eBay's Identity Is Going, Going …Online auctions are past their prime. Neither the market leader nor Wall Street knows what that means for the future.
Posted Thursday, July 17, 2008, at 11:53 AM ET
eBay is going through an identity crisis. The company, which helped shape Web 1.0 e-commerce, now confronts a stark reality: Internet shopping no longer looks as it did a decade ago. Auction commerce—still the company's crown jewel—is losing much of its luster. In order to keep revenue and profit growing, eBay is being forced to reboot its brand.
PRINT
DISCUSS
E-MAIL
RSS
RECOMMEND...
Facebook
MySpace
Mixx
Digg
Reddit
del.icio.us
Furl
Ma.gnolia
Sphere
StumbleUponThe earnings eBay announced after Wednesday's market close indicate that the company is making impressive strides at reinventing itself. But eBay's adaptation may really be fundamental change. Will eBay 2.0 still be recognizable as eBay?
eBay is approaching a typical conundrum for network-effect business models. There's only a fixed number of people who want to sell stuff via an auction, and eBay has reached nearly all of those users already ("market maturity," in Wall Street-speak). The auction site has been around for 13 years—several epochs in Internet time—and has a high profile domestically and globally. eBay.com's reservoir of potential users is running dry, and unless eBay does something, the pool will probably stay dry.
Realizing this, eBay altered its fee structure to charge users less for listing an auction and more when the sale is actually completed. This helped flood the marketplace with listings, which eBay believes provides buyers greater choice. Having more items available, the thinking goes, will eventually lead to greater sales. If you list it, they will come.
As planned, the number of listings—currently eBay adds about 220 million listings a month—has jumped by 19 percent, including a 22 percent spike internationally. Still, eBay's user base has grown by only 1 percent each of the past two quarters (when compared with the corresponding quarters from a year ago). And that growth isn't yet converting into sales: 8 percent less of the total inventory was sold this quarter than in the second quarter of 2007. Obviously, a slumping economy is a factor: More people need money than have money to spend.
The auction business is showing other unhealthy symptoms. By switching the fee structure, eBay also enraged a hefty chunk of its die-hard seller base. Consistent individual auctioneers have been forced to make a tough choice: pay more to use eBay.com's infrastructure, and have access to eBay.com's users, or migrate to a different site and reap more of the profits themselves. Also, power sellers feel as if their wares are being buried under the influx of new inventory, some of which is being listed with immunity to eBay.com's cumbersome fees. Outside observers are worried that a desertion of eBay.com's core users would shake the foundation of the community and the site.
Perhaps the biggest shift is that eBay has been coaxing more nonauction sales to the forefront of the site. After watching listings decline in 2007, eBay began to realize shopping on the Web wasn't what it used to be. These days e-commerce is all about the buyer, not the seller. Convenience is the chief objective; the days of hyperactively monitoring your maximum bid have come and gone. Selling used goods online has become increasingly crowded, with sites like Amazon and Craigslist encroaching on some of eBay's original real estate.
As a result, fixed-price "Buy It Now" listings have been proliferating on eBay. The company has forced the issue by partnering with Buy.com to list the site's merchandise on eBay, all as Buy It Now products. Nonauction sales now account for 43 percent of eBay.com's total sales volume, up dramatically in just a few years. Because of changes to user-rating and search algorithms, those items are showing up before others in search returns. Unsurprisingly, this has also incited irritation in longtime users.
Of course, eBay's future doesn't entirely rest on a rescue of its auction site. For years, it has diversified its portfolio in preparation for the day when eBay.com started to tread water. That day seems to finally be arriving, and eBay is well-positioned to grow revenue on its lesser-known properties.
PayPal, its online payment system, is celebrating its 10th anniversary this year. It's a bigger force than ever; it now comprises 26 percent of eBay's total revenue. The problem, though, is that the majority of PayPal's revenue is still wrapped up in eBay.com transactions. If the flagship site sinks, PayPal is likely to be dragged down with it. To be fair, though, PayPal has consistently made progress in its attempts to build a self-sustaining business model. A year ago, less than 42 percent of PayPal's revenue came from sales away from eBay. Today that number is nearly 49 percent.
StubHub, eBay's ticket retailer, acquired for $310 million in January 2007, is intelligently occupying the middle of the ticket-sale Venn diagram: It both resells consumers' tickets and commissions original sales of its own. This business model dovetails nicely with the kind of site eBay wants eBay.com to become—one that works equally well for both sellers and buyers.
