eBay: Out with the New, In with the Old

At web giant eBay (EBAY), it’s out with the new and in with the old both in terms of corporate strategy and product mix. After trying in vain to remake itself as an online “retailer” of fixed-priced items to rival the likes of Amazon.com (AMZN) and Walmart (WMT), eBay last week cried uncle when it announced it was returning to its roots as an auction clearinghouse for used goods and collectibles (in addition to overstocked items). Why the change? The past year has not been kind on the one-time darling of the web which has seen its traffic and fortunes decline.

To compete in the fixed-price marketplace, eBay enacted a series of policies and site changes that favored power sellers at the expense of smaller sellers. As casual sellers abandoned the site, buyers have migrated elsewhere in search of the hard-to-find products upon which eBay built its business—traffic to Craigslist has risen 40% over the past year. In contrast, eBay’s traffic was down 5.2% last month over the previous year, while Amazon’s traffic rose 18.7%.

Not only are fewer shoppers returning to the site, but average order values have stagnated at around $28 (other than the spike during the holiday season.) Since eBay’s marketplace revenues are driven by fees charged to sellers, declining traffic and flat transaction values have led eBay to raise its fees in hopes of meeting Wall Street’s expectations. As a result, eBay is squeezing the very sellers on whose backs the success of its business rests.

The more eBay has tried to be a retailer, the more its customers have gravitated to sites offering better overall shopping experiences with lower total prices, better customer service, and predictable deliveries; not to mention the avoidance of the risk of fraud. The percentage of eBay’s visitors who shopped at Amazon jumped from 41% in February 2008 to 53% last month. Over the same period, Amazon visitors’ cross-shopping of eBay has remained unchanged at 58%, suggesting eBay’s fixed-price strategy has failed to attract significant numbers of new shoppers to the site.

By focusing so much on fixed-priced items sold by large sellers, eBay has blurred the distinction between it and the litany of shopping comparison sites and tools on the web (such as shopping.com which eBay also owns). In so doing, eBay has traded away much of the brand equity that once set it apart from the rest of the online retailing universe.

With its greater emphasis on fixed-priced goods, it’s not surprising that eBay has seen a steady increase in the number of shoppers making “Buy-It-Now” purchases over the past year. In February, 11% of eBay’s visitors, or 7.8 million customers, made a Buy-it-Now purchase (up 20% from the previous year). However gains in fixed-priced activity have been eclipsed by declines in eBay’s traditional auction business. The percentage of eBay’s traffic that made a bid on an auction-style listing dropped from 13.5% in February 2008 to 12.2% last month. In total, 1.5 million fewer shoppers placed a bid on eBay last month than did last February.

eBay’s challenges are multi-faceted, and it remains to be seen whether by simply returning to its roots as an auction site it can win back buyers and sellers who have long since given up on using the site. Online retailing has evolved significantly since eBay was founded over a decade ago. Savvy consumers have learned how and where to find deals online, but value intangibles beyond price when making their purchase decisions. Consumers expect a level of service that in some respects is beyond eBay’s ability to control in its role as middleman. Given that, eBay would be better served looking beyond product strategy and focusing instead on improving the shopping experience for buyers and sellers as its constant tinkering seems to be doing more harm than good.

Comments

[arlin:]

I read the conference call.I never saw them say they are going back to their old ways.In fact they said they are no longer an auction house.
Not ....no longer just an auction house...interesting as I am feeling the same way about them.
Lots of touting about a new tech chief,who's job it appears will be to actually make all of Ebay's bad ideas actually work.
Some earlier poster said "thanks for all the fish"I agree.Another poster said that Ebay's share price will never see $10.......I think it will and lower.
This management is responsible for a colossal screw up,and so far they are getting away with it.

Mar 18 11:14 AM

[Et tu, Brute!:]

I had a friend who bought the hair salon in which she was an operator. There were ten operators altogether.

An operator in a hair salon pays the owner of the salon x amount of dollars to rent the space in which they "operate". Do hair, facials, manicures, etc.

