What Can eBay Do to Close Its Amazon Gap?

Three eBay (EBAY) power sellers are painting a mixed picture at best for the auction site and note that the recession and Amazon (AMZN) are thumping the company.

These power sellers, Skip McGrath, an eBay Gold PowerSeller; Steve Lindhorst is a former eBay University instructor; and Ron Saxton, whose Image Warehouse, is an eBay PowerSeller, were gathered by Bernstein analyst Jeffrey Lindsay for a conference call.

Lindhorst and McGrath use both eBay and Amazon and Saxton uses eBay, Amazon and Overstock. Here is Lindsay’s recap of the conference call and the key takeaways:

eBay sellers are taking a hit from the recession. These eBay users say sales were down 12 percent to 20 percent from a year ago. Saxton, who resells refilled ink cartridges, said sales were up 15 percent. However, baby products and anything do-it-yourself sell well. Apparently a crappy economy has led to a baby boom of sorts in the U.S., said McGrath. Stray hunch: People are cutting back on cable so are looking for something to do.

Amazon’s third party platform performs better. Lindsay wrote:

Although they found Amazon’s fee load is typically higher than eBay’s – 15% versus 12% on eBay, they preferred to do business on Amazon because of its higher degree of automation, its low-touch sales model which avoided having to email back and forth with customers, and access to Amazon’s fulfillment services. They noted that eBay could match all of these advantages should it to choose to do so, using fulfillment services from third party companies if necessary.

Saxton said:

I just started on Amazon back in July, and I’ve experienced 22% minimum growth every month since. The potential with Amazon right now for me is much, much bigger than it is with eBay, and I’ve been with eBay - this will be my 12th year, actually.

The big question: Why doesn’t eBay match Amazon’s features? My hunch: eBay can’t match Amazon’s information systems, which have automated out a lot of the e-commerce hassles. Meanwhile, Saxton noted that eBay buyers can be high maintenance. Simply put, haggling is out. Automation is in.

McGrath hones in on the communication issues on eBay as a seller:

The products I sell on Amazon are in the $200 to $300 range. And I find, as far as treatment, how Amazon treats me? Fine. I mean I’ve never had any issues or problems with Amazon. I had one return once, and it went smoothly and everybody was happy. Whereas eBay can be a challenge. You know, things - just all the stuff that goes on with sellers and the communication. I think that’s the big thing for the seller, is that Amazon requires so much less work and communication. eBay - the thing on eBay [is] you’ve got to keep your feedback up and your DSRs [Detailed Seller Ratings] up. If you’re going to keep your DSRs high to get the fee discounts and get the search placement, then you need to do very high-touch customer service. There’s just two of us in our business, just my wife and I, and my wife does all the customer service. But she works at it; she’s on that computer talking to people from seven in the morning until seven at night to keep the business going. Whereas on Amazon, we get an order, it comes into my computer, I forward it to her, she enters it on the website of the manufacturer, the manufacturer ships it, and I’m done. So it’s real simple.

eBay’s strategy to sign up discounters and liquidators will fail. The three powersellers say that eBay’s secondary market strategy is designed to boost volume, but is going to hurt revenue and margin growth. Why? There will be more listings, lower sell-through and the clutter will alienate current eBay sellers.

All of that said, eBay has made some big improvements (that few have noticed). The powersellers say that eBay has cut fraud rates, is leveraging PayPal well and seller reviews are ditching ineffective participants in the market. Simply put, eBay has improved the customer experience, but needs to put some marketing heft behind the improvements.

Add it up and eBay still has a lot of improvement ahead of it. Lindsay sums up:

eBay could do much better in several key areas: (a) search was still weak, (b) the site still had a “flea market” look and feel to it; (c) eBay could/should introduce labor-saving automation such as UPC readers to simplify item listings as Amazon does already; (d) eBay should separate the auction business for unique one-off items and collectibles) from the retail business (quantities of multiple items) they felt that eBay Express had been promising but management failed on execution and publicity – they think a similar approach would likely succeed if implemented more thoughtfully; (e) eBay should offer fulfillment services through third parties such as Shipwire.com and even Amazon’s FBA; (f) cross-border sales had been suppressed and this was a mistake; (g) outsourcing keywords to Microsoft had been a mistake and was generating far less traffic than when keywords were bought primarily from Google; (h) finally the CEO, John Donahoe, could do more to “woo” the seller community who found him somewhat cold and analytical.

That’s a hefty excerpt but I included it verbatim to show that Lindsay’s improvement list made it all the way to the letter “h.” Bottom line: eBay is highly unlikely to close the Amazon gap. Amazon isn’t the type of company that will stand still and eBay is improving at a slower pace. By time eBay matches Amazon the e-tailing giant will have rolled out a bevy of new improvements.

