Thursday, February 14, 2008

eBay's new fees


A couple of comments on eBay changing their fee structure and the ensuing user outrage:

- The network effects of the online buying and selling market are huge; if all firms offered the same fee structure, only one firm would survive. Once a site got a few more people, it would be more profitable to sell there since there would be more bidders, which would attract more sellers, which would attract more bidders, etc. That's why all of the fledgling auction sites from the late 90s went by the wayside-- it's not about offering a lower price, it's about attracting the most people...and only one place can attract the most. A move like this would have meant death in 1999, so I'd say eBay's decision reflects its knowledge and comfort with its place in the market.

- That being said, a large enough shock to the fee structure could make it impossible for someone to sell at a profit at eBay but for profit somewhere else. In order for that to happen, though, you're going to need a lot of buyers to jump ship along with the sellers; otherwise, they're going to lose even more money at the new place because even though the fees are lower, the final prices aren't as high. Traffic is the name of the game in auctioning-- the more, the better. I just don't see that happening-- that's a massive coordination problem. I know the talk of a one week strike is an attempt to move down that path, but it's not focused on the buyers, it's focused on the sellers. They could try to act as a group and all move, and let it be known to the buyers where they are headed...first mover problem, anyone? Collective action problem, anyone?

- I am surprised at the modest success of the fringe/specialty auction sites that I've been reading about in the eBay stories. Then again, I nor many others hadn't heard of them prior to the story...that might be a problem in the long run. Maybe they can operate on a smaller scale and serve a dedicated niche.

- Was I the only one that found the threat of not selling for a week mildly humorous? Let me get this straight-- you're not going to sell for a while, but you're not going to leave, and while you're not selling you're hoarding your goods to sell when you decide to jump back on? A commitment to sell goods on another site for a week would have been more effective, but the funny thing about profit motives...

- Based on that, why didn't an emerging site offer to list every good from an eBay seller for free during that week? It might not work out, but the traffic would go up, and if you could get enough buyers to head over there (and the sellers, I'm sure, would be very active in letting previous buyers know about this) you might get the ball rolling. Maybe someone has; I'm out of the loop on this.

47 comments:

Dan said...

You'd think I'd be more aware of the details seeing as I work in the field, but I think the major fee change being discussed here is that they are going to start including the shipping cost in the final sale amount that they charge a percentage of. This does slightly increase the cost for sellers, but it solves a huge problem for buyers. Obviously, as a seller, if you can collect money under two categories and one is taxed and the other isn't, you are going to abuse the "free channel". We see this in sellers posting their items with ridiculously high shipping fees, this gets them more money (and cheats some unwary buyers). So, if you want to discourage this buyer unfriendly practice, it's quite natural to remove the incentive that is making it attractive to sellers. So, sellers may complain a little, but they can always add a few percentage points to their shipping cost so that they aren't loosing any money, and shipping costs will start becoming more regular and reasonable and will make the market friendlier to buyers which ultimately profits everyone. I think buyers would largely prefer to pay the passed on thirty cents of shipping charge and not be caught by surprise shipping amounts. The tradgedy is that many buyers don't pay attention to the shipping cost until after the auction has closed, at which point they are legally required to pay. Even if they suddenly find that the stamp they just bought is going to cost $50 to ship. It's a loophole that devious sellers exploit. It is good for the health and trust of the market to level the playing field by charging equally.

Interesting side question: If you run an auction business, is your business best grown by responding to the needs of the sellers or the needs of the buyers? I'll give you a moment to think about it, answer in the next paragraph.

Okay, got your answer in mind? Well, the experiential answer that I think eBay has found is that the business grows most when you focus on buyers and making their experience better. Hence this new few structure makes perfect sense. Answer makes sense to me. After all, sellers have their own financial motivation to use the platform, buyers are the ones that have to be won over and kept, and they are what attract the sellers.

Interesting

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