How to Fix eBay

On a radio interview a few weeks ago I heard Sherwood Schwartz, executive producer of Gilligan’s Island, say that he felt that it was entirely rational that the Professor, genius that he was, could never figure a way off the island, when all he had to do was nail some wood on the boat.

“That’s true of mankind,” said Schwartz. “They can do except what they cannot do.”

I thought of that analogy when I think about eBay (EBAY). eBay reminds me of the Professor, who with all the smarts, advantages and good looks, cannot figure out the obvious solution. With eBay, the issue is that it has to fix its core auction business. In order to succeed, eBay has to patch up its relations with its sellers, and re-win the confidence of its buyers. I cannot understand why it can’t execute this. Is it pride? Or is it the novelty of its holdings?

Like the Professor, eBay is so enjoying wonderful academic exercises like Skype that it never figures out a way to lasting success at auctions. First, let's look at just a few of eBay’s assets, which in many cases would be prized companies on their own:

• PayPal. PayPal is a sort of parallel and sometimes untaxed international currency, and it is now used in a wide variety of small business transactions. In some ways it functions like barter. Some analysts want eBay to spin it off, even as it is one of eBay’s crown jewels; but PayPal is the central banker and post-modern currency that makes eBay tick.
• Stub Hub: How compelling an idea is it that you can get the seat you want?
• Skype: While eBay’s purchase of Skype is still criticized, eBay is now bundling Skype technology with IBM’s LotusLive cloud services. IBM is Skype’s gateway drug into the office, where I.T. folks HATE eBay.

Then, there are eBay’s general advantages:

• The economy. The recession should be helping eBay. This should be the time when everyone should be unloading all the crap they bought when times were flush. In a recession, people want bargains, and eBay should be able to deliver that.
• Partners? The newspaper classified has completely lost its role as the spot for selling used goods, but those goods still need to be sold. Do eBay or its subsidiaries have a role in classifieds? What if you could pay a few extra bucks to put your eBay listing in certain newspapers?
• Antiques Mania: TV has produced a mania for collectibles, home design and antiques, and eBay is the best way for average Joe to offload his own junk and stock up with better junk.
• Process: eBay has the proprietary processes and patents to dominate not only the selling of used goods, but of any goods-selling. Could eBay be the cash register back end for antiques retailers?

Yet, if you look at eBay’s stock, it is down close to where it was at the first tech bust. So what does eBay need to do to fix it? We don’t have the exact answers, but management needs to consider the following:

• The fixed price goods should not be intermingled with the auctions. They ruin the experience. Now, imagine that you go to Sotheby’s, and just outside the door of the auction room, you have a sales room where many of the same sorts of auction items are for sale for a fixed price, all on consignment. The message, the immediacy of the auction, would be lost. There is no harm in eBay offering a “Buy it now” price but it should be separate from the auction section.
• It needs to find common ground between buyers and sellers, and make both happy. Of course, with as many transactions as eBay performs, there is no way to avoid complaints. And you can’t keep everyone happy. But the company has to fix this.
• eBay should quit trying to force higher fees on sellers. What makes eBay is scale. You don’t want to bleed the top sellers. Instead, you want sellers to sell more, and more people to auction things off. You want to make it easy for sellers, and always be thinking of fewer steps, and fewer costs. Through volume, you make up the difference.
• Kijiji, the free classifieds that were supposed to compete with Craigslist, are not promoted well. But the service could offer so much more. For instance, I looked at Sarasota, where I live. There were only 38 tradesmen registered with the service, yet the want ads are free to anyone. Why can’t eBay leverage its vast customer base to get people to use the service more? If, for instance, house painters used Kijiji to market themselves, is there room for contractor billing through PayPal? Can tradesmen set up service billing through eBay’s back end? Could eBay handle payroll taxes?
• eBay needs to investigate other ways it can use its processes. Are there other Stub Hub opportunities? While PayPal’s pre-eBay dalliance with gambling sites has been a problem, are there other legal ways Stub Hub can connect up with attractions to sell tickets?
• I can’t understand why the whole eBay drop ship retail store is not in every shopping center in the U.S. Americans have lots of crap in their houses that they would love to get rid of, and would love to have someone else take care of it. And Americans, poor as we now all seem to think we are, still have lots of things we want. So that seems to be a market, and I cannot understand why that business model doesn’t appear to be ubiquitous.
• eBay needs to think of its core business. For instance, Fillz, a British Columbia-based company, sells a vendor-neutral inventory management solution that allows booksellers to manage inventory across Amazon (AMZN), eBay and the rest of the bookselling sites. It’s a small, tightly focused company, and it is doing the sorts of things that eBay ought to be doing, namely helping to better serve sellers AND buyers.

eBay is one of the most fascinating companies in the U.S., and it is most certainly worth more than its share price. But that doesn’t mean it can’t screw things up in the meantime.

