasn’t thought through a lot of the processes that it’s putting in place and many times, the company has taken steps back when it’s wanted to take steps forward.”
Such missteps have raised the ire of many an eBay seller. Laments Goodall, “Back in the early days of eBay, it was all about the seller and the relationship with the seller. Now what you find is that sellers are starting to feel a little alienated by eBay because of the cost structures and some of the interface changes.”
Wingo agrees. “There’s a lot of venom out there in the seller world and most people feel as if CEO John Donahoe has already worn out his welcome.”
Hope for the future
Be that as it is, eBay isn’t about to bid adieu to the online auction world. For starters, Goodall points out that “eBay is still surprisingly profitable, particularly when you look at the PayPal and Skype divisions. There’s growth and cash there – it’s just really how eBay elects to spend it.” In fact, both PayPal, an online payment outfit, and Skype, a communications software provider, are growing. In eBay’s fourth quarter, the number of people using PayPal increased 23% year over year, while Skype revenue grew 5%.
And while there’s no denying that drastic action is required for eBay to regain its former glory as an internet powerhouse, the company’s top-management should have a clear idea of what – and what isn’t – working in terms of innovative features and new policies. And that’s in large part to the outspoken sellers flooding online forums everywhere.
Let us know what you think, can eBay recover or will it go the way of Gateway, another powerhouse that has become a distant memory?
To read more case studies, visit Think+Up.