What should eBay do? Lindsay says that eBay should ditch its growth plans, cut costs and revert to what it does best—auctions. Sure, eBay would be a slow growth company, but it’ll be a cash cow that can spin off dough to shareholders.

Can eBay close its Amazon gap?

Comments

[Wake-Up!:]

It's not the recession that's dramatically slowing sales on eBay. It's the way they've stacked the cards against their customers (sellers) with an un-level playing field, outrageously high commission fees and now you have the option to un-bury your already paid listings by purchasing PPC so that maybe your items will show up in a BM search - to which they will gladly take another helping of your minuscule profits.

eBay will continue it's spiral so long as WalMart is cheaper.To succeed online you have to offer something better than your competition. In this case they once again fail miserably.

Apr 06 11:24 AM

[User 389721:]

Can eBay close its Amazon gap? I think the answer is with careful acquisition of a successful company, Gmarket. As reported in the Korean media, naver.com, ebay is reportedly in the final stage of acquire a NASDAQ listed company Gmarket. For those that follows this industry sector, we know that eBays' traditional auctioning business model is showing its age.

As end users are leaning toward a more simpler approach to buying online, eBay needs to match Amazon's core strength. I think the answer is Gmarket.

Gmarket's business strategy is very similar to that of Amazon. It provides service for small, medium and large-discount businesses to sell their goods to average consumers. It's coupon and loyalty reward system is very well designed and managed. Also it seems like Gmarket's management team has interest in expanding their services to U.S. (otherwise they wouldn't have listed on NASDAQ).

I think if eBay were to acquire Gmarket, I would hope that eBay's intention is to expand their portfolio of services globally instead of acquiring a company for the sake of just making it for geographical reason.

Apr 06 11:35 AM

[redbaron:]

The current eBay strategy, has John Donahoe's fingerprints all over it. He has stated that this is the new way, and it has his complete support. If eBay were to change direction back to a focus on auctions, where their strength and growth was obviously found, new management would seem to me to have to be the first step. John Donahoe has burned his bridges with his main customers (power-sellers), and I don't see a way for the company to re-direct, or design, or construct, a new strategy that would include those sellers he has so profoundly disappointed, without replacing Mr. Donahoe. IMHO

Apr 06 11:53 AM

[leapingcat:]

Why is it assumed that Ebay should try and emulate Amazon? Ebay isn't Amazon, it hasn't got the strengths where Amazon has, yet till recently it had strengths where Amazon hadn't. Present (and past, don't forget) management have thrown this away without achieving any value for investors, buyers or sellers. Ebay needs to rediscover itself, not as an Amazon clone (for then it will always be a follower rather than a leader), but in a unique way, possibly by building up the P2P side of its business. I doubt that the present management are capable of doing this, but if there is someone out there who can, then the sooner the better.

Apr 06 01:40 PM

[Patricia013:]

Amazon is light years ahead of Ebay and will remain so. Ebay can't seem to understand that kicking your customers (the sellers) in the pants on a daily basis and giving them a hostile environment to work in can only cause failure. Ask most sellers what are the 10 worst things about Ebay and treating them like garbage will be in the top 5! In return for its treatment of sellers the sellers have done an A-one job of tarnishing Ebay's reputation by word of mouth. These horror stories come up whenever and wherever Ebay is mentioned. A potential buyer only needs to hear some of these horror stories of how sellers are treated to back away from the site. Who can blame them? Eventually the economy will spring back and Ebay will lose out again because their buyers and sellers will all be on other venues. Once lost...most will never return. Ebay has controlled its fate and deserves what it gets.

Apr 06 03:08 PM

[Bob C:]

eBay's lost mojo is not from the recession, it is from poor management.

I guess $20+ million a year just doesn't buy the quality CEO that it used to.

Donahoe needs his feet held to the fire, and his head pulled from the clouds.

Apr 06 05:08 PM

[another.ana...:]

What should eBay do?

Sell off its various divisions/properties, give the money to shareholders, turn out the lights & leave the building(s).

Ayuh

Apr 06 05:31 PM

[Just-An-Obs...:]

eBay's lights are dimming on their own. No need to turn out the lights and leave the building.

Apr 06 06:23 PM

[William Cowie:]

Option (d) in the article is the key. That way, the auction business can return to its roots and the retail business can develop in a different direction, without one hampering the other as happens now. I used to be a regular eBayer, but abandoned it as it moved away from the auction emphasis.

"I guess $20+ million a year just doesn't buy the quality CEO that it used to."
Bob C, what a quote - I sprayed tea over my keyboard when I read it!

