Tony P.

eBay: The Next 4 Months

It is very interesting that some folks keep saying that "auctions are dead" and that that segment of the ebay marketplace should be sold off, burnt at the stake or simply kicked out of the door.

Most of the peeps saying such things are those that have a vested interest in seeing the Rise of retail and the Fall of auctions. Like Scot Wingo of Channeladvisor, previously known as Auction Rover, back when the butter was on that side of his bread.

The remainder of those that proclaim 'auctions are dead' are analysts and such. That is extremely confusing, to me, because they are supposed to be "good with numbers" and the ebay auction numbers are still very much alive and kicking.

First, auctions make up 57% of the marketplace revenue. Forget about Growth for the moment. Try your best to remember that old stock adage, 'past performance is not indicative of future results'.

If you had a lemonade stand and 57% of your sales went to one person, would you tell that person to leave and never return? Well, you shouldn't, not if you want to retain your current level of revenue.

Here's some more numbers to chew on. Another way of looking at the ebay revenue stream also consists of two metrics - insertion fees and final value fees (FVFs). Currently, they account for 60% and 40%, respectively.

Today's ebay is dependant upon the insert fees, rather than the more success-based FVFs. Previously, the FVFs drove the revenue, from inception until about 2004 or so. It was around that time that ebay decided to 'improve' all sorts of functions to boost Fixed Price items, to the detriment of auction style listings.

Because auctions suffered from those changes, along with the concerted effort to advantage fixed price items, we now have "auctions are dying". BUT WAIT! There's another key point to all of this.

The FVFs make up *only* 40% of the current revenue, but of that percentage, the final value fees of Auctions constitutes 78%. That's right, the FVF of Auctions outweigh the FVF of Fixed Price. Naturally they do!

Auctions end with a HIGH dollar amount, compared to just about all of the Fixed Price items. I recently saw a $20,000 toy robot auction end successfully on ebay. It would take a whole truckload of DVDs, Shoes and even iPods to equal that FVF.

Of the 60% contribution of Insert Fees towards the ebay revenue, auctions account for 43-44% of that figure. When you look at these two sets of figures, 78% of 40% and 43% of 60%, you can see where auctions are Key to the ebay financials.

Oh, and if it isn't obvious from these numbers... the movement of FVFs going from the 'top earner', down to the minority contributor... that is the reason for the GMV slide these past few years. When auctions were welcome (dare I say, even embraced), their hefty FVFs came from all those high-dollar, quality goods.

See that connection? Bueller? Bueller? Anyone?