The clientele that comes into the salon, for the most part, has become established clientele to one single operator. When the operator moves to another salon, a savvy operator, who has kept track of his/her established clientele, takes that clientele with them.

The clientele does not belong to the salon, it belongs to the operator.

My friend went in with both barrels blazing. Rent would be thus and so, it would be paid on thus and so date, etc etc. Very hard nosed. Within 6 months, 75% of her operators unhappily defected to other shops, my friend couldn't pay ANY of her shop bills, loan payments and utilities, and she was out of business.

Do you get the parallel here?

Mar 18 01:49 PM

[Marcap:]

I agree. I do not believe for a second that JD has any serious plans to take eBay back to a primarily auction type venue. In fact, I see it as being quite the opposite. One of eBay's latest news announcements (Mar 13, 2009) suggests an even further move away from auctions and towards fixed priced listings, in that special listing fees are now being offered until the end of 2009 to those listing in fixed priced format. Whereas no similar specials appear to be offered to those listing in auction format.

Here is the link to that article on eBay.

www2.ebay.com/aw/ca/20...

On Mar 18 11:14 AM arlin wrote:

> I read the conference call.I never saw them say they are going back
> to their old ways.In fact they said they are no longer an auction
> house.
> Not ....no longer just an auction house...interesting as I am feeling
> the same way about them.

Mar 18 01:57 PM

[Marcap:]

Very much so. It would appear that your (ex)friend and Mr. Donahoe have a lot in common. Mr. Donahoe's fall however will no doubt be much louder and much more dramatic.

On Mar 18 01:49 PM Et tu, Brute! wrote:

> I had a friend who bought the hair salon in which she was an operator.
> There were ten operators altogether.
>
> An operator in a hair salon pays the owner of the salon x amount
> of dollars to rent the space in which they "operate". Do hair, facials,
> manicures, etc.
>
> The clientele that comes into the salon, for the most part, has become
> established clientele to one single operator. When the operator
> moves to another salon, a savvy operator, who has kept track of his/her
> established clientele, takes that clientele with them.
>
> The clientele does not belong to the salon, it belongs to the operator.
>
>
> My friend went in with both barrels blazing. Rent would be thus
> and so, it would be paid on thus and so date, etc etc. Very hard
> nosed. Within 6 months, 75% of her operators unhappily defected
> to other shops, my friend couldn't pay ANY of her shop bills, loan
> payments and utilities, and she was out of business.
>
> Do you get the parallel here?

Mar 18 02:11 PM

[eBay +++:]

I don't think their changing their approach at all, that's a lot of BS to satisfy the Analyst. They are making specific listing changes that seems very positive, this was long, long overdue. No more searching through a listing to figure out what your getting, soon it will be easy and clear to a Buyer. This will be mandatory for all listings, no more item vagueness from lame Seller trying to dupe people. Item guarantees by eBay are another huge step to completing again with Amazon. eBay can afford this, their margins are huge. The biggest thing I think is that they understand the problems they face. It's just a matter of how soon these can be implemented. I think their on the right path.

Mar 18 03:57 PM

[Philip Cohen:]

All eBay users should by now understand that no action taken (or not taken) by eBay has anything to do with benefitting or protecting eBay users: buyers or sellers; eBay’s every action (or lack thereof) is purposed solely towards desperately attempting to improve eBay’s bottom line (undoubtedly more to do with attempting to protect executive performance bonuses than with any direct consideration for shareholders), and if at any time there appears to be some benefit to eBay users, that will be purely coincidental.

Oh, darn, now there are to be no executive bonuses: what [i]is[/i] the point of it all? Well, then we’ll just have adjust the price of the “underwater” share options so that if we can manage to get a little bit of an upswing we can still exercise our options and all jump ship and still retire comfortably. Once again, the executive plan is to let the shareholders carry the whole can. Nothing’s changed.

