Has eBay Reached the Limit of the Network Effect? 17 comments
-
Font Size:
-
Print
- TweetThis
The network effect, an effect famously exploited by AT&T’s (T) predecessor Bell Telephone’s president, Theodore Vail, to achieve monopoly power (one telephone is useless, but if everyone has one, it’s priceless), has been a dominant business model for internet companies for over a decade. eBay (EBAY) is no exception, owing its success of its online auctioning business to that same effect (the more buyers and sellers trade on eBay, the more valuable the site becomes to its users, and the less inclined they are to go someplace else), and earning “de facto monopoly” status—or so it seems. However, it appears that the only thing that is keeping eBay alive anymore is that network effect, which may be drowning it at the same time.
I have been an eBay member myself for eight years, and have noticed how increasingly cumbersome and error-prone its web site has become. But my personal experience pales in comparison to the dissatisfaction users have voiced all over the Internet on blogs and discussion sites (amazingly, this includes eBay’s own blogs: go to blogs.eBay.com and search blog titles for “eBay sucks”).
Many blame the management, but eBay may also be a victim of its popularity: by trying to accommodate their hundreds of millions of users, eBay may have ended up displeasing many of them. Indeed, the site is so bloated and feature-laden that its programmers seem unable to manage it anymore, and its customer service has become overextended as a result. A recent decision to limit the ability to leave feedback on the site about the experience of a transaction with another user to buyers only, an attempt to solve an inherent problem with its previous feedback system (since feedback went both ways, users may have refrained from leaving negative feedback out of fear to also receive negative feedback in return), was not very well received by sellers (to put it mildly; another recent outcry was caused by fee increases).
It appears that the very same network effect that caused its success may now cause its demise. eBay can either offer the same service to all (leaving many dissatisfied), it can continue to expand its user interface to offer ever more choices to customize the individual experience (which has already complicated the site to the brink of unusability), or it could split it into subsections (auctions versus fixed price, commercial “power” sellers versus individual sellers, local markets, etc.). The earlier options seem to have failed, while the latter gives up at least part of the benefits of the network effect.
Indeed, eBay has already (and always) compartmentalized its site to some extent, namely by dividing the marketplace into categories. While this may be unavoidable if one wants to effectively enable users to find the items they seek, it also creates an opening for competitors: For example, someone looking for jewelry doesn’t really care whether and to what extend the same site also offers consumer electronics. This is exactly where some sites, like Silkfair.com (popular among users who like to buy and sell jewelry, while offering a very meager amount of listings in their consumer electronics section), have started to encroach. Other competitors include wigix.com, etsy.com, and oddle.com, to name just a few.
And then there is good old Amazon.com (AMZN), which went online around the same time eBay did thirteen years ago. With a web site not riddled with errors and other issues, Amazon.com also offers an increasingly popular marketplace for individuals and smaller merchants to sell their items at their site.
eBay’s troubles are aggravated by its ties to PayPal, which it bought in 2002. Indeed, eBay’s payment system is so closely tied to PayPal that it has drawn antitrust lawsuits, and PayPal is also known for its own legal problems, including allegations of improperly freezing customer accounts to derive economic benefit, which have made it widely unpopular (see, e.g., www.paypalsucks.com, or www.aboutpaypal.org).
The Economist may have summed it up best when it wrote the following about eBay in a recent issue:
“[R]ecognizing that its business... had potential network effects... [t]he firm became a de facto monopoly, but with that came a culture that left many of its users disenchanted, and growth slowed. Some measures, such as the number of new listings of items for sale, are even in decline. Buyers and sellers increasingly rely on Google’s (GOOG) search model, or online social networks, to find things and one another. eBay’s new boss, John Donahoe, is not facing a crisis like Yahoo’s (YHOO)—but neither does he appear to have a big idea for the future.”
Disclosure: None
References
Mylene Mangalindan, “Irked by eBay, Some Sellers Trade Elsewhere,” Wall Street Journal D1-D2, Aug. 12, 2008.
“Yahoo!, eBay and Amazon – The three survivors,” The Economist 75-76 (week of June 21st-27th 2008).
Kimberly Palmer, “Boycotting eBay? Here Are Three Alternatives,” USNews.com, Feb. 11, 2008.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
TraderMark
-
2
Don Dion
-
3
Cliff Wachtel
-
4
Mike Havrilla
-
5
James Quinn
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 17 comments:
John Donahoe, eBay's CEO, is solely responsible for the death spiral eBay is now experiencing. He has nothing but alienate buyers & sellers alike by signing off on policies that don't make sense and were conceived by MBAs that are about a minute old.
