buySAFE blog

Sellers, eBay and what the Media Left Out

"If their new fee increases leads to increased revenues and stock price for EBAY, then the leadership is to be commended.  If they notice that the new fees have a detrimental effect on certain segments of their business, then I truly hope they reconsider their recent move.  No matter what they say to the press or how they try to frame it, it’s all about bringing increased revenues to their bottom line.  And a less-than-expected increase will likely be the only thing that would get them to change their recent fee increases."

This quote comes from a large eBay seller I spoke with last week, and it echoes the sentiments of many large volume sellers I’ve talked to recently. Most professional sellers understand that eBay has a business to run, but sellers have businesses to run too. If squashed margins driven by new policies hurt sellers’ businesses, what choice to they have but to shift their businesses elsewhere?

Articles, blog posts, and analyst coverage have taken note of seller grumblings about eBay’s new fee increases for stores and eBay's rationale that it was needed to “rebalance” the inventory levels between stores and auctions. eBay built its business off of core auctions, and developed a strong business model with the addition of stores.  The addition of eBay stores was the very reason hundreds of thousands of businesses could run off of the eBay platform each year.  By hitting these businesses where it hurts, eBay is forcing them to re-think their long-term business strategy, and the company is underestimating the ability of these businesses to sell off of the eBay marketplace.  As someone who speaks to hundreds of eBay sellers each year, what’s surprised me in the coverage of this recent issue is what is not mentioned:

1) They don’t discuss the inevitability of where this big eBay debate is heading: that some sellers will strongly focus on building their businesses outside of eBay. This is healthy and shows a maturing of the e-commerce market.

Multi-channel selling is the future- and it’s often misunderstood by the mainstream media. The media is harping on Google becoming the next marketplace, but I actually think the future has less and less to do with massive portal-like marketplaces. Free- standing stores, powered by software service providers like Channel Advisor - probably the best known of these in the eBay space, but also companies like MIVA or Yahoo Stores - are big players beyond eBay. This trend brings along with it a whole new suite of problems, but we see the growth in this sector, we’re excited about it, and we’re addressing ways to allow merchants to extend powerful trust signals backed by financial guarantees to make them mean something to their free-standing stores. Our other more eBay-centric colleagues like Channel Advisor also rapidly following their customers off eBay.

eBay still is and always will be an incredibly powerful and rich marketplace, but change is afoot and diversification, as I mentioned last week, is inevitable. We’ve certainly turned our business in that direction.

2) They don’t understand seller motivations- or at least they don’t seem to accurately report on them. As the quote above echoes, eBay sellers are businesspeople (many are quite sophisticated and are former investment bankers, lawyers, accountants, etc. with MBAs and other advanced degrees). Some articles have been quite patronizing in their discussion of eBay sellers and their reactions to fee increases and other new rulings such as the removal of many sellers’ stores listings. Hi-volume eBay sellers are smart entrepreneurs. They know eBay is motivated by the bottom line, and so are they. I think some analysts and journalists still think of eBay sellers as empty nesters wanting to clean out their attics and garages or stay at-home mom’s who have built a business out of the garage.  I assure you, there is nothing is further from the truth. These sellers want and need to run healthy businesses. High fees, lower visibility, and a lack of buyer trust conspire to create an atmosphere for some sellers that just do
esn’t allow them to run profitable businesses. Profitable businesses lift the e-commerce sector as a whole- and lift eBay’s value in the long run.

Professional sellers view eBay as a landlord, and when your landlord starts charging too much rent and letting the riff raff in, you move, or open another location. As Mylene Mangalindan mentioned this week in the Wall Street Journal, “there is a growing gap between registered users—people who have registered information about themselves on the site—and its “active” users, who have bought, bid on, or sold something in the past year.” The numbers I’ve seen point to active user attrition rate on eBay is now approaching 50% (annually).  This points to a massively high churn rate for eBay buyers, something more in keeping with the behavior of a search or comparison shopping engines and not a trusted marketplace. However, Wall Street (and journalists) often see eBay as an e-commerce play unto itself—or as an auctioneer, maintaining prices, courting buyers, and controlling inventory.