Stock position: None.

Comments

[redbaron]

Garland, you forgot to mention the one thing that keeps all of the above suggestions from happening, and that is 'current management'. The group of people that run the company will not listen to any suggestion that doesn't originate within their own circles.......period. For any change in direction to even be considered, new management must be implemented. There is no other way, IMHO.

2009 Feb 10 10:04 AM

[bluesmoke]

Good points. For lack of better words, Ebay has become an institution, and in so doing is having trouble reinventing itself. For all the bad moves, which there have been many, it is still at the top of the hill. It has provided me with some decent pocket money that I otherwise would not have. I have also found numerous replacement parts much cheaper. But your call to constantly re-evaluate their business model is warranted. They can do much better.

2009 Feb 10 10:05 AM

[Jake Berzon]

It is very difficult to fix a company that has a dented image - most eventually go out of business. I am afraid that fixing eBay will be a challenge on par with fixing our economy.

2009 Feb 10 10:06 AM

[Marcap]

"The fixed price goods should not be intermingled with the auctions."

I do not agree. Fixed price listings are quickly taking over from the old auction style format. Most buyers prefer Buy-it-Now rather than Bid-and-Wait, which is one of the main reasons why Amazon is gaining so much ground on eBay.

"It needs to find common ground between buyers and sellers, and make both happy."

That I will agree with. Finding common ground however to make both 100% happy obviously would be an exercise in futility, but I think that few will disagree that eBay is now tremendously skewed in favor of the buyer, which of course accounts for the exit of so many eBay sellers.

"eBay should quit trying to force higher fees on sellers."

Agreed! eBay fees are just not realistic given that eBay provides nothing in the process except a sort of web-hosting service.

"Kijiji, the free classifieds that were supposed to compete with Craigslist, are not promoted well."

Kijiji in my opinion is a non-existent entity of any value. I suspect that very few have actually sold anything or received any worthwhile business through Kijiji.

"eBay needs to investigate other ways it can use its processes."

I do not agree. This would likely only benefit eBay buyers, and not eBay sellers in the least. After all, eBay is already implementing Google and other ads on its site which are in direct competition with eBay sellers.

"I can’t understand why the whole eBay drop ship retail store is not in every shopping center in the U.S. Americans have lots of crap in their houses that they would love to get rid of, and would love to have someone else take care of it."

This will not work on eBay, since very few sellers are willing to sell another person's "crap" without actually having it in their possession at the time. After all, who is going to describe the items? The owner? The seller? Or should the items first be shipped to the sellers? If so, who pays for that? What if the items do not sell? What then? What if the items are actually stolen? What then? It is just not practical to do, and that is why it is not being done.

"eBay needs to think of its core business."

Agreed! But I am not sure that eBay even knows what that is anymore. JD sure doesn't.

"eBay is one of the most fascinating companies in the U.S., and it is most certainly worth more than its share price."

I do not agree. I think eBay is already overpriced as I suspect the next couple of years (or less) will prove.

2009 Feb 10 10:28 AM

[Wide Moat Investing]

The assumption among some commentators is that the problems cannot be fixed. That is, Ebay will never be able to grow its auction business again. That strikes me as remarkably bold. There are incentives out there that will encourage management and/or shareholders to fix it. So, the pessimist has to hold that management and shareholders will, for the foreseeable future, ignore those incentives.

In the stock market, you pay a high price for a rosy consensus. With Ebay, we have a bargain price for a valuable company with solvable problems. Let's be honest; this is not like curing cancer.

2009 Feb 10 10:41 AM

[redbaron]

Wide Moat, I agree with your basic concept, but when present management already believes they have fixed the problem, and that is obviously not true, is it not imperative to change present management? What works, or past tense 'worked', is already mostly known, and that is the previous model for auctions. It is just present managements stubborness to 'go back to what worked' that prevents a solution. IMHO

2009 Feb 10 10:50 AM

[Nick Waddell]

I have been a regular on the Internet since the days of 1200 baud modems...may be dating myself there. Periodically, I have had friends who tried to get me on eBay, but some things always made me suspicious; the way every auction, no matter how little interest it had, would become extremely heated in the last five minutes, the way my friends would warn me that people would "give you a good price because they make money off shipping..it just left a bad taste in my mouth. It seemed primitive and unreliable.

