Tuesday, January 29, 2008

eBay Media Sellers Take it in the Shorts!

eBay just announced their new fee structure this morning, at the Ecommerce Forum in Washington DC and IMO have effectively screwed media sellers, as well as other commodity product sellers who sell low ASP items. Let's look at some examples for listing in CORE with a Fixed Price: (Free Gallery does not affect media sellers because they rarely use Gallery anyway)

Previous Fee Structure ($9.99 sale in core at 33% conversion)
  • Listing Fee 40 cents x 3 listings before it is sold = Total Listing Fees = $1.20
  • FVF @ 5.25% = Total FVF = 52 cents
  • Total fees to sell a $9.99 DVD were: $1.72

New Fee Structure ($9.99 sale in core at 33% conversion)

  • Listing Fee of 35 cents x 3 listings before its sold = Total Listing Fees = $1.05
  • FVF @ 8.75% = Total FVF = 87 cents
  • Total fees to sell one $9.99 DVD are: $1.92

How is that for a decrease in fees?

Now lets look at what will really happen. Media sellers have traditionally lowered prices on their items to be advantaged in search (lowest price gets the sale) while raising S&H fees to make up the difference. This strategy will no longer work because they will be disadvantaged in search (No more high S&H), so sellers will need to raise their item price and lower their S&H, so that they will show up in search. Let's look at one example:

  • Item currently sells for $9.99 with $5.95 for S&H for a total price of $15.94. Total listing fees (33% conversion) $1.20 and FVF is $0.52 cents for a total fee of $1.73. The buyer pays $15.94 for their item including S&H

Under the New fee structure:

  • Item price is raised to $12.99 with $2.95 for S&H (to make sure the item shows in search) for a total price of $15.94. Total listing fees (33% conversion) are now $1.65 (55 cents x 3 listings)because the item is now listed in the higher ASP tranche and the new FVF is $1.14 for a total fee of $2.79. The buyer still pays $15.94 for their item including S&H

With the new restrictions based on DSR rating and S&H forcing their hand to change their strategy, the media seller will now pay $2.79 to generate $15.94 in revenue, while at the old rates they paid $1.73.

If a seller decided to keep pricing and S&H where it is today, they will be now disadvantaged in search for the high S&H and won't sell the item because of lack of exposure. Remember, in both scenarios the buyer pays the exact same total price for the item, but they feel better about not having to pay excessive S&H in the new approach.

Media sellers, also traditionally have lower DSR ratings and a high volume of transactions, so if they are currently close to the new 4.5 limit for DSRs (to be disadvantaged in search) they will never be able to raise that rating, it will only go down.

In essence, with these changes, eBay media sellers will have to work harder then they do now, to generate the same sales as before and pay eBay more money for the privilege.

Compare this to Amazon or even Half.com, where this same seller sells an identical item for $12.99 plus Amazon's $2.98 S&H and pays 15% FVF for a total fee of $1.94. 100% of this fee is on the back end (after the sale) while on eBay, the seller is still risking money on the front end (listing fees). If he/she only sells 1 item for every 4 times they list (25% conversion) then their fees increase even more.

This is just one example of the effect these changes will have on Media sellers. I chose this group because they are near and dear to my heart. This is not a good day for many of my friends.

eBay would be better off just making Half.com the default listing tool for media on eBay.

Update: Blogger is having some problems today so I'm having trouble posting and answering comments.

I know my example above, is an example of fee avoidance, and the new rules put in place will stop this strategy. I agree with Cliff (in the comments below) that this is better for the buyer experienence. Many buyers prefer the approach where S&H is reasonable and the item price is priced properly but please realize that in both case the buyer pays the same total price.

So the deal he/she thought they were getting before is still the same as the new deal, but eBay gets more money. The strategy is certainly gaming the system, but it is more as a nessisty for survival then anything else. Media sellers can barely survive, with their current margins on eBay and now will most likely stop listing in CORE all-together.

Media prices on eBay will go up, S&H will go down and eBay will make more money. Sellers will need to raise prices substantially to make the same money as they are today.

Update on the Update: I'm still having trouble with blogger so forgive me if i use the post to respond to comments. Cliff, you are correct. This will be a short-term negative for media just like the Store fee increase of 2006. I am certainly not very objective when it comes to media issues.

