For a typical business, when business is not going well, you cut your expenses and lower prices (ie: sales) and accept lower profits in the hopes of spurning more business. In fact one of the most basic theories in economics is the notion that as the cheaper the interest rate, the more businesses and consumers will invest in the market. The same can be said about supply and demand. In general, prices of goods and services adjust themselves to reflect the current supply/demand ratio. eBay being somewhat of a hybrid business as it services both buyers and sellers could use a lesson in simple macroeconomics.
With the notion of interest rate (here selling fees) in mind, I find the current management's direction in pricing on the site to be full of "irrational exhuberance" (to quote our dear friend Alan Greenspan).
Poor vision in planning out price changes in media
eBay has spent alot of time watching its competition, presumably Amazon.com. In reviewing the pricing changes for the fixed price (Buy it Now) format, it seems that eBay copied verbatim, almost to the point of plagerism, Amazon's pricing structure.
I think this is a fatal mistake.
Sellers are leaving in droves, everyone is super frustrated with the site and the constant changes. Instead of 'rebalancing' and in some cases raising fees, eBay should have taken hard measures to increase the amount of sellers on the site and they can only do this by making it cheaper.
The double whammy of shipping caps and higher FVF's with BIN listings just doesn't make sense to me, especially in the media category. For example the average wholesale cost for a new release video game for XBOX 360 or PS3 is about 52-53 dollars. If ebay wants the seller to sell this with free shipping for under retail price, I just don't see how the numbers work themselves out. 15% of 60$ (that is if you sold it at full retail price) is 9 dollars. 52+9 = 61 and you still haven't factored in the listing costs and costs for shipping and labor.
Ebay might argue that Amazon charges this and is growing quite quickly, but they fail to realize 2 things.
1. Amazon sells these types items at and below retail with free shipping, how can they do this? Easy, they don't pay anyone a 15% FVF.
2. Amazon allows 3P sellers to compete, if they are out of an item, 3P sellers are there to pick up the slack in that inventory area.
3. Either way you look at it, Amazon has the merchandise buyers want at the best possible price. (If amazon is out, then that means the prices are going up all over the web - supply/demand).
4. Ebay on the other hand has only its sellers, they have no inventory so they only compete with Amazon with the 3P marketplace.
So how will this play out?
1. Ebay buyers will come to ebay looking for good deals on the newest stuff. After all, why buy from someone you don't know on eBay if you aren't saving any money?
2. Ebay sellers who run the auction format will find that buyers like to complain about S&H but don't adjust their bids upward commensurately with the reduction in S&H charges by ebay. Thus even though they pay a lower fvf, their ASP's will not be high enough to sell new and in demand games and movies, so the auctions will dry up.
3. Ebay buyers won't find a good deal, they will find a bunch of FP30 overpriced listings or titles which are old and no one really cares to purchase.
4. Buyers will realize that they can get free shipping, no tax, and the reliability of Amazon's service and run to amazon OR
5. Go to Walmart and BestBuy to get the new items because they are in a hurry to get it and the incentive to buy from ebay (lower price/good deal) is no longer there.
6. The new price increases will price most if not all legitimate sellers out of business or away from ebay, this is already happening.
7. Those determined to still make money on ebay will do so only with stolen and fake merchandise, which will further deteriorate the trust in the marketplace.
Media including DVD's and video games are a huge traffic attractor and eBay should realize this. Think of it like 'doorbusters' for big sales for traditional brick and mortar retailers to get people in the door.
The eBay site is lagging in traffic and the latest pricing changes don't really stimulate growth in my opinion, rather they've done just the opposite. A good analogy would be in the current economic conditions, if the Federal Reserve decided to raise interest rates instead of lowering them. It makes no sense to me and the fact all of the eBay managers are MBA's really says little for the value of their education.
Perhaps John and company need to sit through MacroEconomics 101 again.
My feeling is that once eBay realizes what needs to be done (or finally decides to do it), it will be way too late and everyone will be gone.
Perhaps the stockholders have made their point about managements misdirection. The stock is trading at levels not seen since 2002.
I think this is a fatal mistake.