I have no vested interest in either, but compared to eBay, Amazon seems like heaven. It there. It's cheap. You order. It shows up.

2009 Feb 10 10:57 AM

[Marcap]

"I have no vested interest in either, but compared to eBay, Amazon seems like heaven. It there. It's cheap. You order. It shows up."

I agree completely, which is exactly why Amazon is gaining market share, while eBay is losing it.

2009 Feb 10 11:11 AM

[User 283977]

I think EBay's primary problem IS management. Management has increased small scale sellers fees to the point that many small scale sellers are leaving. They have modified the feedback system so its totally one-sided… and this observation from someone who is only a buyer on EBay. On top of this EBay now holds Pay Pal funds for new sellers until the buyer provides positive feedback. This behaviour continues until the seller has a substantial history with EBay. That leaves the seller holding the bag for shipping costs until the items arrive, and the buyer gets around to leaving feedback. EBay's policies are clearly favouring its larger sellers and driving away many of its small scale sellers selling absolutely UNIQUE merchandise.

What made EBay great was the large amount of collectable items and used merchandise they offered for sale. One persons crap is another persons treasure. A large portion of that type of merchandise comes from small sellers, NOT big sellers who are moving currently manufactured merchandise with a buy-it-now fixed price model. Because EBay is effectively driving away its smaller sellers, the nature of the available merchandise is changing away from unique collectables, to new products that you can purchase anywhere at a fixed price.

What EBay's management appears to be trying to do is to adopt an Amazon business model where traditional goods are purchased on a fixed price basis. If the only purchase option is fixed price, then its not an auction, and its not auction type goods where the price is based on what buyers are willing to pay. The author is correct, strictly fixed price items should not be intermingled. Not because of the pricing difference, but because of the merchandise difference.

EBay recently redesigned the "My EBay" page… They allowed people to use the old My EBay page, if they preferred, but recently, they took away that option and forced everyone to use the New redesigned page. Another good example of management that thinks they know what their customers want better then the customers themselves. Now their customers have to click on several tabs to get at the information that used to be available with one click… Why do you suppose they are forcing people to go to multiple pages… My guess is that advertising will follow. Advertising dedicated to selling, what else, fixed price items from those large vendors that EBay is favouring.

Ever try to complain to their "customer service" department about anything? First you have to find it, then you have to choose a heading provided from a highly limited, fixed list of items, none of which even remotely describes your issue. Management that makes it difficult to contact customer service by design sends the message, "We are not interesting in hearing from our customers because it COSTS too much money to provide a properly functioning customer service department. And even if we had one, we know what we are doing… "

No, the entire EBay experience has changed, and from this buyers perspective, not for the better. Another example of what was a great company with a unique business offering that is in the process of being destroyed by management that does not know how their own customers define value, and apparently does not understand their own business model. Management that wants to re-position their business to compete directly with Amazon and other on-line retailers. Management that wants to eliminate those pesky small sellers and replace them with large scale sellers with lots of merchandise to sell. Unfortunately, that merchandise is very likely different from what the core customers of EBay want to buy.

2009 Feb 10 11:26 AM

[coyotebait]

Excellent article!

The disgruntled negativity is overbearing, overworked and underwhelming, and have resulted in a stock price that is extraordinarily low for the value of the company and its parts.

Any company that deals with the numbers of people on both sides of the buy/sell masses invariably subjects itself to unbridled emotional personal rants, masquerading as objective analysis.

The article provides a refreshingly accurate look at fact and analysis. Thank you.

CHOMPS,

^__^

..

2009 Feb 10 11:54 AM

[fatseal]

Ebay doesn't want to fix ebay. It's like very change they have made is to drive the small seller off the site. 21 day holds for new sellers are a prime example. Why would you sell anything, even one item, if you knew you had to pack and mail it and then wait 21 days (or more) to get YOUR money? They want to be the largest internet mall, not the world's largest flea market. They want the "flea" sellers gone, to be replace with Buy, shopping, etc..and be a giant advertising platform as well. They limit the number of branded items someone can sell, so they can eventually rid themselves of individual small time sellers and woo outlet mall retailers. They have zero customer service, and the forums where people could ask questions, has been redesigned to be hard to use and impossible to find answers to questions, in effect causing the users who only came there to chat with their friends to go away. Another change designed to alienate small seller,s rid the site of old time sellers and "noise" and sweep it clean so everyone who remembers the "old" ebay is gone, and then they can turn it into Ebaymartazon and be just another online retailer. No flea marketeers or mom and pop sellers need apply.