I think these changes are good for those sellers who previously used Gallery as they their listing fees just went down but for media sellers who never used Gallery before this is a fee increase. eBay needs to adopt category specific pricing for Media and other low ASP commodity items. The simple approach would be to adopt Amazon's fee structure for media items.

Just my 5 cents!


Anonymous said...

That's it, we've decided to stop all work on eBay and put our effort into our own site and Amazon/Google Base. We're done with this eBay treadmill.

These ass-clowns want to price their website like there are no other options. This is not 2001.

My team is not going to work another summer of 15hr days to pay MORE to eBay than we did last year (like $200,000 in fees was not enough on $2MM in GMV). We'll do better focusing on our site, Amazon, Google Base, and all the other no-listing-fee sites out there that do search right.

4.8 needed on DSRs across the board to get 15% back on FVFs is ridiculous, only the smallest volume sellers will be able to maintain that.

Also, be ready to get blackmailed by buyers threatening negs. You now have no recourse. If you don't submit to buyer blackmail you will get neg'd out of search.

eBay Management says they want to help sellers succeed when really they continue to feed on us like sheep. Their actions this morning do not match their words or promises.

Randy, please try to get management to address this issue in their Q/A.

cliff said...

Hi Randy,

Busy day, tough to digest it all, but I am optimistic at first.

I don't think what you're saying is wrong, but I don't think it's as bad as you say either.

Regarding Media Sellers, which I am not (I do movie collectibles and magazine back issues), I don't see this being as bad as you say. Sure, for the three items that do sell, the cost is more, but wouldn't the large media seller, say one offering 20,000+ titles as Glacier Bay used too (and I know that number was much higher!) benefit from the lower upfront listing fee? I would assume sell-through rate would stay the same, so I'll leave that out there for someone else to calculate.

It's not like every title sells, the vast majority of them probably barely move.

Now I've commented in the past that I hate the DSR that tallies the shipping and handling charge, but the point I see you arguing against it for here is really the only legitimate reason I do see for having it -- many items I do buy on eBay, but I usually will get my DVD's directly from Amazon because of higher charges for Media shipping on eBay. It's very frustrating to think you've found a deal and then find out that it's not.

As a buyer, I have to applaud eBay if the end result is rewarding the seller charging $2.95 to ship over the seller charging $5.95 to ship. That's great for buyers, and as a seller, I want more buyers on eBay.

And I've personally always thought of the other way as some form of fee avoidance.

If it is true that many Media sellers have lower DSR ratings, then as a whole it really shouldn't impact their position in search, should it? If it does, it is only rewarding those stand-out sellers who have the higher DSR -- while I disagree with the way the number is calculated (and especially weighted), I think from a buyer's perspective it does tend to reward the seller who provides the better overall shopping experience.

These are just my initial thoughts, again, this will all take time to soak in.

Really, on the whole, my first impressions today were that I was hoping the listing fees would be lowered a little more and I'm disappointed I won't be able to leave negatives for buyers deserving them--I didn't leave many, but when I did they deserved it, and being primarily a seller I found a buyer's feedback helpful in judging whether they would actually pay me or not. eBay is essentially making buyer feedback meaningless, which I would guess means it will be phased out completely in time.

Otherwise, I'm pretty happy with the majority of the changes on first impression.

Anonymous said...

As you point out, all things being equal, in low DSR cats like media the sellers will be equally disadvantaged for eBay search results. This is fine, as with every closed ecosystem the market will sort itself out. This goes for any changes that eBay makes, the eBay marketplace will sort itself out and the sellers that can adapt will survive and rise to the top, others will die.

The larger issue is that eCommerce has changed and now eBay is NOT a merketplace in a vacuum. Because we now have a marketplace of marketplaces (eBay, Amazon, Google, uBid, etc) large sellers are forced by market economics to choose what marketplace to list their goods in. At least they must decide how to allocate their resources to those marketplaces.

Should a seller put more effort towards the no-up-front-risk of a highly liquid marketplace like Amazon OR list on eBay with its notorious fees?

Also remember that Amazon and eBay now compete item for item in lots of categories for new items. Will the buyer purchase from eBay where the seller must use higher prices to offset eBay listings fees or buy from Amazon where the seller can use their best price up front?

Buyers will purchase from the same 3P seller on Amazon over eBay because the seller can afford to have it for sale on Amazon at the best price. Amazon gets higher ASPs too, so factor that in if you like.