Sadly, it has come to pass that if it was not for PayPal manning the pumps the good ship “eBay” would undoubtedly be considerably lower in the water. One has to wonder if “Titanic” Captain Donahoe and his fellow executive officers actually intend to go down with the ship (like Captain Smith) or will they finally see the iceberg ahead and realize the error of their course and hand over to a more competent crew who will allow the ship to be towed back into port for some much needed repairs? (The 1950s classic Fonda/Cagney movie “Mr Roberts” comes to mind; alternatively, could we dare hope for another “Caine Mutiny”.)

Hang on, someone has spotted the iceberg, Captain John is now saying that eBay is no longer a “retailer” and eBay is now going to concentrate on something else ... what was that? Why am I being thrown of balance again: “Hard aport”… “hard starb’d”. Or is that violent shuddering that I can feel that of the engines also being thrown into “Full Astern”?

Unfortunately, this being such a large ship, and with many of the paying passengers having already abandonded ship, it will take a long time, if ever, to get this ship back into the condition that it once was, assuming “Noise” Donahoe does not find another iceberg to bump into along the way.

What was it that Alibaba’s Jack Ma said? “Everything (MBAs) say is right, but everything they do is terrible.” He also said that at Alibaba, the customer is number one, employees are number two, and shareholder are number three (the customers pay you, the employees stay with you, but the shareholders—they are all gone when disaster comes). Those are some of the home truths that this eBay management apparently never understood, at www.auctionbytes.com/c...

Many eBayers by now appreciate that the people currently in control of eBay are a bunch of arrogant, disingenuous (and the product of such arrogance and disingenuousness usually is stupidity), corporate snakes; it’s very difficult to keep track of such snakes as they slither through the undergrowth; and that habitually “spinning” forked tongue doesn’t help any either! You have to wonder if any of them have ever bought or sold anything on eBay.

Most of eBay current problems can probably be explained by the fact that “Noise” Donahoe was previously a consultant business dismantler (“wrecker” in the vernacular); this is a man apparently trained in the “dwarfing” of companies for a quick one-time profit; he clearly has no concept of how to grow a company for an ongoing profit.

I’m another one of those many people who “love” eBay but can’t stand a bar of the current management’s destructive policies. Is it not a shame that this management team has managed to destroy so much of the good will that eBay has built up over the years? It should be a crime; one can only hope that the shareholders will see it as such.

Regardless, I always was of the opinion that eBay was an “auctioneer”; what I could never understand was why they were never regulated as such, particularly in such matters as their effective “aiding and abetting” of sophisticated shill bidders by their application of “hidden bidders”.

Then there is PayPal. Captain “Noise” Donahoe and many of the analysts seem to be suggesting that PayPal’s manning of the pumps will keep eBay high in the water. I certainly would not put my money on PayPay for the long term. I have no doubt that eventually the major credit card companies will get off their butts and introduce a similar universal card/terminal-less payments system that the participating banks can incorporate into their internet banking systems—and they will do it properly—and that, my friends, will be the end of PayPal outside of the eBay marketplace ...

And then, of course, there is my other pet hate, eBay’s outrageously disingenuous across-the-board application of “hidden bidders”, a detailed criticism of which appears at
www.auctionbytes.com/f...

Mar 18 04:50 PM

[Tony P.:]

well maybb if i wuz to right a descripshun like this, it wood make moor cents to sum

Other than that, all other comments are more valid than the actual article.

Mar 18 05:16 PM

[Bob C:]

@ eBay+++
"The biggest thing I think is that they understand the problems they face. It's just a matter of how soon these can be implemented. I think their on the right path."

My friend, you are a party of one.

Mar 18 05:18 PM

[a. palmer jr.:]

Ebay did well when they had a monopoly on internet sales; that's hardly the case now, they are one of many selling sites on the web. Ebay kinda forgets that when they squeeze out the many smaller sellers they are also eliminating the buyers.
Many if not most people that were smaller sellers that have left ebay will not be back as buyers; they will buy elsewhere also. Ebay might as well resign themselves to less profit in the future and start downsizing the staff.