Sellers are leaving in droves, everyone is super frustrated with the site and the constant changes. Instead of 'rebalancing' and in some cases raising fees, eBay should have taken hard measures to increase the amount of sellers on the site and they can only do this by making it cheaper.
The double whammy of shipping caps and higher FVF's with BIN listings just doesn't make sense to me, especially in the media category. For example the average wholesale cost for a new release video game for XBOX 360 or PS3 is about 52-53 dollars. If ebay wants the seller to sell this with free shipping for under retail price, I just don't see how the numbers work themselves out. 15% of 60$ (that is if you sold it at full retail price) is 9 dollars. 52+9 = 61 and you still haven't factored in the listing costs and costs for shipping and labor.
Ebay might argue that Amazon charges this and is growing quite quickly, but they fail to realize 2 things.
1. Amazon sells these types items at and below retail with free shipping, how can they do this? Easy, they don't pay anyone a 15% FVF.
2. Amazon allows 3P sellers to compete, if they are out of an item, 3P sellers are there to pick up the slack in that inventory area.
3. Either way you look at it, Amazon has the merchandise buyers want at the best possible price. (If amazon is out, then that means the prices are going up all over the web - supply/demand).
4. Ebay on the other hand has only its sellers, they have no inventory so they only compete with Amazon with the 3P marketplace.
So how will this play out?
1. Ebay buyers will come to ebay looking for good deals on the newest stuff. After all, why buy from someone you don't know on eBay if you aren't saving any money?
2. Ebay sellers who run the auction format will find that buyers like to complain about S&H but don't adjust their bids upward commensurately with the reduction in S&H charges by ebay. Thus even though they pay a lower fvf, their ASP's will not be high enough to sell new and in demand games and movies, so the auctions will dry up.
3. Ebay buyers won't find a good deal, they will find a bunch of FP30 overpriced listings or titles which are old and no one really cares to purchase.
4. Buyers will realize that they can get free shipping, no tax, and the reliability of Amazon's service and run to amazon OR
5. Go to Walmart and BestBuy to get the new items because they are in a hurry to get it and the incentive to buy from ebay (lower price/good deal) is no longer there.
6. The new price increases will price most if not all legitimate sellers out of business or away from ebay, this is already happening.
7. Those determined to still make money on ebay will do so only with stolen and fake merchandise, which will further deteriorate the trust in the marketplace.
Media including DVD's and video games are a huge traffic attractor and eBay should realize this. Think of it like 'doorbusters' for big sales for traditional brick and mortar retailers to get people in the door.
The eBay site is lagging in traffic and the latest pricing changes don't really stimulate growth in my opinion, rather they've done just the opposite. A good analogy would be in the current economic conditions, if the Federal Reserve decided to raise interest rates instead of lowering them. It makes no sense to me and the fact all of the eBay managers are MBA's really says little for the value of their education.
Perhaps John and company need to sit through MacroEconomics 101 again.
My feeling is that once eBay realizes what needs to be done (or finally decides to do it), it will be way too late and everyone will be gone.
Perhaps the stockholders have made their point about managements misdirection. The stock is trading at levels not seen since 2002.
Posts
2 comments:
Let it be said first of all that you and I are in direct competition. I won't say who I am because you won't say who you are, but we are in direct competition.
And I agree with you one hundred percent.
Ebay is dying. There is nothing else to say except that it is fucking dying a disgusting, horrible death.
The root of the problem is the upper stratosphere of eBay management do not understand retail. Particularly the dollars and cents (or sense) of highly competitive categories with very tight margins. The concept of time and motion studies to shave a few pennies off per package labor costs, or knowing what your customer service overhead is, are as alien to them as if it were written in sanscrit. They have conveniently ignored the parts of Amazon's business plan which don't fit their model eg a monthly merchant fee in lieu of insertion fees to name one. All they see is the GMV listed.
You can show, explain, illustrate and demonstrate but they will not pay attention. They say "we hear ya" but they are not listening, they are mentally rehearsing their response to your next point.
The eBay 'sock it to the merchant' business model has always worked historically and nobody ever told them the story about the camel and the final straw which broke it's back.
There comes a point when a seller looks at the books and has to make a decision. Being large or a high volume lister confers no immunity to 'low sell through no profit' disease. I believe we are going to see a number of dropouts by the first week of January.
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