Diversifying eBay: Going Once, Going Twice?

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As with any well-behaved, publicly traded company, eBay Inc. must constantly work to show growth and woo investors. Part of this has involved a diversification of its business activities, much as Amazon, one of eBay’s chief competitors, has done. For example, eBay now endeavors to court larger businesses with attractive costs for fixed-price item listings, sweetening the deal with powerful integration and automation features. It does this without cannibalizing its historical forte and bread-and-butter — the auction — by leaving that cost structure mostly unmodified.

One can see the beginning of eBay’s evolution from an auction-only website into a more general marketplace or comparison shopping engine starting with the introduction of “buy it now” transactions in 1999. Since then, other enhancements have followed, such as better integration and consumer protection via their now-subsidiary PayPal, along with an increasingly powerful API. The API has enabled software vendors to sell off-the-shelf assistive applications, as well as encouraging larger businesses to integrate and automate eBay-related processes with custom applications. Unfortunately, the API is widely regarded as frustratingly complex, which has somewhat stifled its adoption.

Cost Savings And Usability Enhancements

Recently, in response to increasing competition and some disappointing quarterly financials, eBay implemented fee reductions, cutting costs for “buy it now” listings substantially – from as much as $4 per listing to 35 cents. This was a move aimed to attract more medium-to-large businesses as fixed-price sellers and build up that segment. Still, usability was a concern. As Jim Friedland of Cowen & Co. remarked in a January 2009 article in BusinessWeek, “At the end of the day, if you compare the experience of buying fixed-price items on eBay vs. buying them on Amazon, Amazon wins…. It’s such a better shopping experience.”

eBay appears to have taken such market criticisms seriously, responding with new variation features, in addition to attracting new sellers with lowered rates. For example, in June, they rolled out changes to allow the presentation of up to 120 variations of a particular product in certain pilot categories for the basic 35-cent fee. This further reduces initial listing expenses from “n-colors x n-sizes x any other variations x 35 cents” to a single 35 cent fee. Whereas historically a seller may have to list an item in all colors and sizes at his or her expense — or ask the buyer to fill out a preference in an error-prone notes field impractical for any company requiring effective automation — this is no longer the case.

Such features represent a substantial improvement to usability and function, as well as cost. They are relatively easy to implement in a custom application, and appear to have been developed with simplicity and the application developer in mind. This makes implementation less complex as compared to other parts of the eBay API, yet still yielding a good final product — user-friendly pages with multiple pull-down-selections for color, size, etc.

In short, eBay is no longer monolithic. It is no longer strictly an auction platform. Instead, it is now also a powerful comparison shopping engine based on a pay-per-conversion cost structure — in other words, not that different from Amazon’s well-established third-party post-sale commissions. Most of the commission rates are similar, although eBay’s may be advantageous on larger purchases since they are tiered. To compare, below are the rates for one very popular category — cameras:

eBay Amazon

8.00% ($0.00-50.00)

4.50% ($50.01-1000.00)

1.00% ($1000.01-total)

+ PayPal fees

8.00%

There are a few caveats to consider, such as listing option fees associated with eBay that are not applicable with Amazon and Amazon’s additional non-percentage-based closing fees. However, in many respects, the fee-structures are similar. It certainly appears as if eBay surveyed the competition and began to offer competitive rates that are even sometimes better on expensive items due to their tiered structure.

Great. So What Does This Mean For My Business?

eBay’s latest developments may be worth evaluation if you’re not already selling there. If you already are involved with PPC and sell on major comparison shopping engines (CSEs) like Shopzilla or Pricegrabber, and have been thinking that eBay is something entirely different, you may want to factor in these recent market moves to avoid ignoring a viable source of sales. Plus, if you’re already selling on Amazon, expanding to sell via eBay may be a no-brainer, as the cost structures are substantially similar.

But What About All The Work Of Listing And Fulfilling Orders?

There can be a lot of work associated with eBay if you need to manually post your listings and fulfill your respective sales. Doing so may be a viable platform for the type of cottage industries already on eBay, but it won’t work for bigger business. Instead, larger businesses can use eBay’s API to make posting such listings substantially-assisted or even automatic, as well as feed into their e-commerce platforms in a way that integrates with current fulfillment and shipping processes. Having worked with the eBay API extensively, I realize that it may be more complex than integration with the leading CSEs (and perhaps even Amazon). However, the API does more than most, and allows almost all eBay’s listing and selling steps to be automated within an e-commerce website platform.

After automation is squared away, eBay presents predictable costs. Simple calculations based on eBay plus PayPal transaction fees can be crunched to assess which products should be listed, an advantage that may be especially refreshing to anyone who works in PPC. While critics say that eBay’s fees are too high, they are well-defined and sometimes appreciably lower than those of Amazon. Moreover, while PPC is a perpetual game of optimization and guesswork, selling eBay’s way is more predictable and presents no outset risk aside from the 35 cent listing fee. If they want to start cautiously, a business can cost-effectively list some inventory and see what works.

Another way to look at eBay is as exposing a business to a different pool of possible customers, and a venue and means by which to acquire them. Caution is necessary in this regard, as eBay does indeed have draconian regulations regarding sales and leads originating on eBay-proper, but the rules mostly end at the finish of that transaction.

eBay can be a viable platform to move more inventory and broaden a customer base. As one of the most trafficked websites in the world, it’s worth considering making an investment in eBay automation after testing the new fixed-price waters. It may well present a low-risk opportunity with predictable costs to get many more eyes on your products and attract more customers.

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