Mar 18 06:04 PM

[Dark Horse:]

Forget everything else for the time being - including management fixing things that weren't broken, forgetting who their customers were and of course obliterating shareholder value, and let's focus on the eBay brand as a whole - once probably the most quirky, well-liked and respected companies in the world - J.D has managed to completely trash all of the goodwill and positive association with eBay in the eyes of potential and existing buyers, as well as sellers, journalists, analysts, shareholders and pretty much everybody else under the sun. That's okay though, because he wheels his parents out to show their support and admiration for him - that's the way you gauge a good company isn't it? - I've also heard photographs with dogs and other cute pets are popular as well.

I defy anybody to explain to me, how making changes that completely destroy the brand of a company and everything associated with it, could ever possibly be a good move?

eBay may already be past the point of no-return, it's just a waiting game to see how everything implodes - grab some popcorn, this is going to be entertaining...

Mar 18 08:30 PM

[Mad Hedge F...:]

I like the story. Rumors are flying that Ebay (EBAY) is looking to dump Skype, which it vastly overpaid for at $2.6 billion three years ago. The online marketplace has been unable to profitably integrate the Internet telephone provider into its core business. Potential buyers are thought to be Google (GOOG), AT&T (T), and Verizon (VZ). Be prepared for a big write down at EBAY.

Mar 18 09:03 PM

[eBay +++:]

Sure Bob C, nobody's selling on eBay. The sky is falling, their doomed... You know my thoughts no need to re-hash.

Mar 19 03:56 AM

[Tippie:]

Ten years ago eBay auctions had very little competition. They were King of auctions! This is 2009 and things look quite different today. Amazon.com who is ( retail) and Overstock.com (overstock) are already deeply entrenched on the internet with millions of followers. Now here comes eBay in 2009 with a bright new idea and states that they are no longer an auction site per-say, and that they are not a retail site period, but they are in fact an overstock site of new and used goods! Meaning ( junk) Companies that now sell on eBay will buy pallets full of Junk that didn't sell in stores in the first place and sell that junk to eBay customers? Lol. Excuse me for laughing, but I think those tactics have all been tried before. Most buyers of truckloads of overstock merchandise go bankrupt! eBay is run by a ship of fools! Stockholders need to fire Donahoe and the whole rotten bunch before they bankrupt eBay stockholders and eBay! PS...I just bought some Mascara on eBay! It was so dried out it must be 10 years old! Wasted my money! No doubt it was sold by one of eBay's overstock-liquidation companies selling on eBay! lol. I should send it to Donahoe, lol. Let his wife use it, lol.

Mar 19 12:12 PM

[Tippie:]

Wrong! Donahoe stated that skype was not for sale! They are keeping it as a stand alone company.


On Mar 18 09:03 PM The Mad Hedge Fund Trader wrote:

> I like the story. Rumors are flying that Ebay (seekingalpha.com/symbo...)
> is looking to dump Skype, which it vastly overpaid for at $2.6 billion
> three years ago. The online marketplace has been unable to profitably
> integrate the Internet telephone provider into its core business.
> Potential buyers are thought to be Google (seekingalpha.com/symbo...),
> AT&T (seekingalpha.com/symbol/t), and Verizon (seekingalpha.com/symbo...).
> Be prepared for a big write down at EBAY.

Mar 19 12:15 PM

[Tippie:]

Follow up!
A bad CEO can make bad decisions for his company as wittnessed by AIG, Bank America, etc. AIG CEO is being drilled on capitol hill right now although the previous CEO made all the bad decisions that caused the companies demise. He testified that they were all being threatened by hanging with a piano wire. Congress suggested they take the Japanese route! Apologize to your stockholders, and then stick a knife through your gut! Donahoe is one of those CEO's who is not capable to run ebay effectively! I suggest he take the Japanese route, suggested by congress! A companies abligation is to their shareholders! And he has failed miserably!