The truth is somewhere in between, but for the majority of serious merchants we work with, eBay is now just part of a multi channel retailing strategy. This is healthy, and to be expected.

Trust and the Little Guy

We now live in an era of declining trust in major corporations and those who lead them.  After management misdeeds ranging from Enron to WorldCom and accounting fiascos ala Fannie Mae, it’s hardly a surprise. And yet, huge companies who have lost trust in the past can regain that from consumers. I think of Microsoft, which was five years ago was vilified for its anti-trust and monopolistic tendencies.  After several years of consciously re-building their image couple with an effort to be more transparent—better press relations, more open product releases, blogging, employees feeling free to take on senior executives when they disagreed with company policy (see Scoble calling Steve Ballmer to task for MSFT's lack of support on a gay rights bill), and a generally more open spirit—Microsoft was this year named the “world’s most trusted company” in the Edelman 2006 trust barometer, an influential survey of business leaders, media etc.

Microsoft had been vilified because its most interested, invested users lost trust and respect in a company they simultaneously needed and resented. Although trust was re-built, MSFT alternatives grew apace, so that now the most believe they are less dependent on the giant company than they were in the past - one could argue Web 2.0 and its open source spirit was made possible by a sense that users just didn’t need Microsoft and its ilk to do what they needed to do online.

In many ways, we see the same thing happening today on eBay.  Citizen groups of alienated power sellers are revolting against eBay draconian policies and rising fees and organizing to fight back, or to create alternative marketplaces. See the growing “Powersellers unite movement,” which states as its mission:

"PSU was “born” when eBay implemented rate increases that significantly impacted sellers large & small. The fee hikes affect buyers also, as most sellers have no choice but to pass on the eBay fees to buyers. Our focus has now shifted away from the eBay boycott in early 2005 to helping sellers, and buyers, find the best alternative auction site(s) for their needs.

PSU is a fast- growing group of online members – seasoned and new – with common goals."

From an eBay competitor perspective, Overstock.com Auctions is gaining traction- this small competitor to eBay charges much less to merchants and gives them good visibility through search results and a “Trusted Merchants” gallery. As a result, we’re seeing movement to Overstock, and sellers are plugging Overstock on eBay message boards (link).  With their recent move to incorporate “Trusted Merchants” inventory in their core shopping site search results and their announcement today that they’ll automatically syndicate seller fixed price items to Google Base and Froogle, they are aggressively addressing the biggest knock sellers have had with them to date – limited buyer traffic.  These moves will no doubt have a significant impact in driving increased buyer demand for their Auctions site.

That said, thus far, these citizen actions have not gained significant traction, as Sheldon Liber mentioned in his follow up piece on Blogging Stocks. eBay is still the biggest game in town and sellers still need eBay. But citizen action and unrest is important, and eBay must listen. If eBay is seen as an unfair, monopolistic monolith then it will not win in the long run. Microsoft learned the hard way.

Plus, let’s not forget the recent lesson of the Connecticut Democratic Senatorial Primary. Who would have thought a little known guy with no government experience could beat a former vice presidential candidate and veteran Senator like Joe Lieberman? Ned Lamont won because grassroots supporters cared enough to force change. It all started with simple websites, like we’re seeing now with these grassroots anti-eBay sites.

 

Mpire: comparative data for shoppers

Good column from Bob Tedeschi at the NY Times on the launches of MPire.com and Slide.com, two new e-commerce comparison sites that allow shoppers to track and compare recent selling prices on specific items across the web. It's kind of like looking at real estate 6-month "comps" when you're buying property: ah-- unit 2A sold for $50,000 more than I want to offer...

...most promising for Mpire is that it started by only listing eBay prices, but now covers Overstock, Craigslist, and Amazon. Mpire CEO Matthew Hulett has a great track record and we wish him success.

Blogging Stocks lends perspective to eBay vs. Sellers

Sheldon Liber at Blogging Stocks provides reasoned perspective on the growing enmity between eBay and some of its sellers. Put simply he translates eBay's message to sellers as "grow or die." It's a Darwinian game, online auctions.

