Behind the Gavel: Has eBay lost its “auction edge”?

I miss Meg Whitman. You remember Meg: She was president of eBay back when it used to be an auction site. Meg’s philosophy was that eBay was in the business of connecting people with people; i.e., person-to-person trading. Ms. Whitman’s vision ended five years ago (2008) when John Donahoe took over eBay as CEO. Now, eBay’s mission is to connect corporations with consumers and boost eBay’s stock price.

Mom and Pop shop

Vintage photo of Mom and Pop business

Of course, I’m a firm believer in profits, and I support eBay’s right to pursue them…but not at the expense of the Mom-and-Pop businesses that made them what they are. eBay’s success was built upon providing a marketplace for small sellers, and eBay has all but abandoned such sellers.

At making a profit, Mr. Donahoe has been very successful. In the past five years, eBay’s stock price has risen more than five-fold ($10/share when Whitman left in 2008 to $52/share on Aug. 1, 2013). Five years ago, eBay’s listing composition was 70 percent auctions and 30 percent fixed-price items. Today, its listing composition is the reverse: 30 percent auctions and 70 percent fixed-price listings. At a Wall Street Journal “Executive Breakfast Series” earlier this year, Donahoe said that eBay will soon be 80 percent fixed-price and 20 percent auctions.

Remember the old customer service aphorism “20 percent of your customers cause 80 percent of your problems?” Guess what group constitutes eBay’s troublesome 20 percent? That’s right: small auction sellers. The long-term future for eBay? Donahoe has made it clear that he wants eBay to be more like Amazon and less like Whitman’s version of eBay. Donahoe wants big sellers who sell fixed-price “Buy-it-Now” goods, not small sellers who re-sell their estate-sale finds.

EBay seller fees have expanded to the point where eBay’s share of the sale price often exceeds the seller’s profit.

EBay’s policy changes in the past five years have caused so many headaches for small sellers that eBay’s early entrepreneurs are leaving the site in droves. And, eBay doesn’t care; they prefer it that way. At the core of eBay’s maligning of small dealers is the demise of the feedback system and their high fee structure.

Feedback was always a part of eBay’s selling system. “Strangers selling to strangers” was an invitation to fraud, and the feedback system helped the eBay community police itself. Whenever a transaction was completed, both the buyer and seller could leave feedback regarding the transaction: Was the merchandise what it was purported to be? Did the buyer pay on time? And so on. With such feedback, new bidders could evaluate sellers and sellers could evaluate bidders. Though the feedback system was imperfect (some would say “lousy”) at its worst, it was still better than what eBay offers today.

 customer-feedback copy

Today, buyers can leave feedback for sellers, but sellers can’t leave feedback for buyers. This one-sided feedback system is an open invitation for unscrupulous buyers to use “feedback blackmail” against sellers. Bad seller feedback directly impacts a seller’s business: Low feedback ratings result in fewer bidders (and therefore lower prices) and risk of account closure. Regularly (though not often) buyers complain that they paid for merchandise that was not as described (wrong and/or damaged).

Yes, there are also fraudulent and/or ignorant sellers on eBay and sometimes the buyer is right. But to assume the buyer is always right as a matter of policy is just bad business. In such disputes, eBay has a history of siding with the buyer, and sellers (right or wrong) must issue refunds for merchandise (that is sometimes never returned) or face having their accounts cancelled by eBay. Perhaps Power Traders can absorb such occasional losses, but many small sellers can’t.

In the past five years, eBay seller fees have expanded to the point where eBay’s share of the sale price often exceeds the seller’s profit. On eBay there are listing fees, upgrade fees

Written by Behind the Gavel columnist Wayne Jordan, this top-selling book includes a collection of his best columns. Get your copy today at Krausebooks.com

Written by Behind the Gavel columnist Wayne Jordan, this top-selling book includes a collection of his best columns. Get your copy today at Krausebooks.com

and supplemental service fees. There are even final value fees that give eBay a percentage of the shipping charge. A commission on the shipping charge? Really? Adding shipping charges into the final value fee was the last straw for many dealers. EBay has earned their nickname “FeeBay.” Small sellers have been pushed aside in favor of Power Traders.

Users, too, have contributed to the demise of eBay as an auction venue for small sellers. Hi-tech gimmicks like auction sniping, zero-bid searching and “mis-spelling” searches have given buyers an unusual advantage and reduced the prices that sellers can obtain. On eBay, the phrase “buyer beware” can be re-stated as “seller beware.”

It’s unlikely that eBay will ever go back to what it was, and whining about “the good old days” of eBay won’t change anything. Efforts to create a viable eBay alternative have been ongoing, and the results have been mixed. For online auction venues, ebid.net and onlineauction.com both have a good user interface and reasonable fee structure. What they — and all other such venues — lack is the high volume of traffic that eBay draws. Like in every other retail environment, traffic costs. EBay has traffic, but it’s harder to make a profit using eBay.

Auction prices are driven by competitive bidding, and eBay has so many auctions that Gavel actionmany of them get lost: 54 percent of all items offered on eBay receive no bids at all; 23 percent receive only one bid. Only 4 percent of items get 10 or more bids.

Can sellers still make a profit on eBay? Sure; many do. But I wouldn’t want to build my business and stake my livelihood on a site that clearly doesn’t have my best interests in mind.

If I was a collector wanting to buy or sell, I’d skip eBay and use Heritage Auctions (www.ha.com). Their track record can’t be beat.

General asset sellers and auctioneers can tap into a lively auction environment at Proxibid (proxibid.com).

As a licensed auctioneer I have a bias toward live auctions, and in my opinion sellers can turn a nice profit by working with their hometown auctioneer.

At a hometown auction, buyers can engage in lively and price-enhancing competitive bidding. Sort of like they used to do on eBay.

About our columnist: Wayne Jordan is a Virginia licensed auctioneer, certified personal property appraiser, and accredited business broker. He specializes in the valuation and liquidation of estate and business assets. His column Behind the Gavel appears in every issue of Antique Trader. Learn more at www.waynejordanauctions.com, 276-730-5197 or auctioneer.wayne@yahoo.com.

Leave a Reply