Mar 19 12:41 PM

[exodusfromebay:]

Unless eBay rolls back all of the insane changes they made to the site in 2008, and Terminate Donahoe With Cause (No Golden Parachute) this company will Never be able to recapture what they have destroyed from within.

It is probably already to late.

JD and the entire BOD need to understand that you cannot abandon a highly successful business model, destroy a really strong brand (eBay is an Auction site) and alienate the entire paying customer base (Sellers who pay eBay and PayPal fees) and expect to stay in business.

eBay has historically thrived in a down economy. Meg Whitman stated that eBay is recession proof. And so it would be, if they hadn't forsaken the eBay sellers who are the backbone of the site.

Investors, think about it. Both Meg and JD are from Baines. All they know how to do is cut up a company and sell the pieces.

They do not understand the dynamics of the eBay marketplace.

Unless the entire nest of vipers that make up the BOD is cleaned out and exterminated, this company is Dead, Dead, Dead.

Unless you day trade and sell short, Run As Fast As You Can!

eBay is History!

Michael Holcomb.

Mar 19 02:03 PM

[onlineseller:]

As I said for the last year ebay can not compete with other online sites. ebay talks about taking back the antiques and collectible auctions and fixed priced items. Go look at SeeAuctions.com the quality and the free listings also the sold items. It will just be a matter of time until all the dealers and collectors find this new online site. And for other items there are over 20 new sites in the last 6 months.

Mar 19 08:36 PM

[Tippie:]

eBay's first obligation is to their stockholders! People and or companies that bought their stock! Ebay is using stockholder monies and not paying anything back! They bicker with their sellers back and forth while their stock holders sit on the side-lines! Obama said it best yesterday. Get back to basics! Honor your stockholders! they invested into your company...without them you would have nothing. No company period! Start paying a dividend to your stockholders! eBay has cash stashed overseas! Time to clean up American companies and their crooked ways! John Donahoe needs to apologize to his stockholders who have lost their asses with his company in the last five years, and then stick a blade through his gut in a Japanese honorable fashion like our congress suggested AIG's big wheels do. He has brought disgrace to his stockholders and eBay. Go John!

Mar 20 12:20 PM

[User 357469:]

That's wrong Tippie. ebay's first obligation is not to its shareholders. In fact as with any other company ebay's common shareholders come dead last. And that's not just how some business is conducted. That's the law. Here's a list of a company's obligations in their order of priority.

1. Government (taxes and employee withholdings)
2. Secured creditors (usually banks)
3. Employees (not Directors)
4. Unsecured creditors (usually suppliers)
5. Preferred shareholders
6. Common shareholders (LAST)

On Mar 20 12:20 PM Tippie wrote:

> eBay's first obligation is to their stockholders! People and or companies
> that bought their stock! Ebay is using stockholder monies and not
> paying anything back! They bicker with their sellers back and forth
> while their stock holders sit on the side-lines! Obama said it best
> yesterday. Get back to basics! Honor your stockholders! they invested
> into your company...without them you would have nothing. No company
> period! Start paying a dividend to your stockholders! eBay has cash
> stashed overseas! Time to clean up American companies and their crooked
> ways! John Donahoe needs to apologize to his stockholders who have
> lost their asses with his company in the last five years, and then
> stick a blade through his gut in a Japanese honorable fashion like
> our congress suggested AIG's big wheels do. He has brought disgrace
> to his stockholders and eBay. Go John!

Mar 20 07:27 PM

[LegendsOfBa...:]

Hahaahahaha. Overstock is a flop. They had EVERYTHING in place to overtake ebay, and they blew it.
Ebay can be the next overstock.com for all i care. But, yeah, it's hilarious to watch ebay try to become just as good as "second rate" sites. They were number one, WHY would they want to imitate losers?
Tim
forums.delphiforums.co...
myspace.com/boycottebay


On Mar 18 10:06 AM leapingcat wrote:

> Well, last year Ebay failed to become the next Amazon, this year
> no doubt they will fail to become the next Overstock.com. They seem
> to be rapidly running out of business models to fail at!

Mar 21 09:29 PM