All this as sellers turn to Google for help in providing new outlets for auctions...hat tip to Ina Steiner for this article.

Band of eBay Sellers Petition Google to Open Auction Site.

"A small group of eBay sellers launched a discussion group on Google Groups to beg Google to consider opening an auction site. The move comes after eBay announced a significant fee hike for Store inventory listings in an effort to "rebalance" the marketplace toward the core platform (non-Store listings).

There are hundred people on the Google Checkout team in Mountain View who must be smiling a little at this one. 

3,000,000 listings bonded and counting

… about 2 minutes ago, we just crossed the 3,000,000 bonded listings (buySAFE Seals) mark for the first time ever.  This means there are 3,000,000 items out there serving our seal.

Shoppers to eBay Sellers: Ok if it's fake, as long as it's cheap

A German paper reports on a new study from the University in Mainz (Germany) that found that 85% of perfume buyers on eBay received counterfeit bottles. Ok, fine. Here's what's interesting:

    "While the actual fragrance of the imitations often displayed only a minimal deviation from the original, the differences were clearly recognizable from other features. The weight of the bottle, the lettering used or the curvature in the bottom of the bottle pointed towards them being forgeries. For the buyers it admittedly appears not to be so important as to whether they have bought a forgery or an original. They showed hardly any reaction.  It was only in only a few individual cases that they gave a negative appraisal and spoke out about forgery whereas, according to the study, 99 per cent (sic) of opinions were positive."   

Do people just expect they will receive counterfeit goods?  More likely, because they don't trust that they'll get the real thing, most just assume it's not real and adjust the price they are willing to pay accordingly.  They are willing to take a risk-- as long as it doesn't cost a whole lot.

Perhaps this is why, according to the Auction Trust Network, who has a great tool for comparing the average prices of products on eBay with those off eBay, “online shoppers pay an average of 34% less on eBay than they would on traditional retail shopping sites!” (from Steve Jones, the CEO of ATN, in a recent newsletter).  While this is great for buyers, if you sell on eBay this is really challenging for your margins.  Why is a buyer not willing to pay the same price on eBay that they are willing to pay FOR THE SAME PRODUCT off eBay?  This is a big trust problem.  If you are a seller who sells the real thing, you’ve got a tough challenge convincing every buyer that you are actually selling the real thing (vs. every other seller who is also saying they sell the real thing, but really aren’t) so that you can get a fair price.

Or perhaps, this is just a problem in Germany but not in the U.S. market?  Comments?

To see the full article on the study I’m referencing, go to http://www.markenbusiness.com/en/news.php?newsid=4026

Why Are Shoppers (You?) Afraid When Buying Online?

At buySAFE, understanding what drives risk perceptions for online buyers is absolutely core to our business.  I’ve now studied this topic for years… I’ve read volumes of literature on the topic -- as it has been heavily researched by academics and analysts alike.  I’ve surveyed and interviewed online shoppers  and watched everyday people react in numerous simulated shopping experiences.  I’ve also le arned a great deal from our own research here at buySAFE as our company is essentially a huge crucible for learning on this topic.  I’d like to share with you my understanding of the “Trust Problem.”

First, why is this interesting at all?  Because a lack of complete confidence is a MAJOR problem in eCommerce today.  Over 50% of all online users still don’t buy online.  According to Bear Stearns, in their May 2006 report on the Consumer Internet, they say the percentage is currently at 43%.  Of those that do buy, if they perceive any risk at all in an online transaction, they will typically either avoid buying or discount the prices they are willing to pay to compensate them for this risk.  This lack of perfect trust in the online environment severely limits the size and value of eCommerce overall, costing online merchants -- especially small & medium-sized businesses (SMBs) -- billions of dollars a year in lost sales and lower prices.  What’s more troubling, most studies show that buyer online risk concerns are not going down, but actually increasing over time.

Buyer risk perceptions are caused by something economists like to call Information Asymmetry, or the lack of perfect information.

Click here to read full post.

Guidewiregroup- good corporate blogging

This is a business blog worth looking at- and interesting podcasts from various VC's too...

http://www.guidewireconnection.com/