Apr 06 10:25 PM

[honeville:]

Ebay began to fall in Jan. 2005. Back then it was from greed and excessives fees that began a backlash against the company and began it's spiral into destruction. Amazon was just in the right place at the right time. Disgruntled and abused ebay sellers migrated to the river and the same forces that made a name for ebay began their work growing Amazon. 2006's outrageous "rebalance" fiasco only served to fuel the exodus as millions of media items left ebay to sell on the river. To continue ebay's pathway to destruction ebay showed the digital download business the door and they too landed on Amazon establishing it as their source for digital downloads. To ad insult to injury ebay began running sponsored ads in mid 2007, some of which were direct links to Amazon, showing ebays buyers where all those media items went to. As if all that wasn't enough ebay then implemented DSR's which uses POSITIVE comments from SATISIFIED customers NEGATIVELY against sellers and disadvangtages their items in their greatest stupidity ever... BEST MATCH. All while counting neutral feedbacks as negatives against sellers and prohibiting sellers from leaving turthful and accurate feedback regarding their customers if they had a negative experience. Ebay is nothing more than a teenager with an identity crisis. It woke up in it's teens and said "is this all that I am, am I nothing more", It's now desparate to shed it's identity and to break free of the chains inherant within it's brand. Can it shed it's identity and morph it's brand into that which it is not and wasn't created to be? Doubtful... but they are willing to die trying.

Apr 07 09:17 AM

[arlin:]

After e-baying for 10 years,we are now selling on other venues;we had to start our business all over again,and it has been a painful,but rewarding experience.
Ebay's fee's are too high.
Search engine problems,and their free advertising on my site.
DSR's one way an ignorant buyer,"empowered" can ruin your business in one week.
No seller service.ever.

Apr 07 09:30 AM

[Bob C:]

honeville,
Very well stated post!

Especially the line:
"Ebay is nothing more than a teenager with an identity crisis. It woke up in it's teens and said "is this all that I am, am I nothing more"

That pretty well puts it in a nutshell!!
Smart, mature people would not do what eBay has done.

PS: I had to chuckle at your reference to Amazon as "the river"
To those that don't know, on eBay's forums one must refer to Amazon as the river, Bonanzle as the ranch, etc
If not, eBay will find these keywords and pull your post, and perhaps your posting privileges.
Paranoia from a company as large as eBay is just plain fun to watch!

Apr 07 10:14 AM

[dlweld:]

LOL re the code words that bloggers use on eBay's forums to escape eBay's thought police - "the river", "the ranch" - what is Ebay's code? "The dump?"

I used to sell a lot on EBAY and made good money, but I no longer regard it as a viable venue. It's simply no longer a practical place for small sellers, sure, some deals work OK, but you just need one bad buyer to give a strong negative and your business is wrecked and you feel terrible - the selling experience is generally very bad at EBAY. If you're a "liquidation world" with special deals with ebay itself then it seems to work, but not for the great majority of sellers of interesting items - of course, flip side, not much of interest to buy there anymore either.

Apr 07 01:36 PM

[a. palmer jr.:]

If you want to give your items away, eBay is the way to go. If you want to make a little money on the deal, go elsewhere. Between the fees, the postage, paypal, and taxes if you're honest, you'd be lucky to just break even, assuming it didn't cost you too much to acquire your product.

Apr 07 05:38 PM

[boardwalk:]

The only way Ebay can get out this mess is too have free listings. They will still make money on Final value fees as well as pay pal. If they don't do something soon it will be too late........as more and more sellers leave for good. Ebay forgets that their customer is the seller. Also most sellers are also buyers.

Apr 07 06:10 PM

[Philip Cohen:]

"eBay has improved the customer experience." You must be referring to the experience for sellers because they certainly have not improved the experience for buyers. Unless my logic is sorely deficient, neither eBay nor its sellers can flourish without the confidence of buyers and eBay is doing nothing pro-actively about even the blatantly obvious shill bidding still being perpetrated on buyers, let alone the more sophisticated forms of same that buyers have now got absolutely no chance of detecting, and indeed changes eBay has made to the bidding aliases in recent times clearly serve no other purpose that to obscure such activity and are, in effect, an "aiding and abetting" by eBay of such unscrupulous sellers to defraud buyers.
See: www.auctionbytes.com/f...

Apr 07 09:25 PM

[bcncv:]

Every company makes mistakes, but very few outside Detroit make them with the regularity and severity of eBay. I used to like the site, and still think it has the potential to be good (if not big), but they've screwed up every opportunity to fix it so far. I'm not optimistic about management's ability to make change.

Apr 10 07:09 PM