2009 Feb 10 11:57 AM

[Patricia013]

Great article!! One of the few I totally agree with. I think veteran sellers all know most of the points you brought up and in particular patching up seller's broken trust. It either has to happen soon or Ebay will simply keep declining...it will eventually dwindle down into something unrecognizable and will be scooped up by another company. Sellers have proved they are not giving up on spreading the word of what Ebay has become and it is showing in Ebay's dismal sell-thru rate and lack of buyers. Management is so blind that about all one can do at his point is replace them. The idea of forcing Ebay to look and act like a cheap Amazon clone was a wacky one at best. Everyone hates imitation! I believe the staunchest business people knew it would never work....and it isn't working and is getting progressively worse.

At this point Ebay may never recoop the loss it is suffering from the mismanagement of its sellers. It has shown nothing but rudeness and arrogance toward sellers. Instead of providing good service for them and helping them make sales it has provided a hostile environment and a take it or leave it attitude! This is unparalled in the businessworld!! NO large business that depends on its customers kicks them around the way Ebay does. Ebay is either gonna have to "get it" and get it quick or they are rightly and deservedly doomed! This first quarter will tell the tale...if they decline again they can no longer hide behind the economy...especially if other online sales are up!

Wonderful article... can I vote for you as the new Ebay CEO ;-)

2009 Feb 10 12:01 PM

[Marcap]

While eBay has made many changes over the past couple of years, that as a seller I am not happy with, this change was not one of them. Holding funds for 21 days from new eBay sellers is a must. It is absolutely necessary in order to protect buyers from sellers whose sole interest in eBay is to be able to commit fraud of one type or another. Honest sellers should have no problem in understanding the need for this change.

On Feb 10 11:57 AM fatseal wrote:

> 21 day holds for new sellers are a prime example. Why would you sell
> anything, >even one item, if you knew you had to pack and mail it and
> then wait 21 days (or >more) to get YOUR money?

2009 Feb 10 12:11 PM

[techzone12]

I am a seller at Ebay. And I can tell you that there is 2 major problems that need immediate attention:
1. Fees are too high for the average seller. Although I am a small seller, I could potentially double and triple the volume, if the fees are lowered.
2. The feedback process is heavily in favor of the buyer. The buyer knows it and they take full advantage of it. There needs to be a mechanism, where the buyer is not allowed to leave negative feedback, just because he/she feels like doing so. In one instance, an item I shipped went to the wrong address, because the buyer reloacted (and never changed his address in paypal). Then he wanted me to refund his money, which I did (had no choice). I have a 100% pos feedback, but still some buyer are hard to deal with, and they just waste my time. The time that I can spend on listing more items, is consumed trying to deal with difficult buyers. Sure there are bad sellers (that need to be penalized), but also there are bad buyers also who abuse the system.

2009 Feb 10 12:11 PM

[Et tu, Brute!]

I would like to stringently appeal to the eBay Board of Directors the following:

Your top tier management must GO. In this floundering economy, with coming YEARS I feel pretty sure are going to be increasingly bad, under NO CIRCUMSTANCES must said top tier management be handed a Golden Umbrella(s). It's what they are expecting. They don't deserve it. They made their bed, let them SLEEP in it!!!

I believe that this single prospect -- the knowledge that no matter WHAT THEY DO they will exit with millions of dollars -- is the reason for all the disruptive madness.

You had better believe, that in the days of old where you were out on your ear without a dime, the efforts of the last year by the "top tier" ebay management, would NEVER HAVE ENSUED.

So what, ebay Board of Directors, if "the top tier management" is under contract for said Golden Umbrella, contracts are made to be broken. And I don't mean this lightly.

Keep them fighting in court for years over those contracts. Let them spend the MONEY THEY HAVE NOW on all the exhorbitant legal fees. Would be nice if they experienced some of the suffering their sellers have suffered where it hurts.

Their own personal spreadsheets. It's the only thing commensurate with what they've dealt out. And the only moderate coomparison I can think of that might actually work.

2009 Feb 10 12:33 PM

[Marcap]

"There needs to be a mechanism, where the buyer is not allowed to leave negative feedback, just because he/she feels like doing so."

I agree that eBay's feedback system is completely unfair. It is indeed one-sided in favor of buyers, and should be changed. If not, then eBay should simply switch to Amazon's style of feedback, whereby only buyers can leave feedback, but for which sellers are not in any way penalized, beyond of course the scrutiny placed on it by potential buyers.