Remember, eBay is only making these changes because of competition from these other marketplaces... they were losing buyers and sellers.

So you see, the big issue for big sellers is more about the eBay Marketplace being level with the other marketplaces... not the old isolated eBay level playing field (big sellers won that fight by definition).

Anonymous said...

I want to pull the plug and chuck eBay after almost 10 years of accompanying it on an inexorable downhill side.

Well, we have the Media covered with Amazon, but now we need to find a viable venue for antiques and collectibles that is affordable and actually turns product.

I hate eBay.

Anonymous said...

Make that "slide"...

Randy Smythe said...

Thanks for the comments everybody. A little perspective on eBay. When I started in 2000 I sold items at 25% to 35% off of the list price and charge $3.95 per order (not per item)

Buyers were happy, eBay was happy, I was happy and all was right with the world. As Anonymous writes, it is a new world.

Sellers will certainly adapt and my point is that Media will not be priced as well on eBay going forward and the selection will decrease.

I would guess that the big guys will use eBay as a liquidation channel and the small guys will just adjust. Buyers will go to Amazon.

Cliff Aliperti said...

2nd Anon (3rd post), I agree with what you're saying and your first paragraph more eloquently states what I was trying to express.

It's not my category and I don't sell on Amazon (though I did try out their platform briefly), so I may be off base here, but doesn't it hurt the Amazon media seller that they must compete with Amazon itself when pricing items (except those out of print)?

This may be changing the subject slightly, but for a seller such as myself (again, collectible items), eBay has proven to be the best outside source for sales, so my gut reaction to today's changes is positive -- I've been on eBay 8 years now and this is the first time they've made changes that didn't send me running in search of alternatives. Actually, I've been increasing my listings for the past week in anticipation of this.

But, in keeping with the title of the post, maybe I can agree with Randy about Media sellers then. With valid alternatives perhaps today is a negative.

But at the same time, if you're a Media seller who planned to stay on eBay I think that it could be a better eBay in the end with more value received for your money. Time will tell I suppose.

And if this does lead to mass defections, I think today's eBay is more open to tinkering with the process. I read somewhere else today (Tamebay perhaps?) that eBay.uk would have different rates for Media and some other sellers. Perhaps a test for over here?

Randy Smythe said...
This comment has been removed by the author.
Tony P. said...

Hey Randy, I must be getting old or something. There was a time I used an actual ledger (ye gads! paper) for accounting purposes, so maybe I'm just not up on the new math.

I look at one side with some nickels-and-dimes, and look at the other side with 80-cents-to-several-dollars...

..all I see is a fee hike. To be sure, one that's cloaked in words of improve-this and empower-that, but it's still a fee hike. Best of all, that'll be like Found Candy to the Street.

"Oh ebay, you're my hero; you didn't raise fees - you actually lowered them! - and still you made record profits."

PUKE. The emperor isn't just running around buck-nekkid, he's putting yer face between the two cheeks.

What other screwup can ebay manage, without really even trying? Oh yeah, they have increased the feedback extortion possibilities AND added DSR extortion to the scam-buyer's arsenal.

These people evidently have ZERO insight into the actual seller side of things. They didn't even give much in the way of fostering more high-dollar items in the auction format. Make that, 'the appearance of fostering', because the true fees on such items will increase considerably.

They speak of Quality and Trust, but their actions contradict such words. To me, "Actions speak louder than words" is something I still believe.

Randy Smythe said...

Tony, some sellers are seeing a slight decrease in their fees so for some this is a good deal.

Bur for every seller who sees a benefit another sees an obstacle. The question many sellers should be asking. Is all of this jumping through hoops worth it?

Cliff sees the benefits to his business. Many sellers will not. 2006 it was the Store Fee Increase and in 2008 it is the fee increase disguised as a decrease. What is next?

Anonymous said...

If your media seller used gallery on their listings, they'd see a 31% fee decrease.

Randy Smythe said...

Anonymous, yes this is true if a media seller used gallery then they are happy today with a decrease in fees.

I don't know of many media sellers who actually paid for Gallery though.

Anonymous said...

Lower insertion fees, WHAT A JOKE! insertion fees were not the problem... RAISING FVF!!! Maybe ebay should be less concerned about excessive shipping fees and be more concerned about excessive final value fees. Just like the OIL companies.....

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