Skype, the Webby phone service eBay bought a few years ago for a hefty $2.6 billion, is still an odd fit with the rest of eBay's portfolio. But that doesn't mean it can't be profitable. The site posted a record number of users and record revenue. Mobile devices like the iPhone can be either Skype's gravy train or its Achilles' heel. eBay has the chance to determine which it is.
Kijiji, the company's classifieds site, continues to struggle against Craigslist, the Goliath. But the sector holds tremendous growth potential if eBay can just figure out how to crack Craigslist's armor. For now, its best shot is to try and take it down within the halls of justice.
All of this returns us to our frustratingly open-ended rhetorical question. Is eBay 2.0 still the same eBay?
Wall Street, in its own fickle way, has been grappling with that question. Analysts, business reporters, and investors have wrestled with the steady decay of a former stock titan and haven't come to a consensus on whether eBay 2.0 holds the promise eBay 1.0 once did.
As a result, eBay's executives are becoming increasingly accustomed to roller-coaster rides. For months investors and journalists have been climbing over one another to cast doubt about eBay's future. Reports of a seller exodus, a declining interest in auctions, and trouble in the courtroom were interpreted as the first warning signs that eBay had reached the peak of its business model and had no way to go but down.
And even fairly impressive earnings announced Wednesday did not lift the gloom; the stock was down some 13 percent before noon Thursday, after climbing 4.5 percent in anticipation of the report Wednesday. Largely, this is because eBay's outlook for the rest of the year didn't project further growth and therefore wasn't quite up to snuff with analysts' predictions.
On the surface, Wall Street is right—eBay's stock performance and future outlook is so incremental it's not very exciting. But the small top- and bottom-line progress made doesn't tell the whole story. eBay is trying to redefine itself within an evolving medium that it once helped define. The greatest risk for eBay is that while the company shapes its future, it will ignore the immediate crisis at hand—that of profit, not identity.
Slate Editors Spent All Day Arguing About Cancer Screenings and Health Care Rationing
What a Meal of Beef Stomach and Duck Throats Taught Me About the New China
The Blind Side: Illegal Use of Sandra Bullock
Train, Plane, or Automobile? What's the Greenest Way to Travel for Thanksgiving?
The Two Craziest Men in Hollywood Teamed Up To Make This Movie
Did Easy Rider's Predictions About America Come True?
Remarks from the Fray:
Who says they have to grow? They're already huge. Even if they shrink a little, their place in the market is secure.
Auctions are a hassle for small potatoes sales, or for things that have an easily identified SKU that makes selling them for a fixed prize on Amazon doable-- I sell books all the time on Amazon, for instance. But eBay is still my fallback for when I want to get rid of some custom lot of junk or other weirdness. There's really nothing eBay can do about that.
But, in the end, the online auction market has matured. People get fewer amazing deals or windfalls as either buyers or sellers. Plus, nearly all the action takes place towards to end of auctions, with people having largely figured out that sniping is the optimum strategy. This takes some of the excitement out of the service.
--yesno
(To reply, click here.)
Rising shipping costs makes bulky, but otherwise inexpesnive items, unaffordable. Also, the shrunken dollar makes overseas purchases cost prohibitive, and rising fuel costs and the Post Offices' abandonment of surface mail options pretty much negates any advantage the exchange rate would give to foreigners buying here.
--seed_drill
(To reply, click here.)
Not mentioned in this post is the fact that eBay has long been the home on the web for COLLECTORS of various things. These one--of a kind items are best sold by auction. Collectors would make a pretty good permanent core clientelle for eBay too, because we tend to spend immoderately on our collections.
And selling collectible stuff to us is in fact how eBay made its name. It brought us easy access to great collectible items that we had always had to search out with a lot of driving around and poking through junk before. But the number of collectors of things can't grow indefinitely, and here's where the greed comes in. What is happening to eBay is an ever-more-common story in the US: a company becomes very good at doing something a lot of people want, but to please its shareholders it tries to switch to doing something almost all people want, in order to have continual growth.
In the process the business loses or abandons its core clientele. Maybe that works out OK. Often it doesn't. When it doesn't the business is in trouble with shareholders. Too bad! But what we core users see as a worse result is that a fine service had been created which could have continued indefinitely with good success but for the greed that's built into our system, and which seems to be getting worse in recent years.
Not all businesses can continually grow. American businessmen and investors used to know this and, for instance, would accept steady dividends in lieu of stock price appreciation as adequate return. But an economic system such as ours is now becoming will destroy one useful service after another, indefinitely.
--dianasatyr
(To reply, click here.)
(7/19)