2009 Feb 10 12:34 PM

[longoil]

eBay is notorious for its lack of customer service . Their policy is essentially to make it so difficult to contact them, that most people will give up. Having millions of customers is no excuse. Other online companies like Amazon and Symantec manage to provide excellent service to their millions of customers.

I was pleasantly surprised by the customer service at Symantec which is 24/7 service.
1) First, they direct to a FAQ weblink with the most common problems to see if your problem is listed there.
2) If your problem is not on the FAQs list, you can send them an email and phone them. They post the wait time for both contact methods on their website. Email response is typically within 24 hrs and phone wait time is typically 30 minutes.

eBay doesn't come anywhere close to this type of well orchestrated customer service.

2009 Feb 10 01:04 PM

[Bob C]

coyotebait wrote:
> Excellent article!
>
> The disgruntled negativity is overbearing, overworked and underwhelming,
> and have resulted in a stock price that is extraordinarily low for
> the value of the company and its parts.
>
> Any company that deals with the numbers of people on both sides of
> the buy/sell masses invariably subjects itself to unbridled emotional
> personal rants, masquerading as objective analysis.
>
> The article provides a refreshingly accurate look at fact and analysis.
> Thank you."

coyotebait,

Admit it, you've been hitting the loco weed again!
You praise the facts and analysis of the article, but dis all of us disgruntled eBayers that have been stating views that mirror those of the
writer.
In other words, our personal rants gave a damn good insight into what is wrong with eBay!

Yet I'm still blushing, since you think that we "have resulted in a stock price that is extraordinarily low for the value of the company and its parts"

Let the "noise" resume!!

2009 Feb 10 01:05 PM

[techzone12]

I still make money on Ebay, but not like I used to. I had a plan to increase the volume, but the plan got somewhat derailed. I am now not sure if the time I invest in the Ebay thing is actually worth it (I have a full time job). First the higher fees by the ebay/paypal, and then the higher shipping cost by USPS. If you add up the numbers, it does not look very appealing (to put in the effort).


On Feb 10 12:01 PM Patricia013 wrote:

> Great article!! One of the few I totally agree with. I think veteran
> sellers all know most of the points you brought up and in particular
> patching up seller's broken trust. It either has to happen soon or
> Ebay will simply keep declining...it will eventually dwindle down
> into something unrecognizable and will be scooped up by another company.
> Sellers have proved they are not giving up on spreading the word
> of what Ebay has become and it is showing in Ebay's dismal sell-thru
> rate and lack of buyers. Management is so blind that about all one
> can do at his point is replace them. The idea of forcing Ebay to
> look and act like a cheap Amazon clone was a wacky one at best. Everyone
> hates imitation! I believe the staunchest business people knew it
> would never work....and it isn't working and is getting progressively
> worse.
>
> At this point Ebay may never recoop the loss it is suffering from
> the mismanagement of its sellers. It has shown nothing but rudeness
> and arrogance toward sellers. Instead of providing good service for
> them and helping them make sales it has provided a hostile environment
> and a take it or leave it attitude! This is unparalled in the businessworld!!
> NO large business that depends on its customers kicks them around
> the way Ebay does. Ebay is either gonna have to "get it" and get
> it quick or they are rightly and deservedly doomed! This first quarter
> will tell the tale...if they decline again they can no longer hide
> behind the economy...especially if other online sales are up! <br/>
>
> Wonderful article... can I vote for you as the new Ebay CEO ;-)

2009 Feb 10 01:18 PM

[Marcap]

Those of you new to eBay who think that 21 days is too long a time period to wait for your money, or that PayPal rules are otherwise unfair to sellers, have likely never bought anything on eBay, and certainly have never sold on any other venue using other payment processors. Most PayPal competitors will either make sellers wait much longer than 21 days for their money, or else will refund buyers simply for the asking, often without even consulting the seller as to what transpired in the transaction.

Nonetheless, a simply solution for those of you who feel there is a better alternative, is to obtain your own merchant account. You will then not have to wait 21 days for your money. But then please come back and let us all know how you handled the many chargebacks that you will no doubt receive.

On Feb 10 11:57 AM fatseal wrote:

> 21 day holds for new sellers are a prime example. Why would you sell
> anything, >even one item, if you knew you had to pack and mail it and
> then wait 21 days (or >more) to get YOUR money?

2009 Feb 10 01:44 PM