I predict that 4Q will be very interesting? Why?
1) eBay is hiding 25% of all listings & what seller is going to pay listing fees for items that are tossed into a black void.
2) eBay just gave their stores the kiss of death with the new selling form that has effectively remove links to store categories & adds competitive advertising.
3) eBay just announced eBay motor fees will be calculated using "eBay math" that effectively raises fees through the roof come September.
4) eBay/Paypal 21 to 180 day holds are becoming the norm rather than the exception so Paypal can earn more money on the float.
Why would anyone ever trust eBay again? I know wouldn't.
Dinah
and eBay just raised eBay motors FVF through the roof.
As far as I know, eBay remains pretty much the only game in town, at least in the US. Why would I try to sell my stuff on a site that fewer people visit? On eBay you can predict fairly reliably what will sell and get a price that approximates fair values.
As far as being cumbersome to use, what makes you think that the mechanism of selling any kind of stuff by auction to people you've never met who haven't seen the stuff should be really really easy? You're always going to have to upload a picture, write a description, make plans for payment and shipping, deal with idiots, etc. You're always going to have to pay fees to eBay for facilitating this process. How could the eBay site make this easier for you? If you have an idea, write to them and maybe they'll implement it.
Also, I haven't had one problem with eBay or Paypal in terms of site access or effectiveness, payment processing problems, etc. I'd say any problems are more likely due to user error than site error. People don't like to admit that they're very bad at using products and so they blame the company. You can also see this pattern in all the people who complain about their bank because it charges them overdraft fees.
eBay seems to be going in all directions while at the same time is going no-where!
At it's present rate eBay will self destruct in a few years.
EBay stock is a real dog anymore!
It should be around $50.00-$60.00 dollars or more.
Amazon is clearly the best company! eBay never ever was!
Hype is apparently what drove eBay stock in those early years!
eBay needs to fix itself and quick!
Get that stock up and going!
As a shareholder I am totally disgusted with this company and the way it is being run!
My hard earned money is at stake here....not eBay's money...It's not their money!
The money belongs to shareholders like me! It is our money they are pissing down the drain....My dreams of a profit have long gone....My retirement nest egg is being pissed away by eBay egg heads!
Way to go eBay!
Go ahead! Piss away all of your shareholders money! Other companies have done it, why not you!
Well, at least Paypal...here's why...
www.youtube.com/watch?...
Ebay: turn the ship around! Spend some of your vast wealth on good customer service. Spend even more on weeding out the worst fraud and scam sellers - you have the means to do that thru the feedback percentages of your sellers! No need for stupid stars and certainly you are shooting yourself in the foot by tying those stars to placement in the listings!!! Where did you leave your brain???
I'm afraid present management needs to go. I have never seen a team of people so utterly out of touch with their customers and also out of touch with good business sense. As one blogger I read constantly says: "Empower your sellers then get out of their way!"
Disgusted 10 year Ebay seller.
They seem completely unable to make and commit to positive long term initiatives for change, largely because they don't have a good idea of the exact impact of their actions.
This is a very difficult, and sad situation, but the end of ebay seems to have begun in earnest.
You have to have something first before it can either improve or get worse.
In your blog an ex Ebay employee had suggested getting in touch with Pierre. For what purpose? He started the entire ball of wax by hiring Meg. If he was sincerely concerned he has had plenty of time to open his mouth.
The entire blame will be placed on John Donahoe's shoulders and he will be the fall guy for policies that were developed by more than just his ideas.
You're absolutely right, Pierre handed the company over to Meg, who in turn handed it over to Donahoe. Pierre could have taken control anytime he wanted to but he chose to sit back, do nothing, and now eBay is about to implode.
But Donahoe is directly responsible for the mess eBay is in because bottom line - his name is on the executive washroom door, lol. He could have hired good techs but hasn't and he should have listened to members complaints about what doesn't work but he didn't.
Havine said that, I will still carefully continue to use eBay/PayPal. At least until the day I get burned on something.
I have been watching this very slow train wreck play out for longer than I care to say - and I have the following observation:
This is a stock that would be trading well in excess of $100, if it had anything resembling competent management.
J.M.H.O.
I read a statement somewhere that really struck home. A seller, and I don't remember where, said, "Empower your sellers, and then get out of their way!"
Excellent!
The things is, you are not getting to see all listings / product available. When you type in your search words, the NEW search decides what to let you see, and what it deems a duplicate (which sellers have PAID for). Personally, I like to make that decision MYSELF!