Saturday, July 05, 2008

Big Online Retailers Should go Slowly on eBay!

Buy.com was selling on eBay for about 6-7 months before their deal actually went into force. This was certainly a smart move, as it gave them a chance to feel things out and fly under the radar. Once they began listing 500K core listings, all attention became focused on them and they've had to deal with a lot of issues:
  • eBay sellers don't like the fact that Buy got a deal not available to anybody else, so eBay created the Diamond Power Seller to give the "impression" that any eBay seller could earn that status.
  • eBay Users began reporting Buy.com listings for violations that would have suspended every other seller. Their motivations varied from trying to damage Buy's business to testing how eBay would respond.
  • Users started to complain about padded listings, Buy's "fantasy" DSR ratings, restrictive TOS, violations of eBay/PayPal rules about accepting e-checks and they are still looking for more violations.
  • I'm assuming Buy's NPB rate was initially very high because of those eBay users who bought something to test out Buy's system; never intending to pay. If regular sellers are occasionally attacked by their competitors, there is no doubt Buy has been attacked.

Speculation abounds that eBay is protecting Buy from all of this, perhaps not counting bad ratings from non-paying bidders and overlooking the number of 1 and 2 DSRs in order to keep the ratings high. Perhaps this is the case; once the fee discount wall came down all the other walls could come down. I don't believe that Buy has any power over this, but do believe eBay would protect this seller from many of these issues because they are the test case for the "New eBay".

Buy is the first of the big retailers to come on board, so they are going to get the brunt of the abuse, but those retailers waiting in the wings need to tread lightly in their preparations for the move onto eBay. Some things for them to consider:

  • They should be aware of the additional customer service demands of eBay's high maintenance buyers.
  • eBay is unlike any other ecommerce business, so they better have the right talent in place.
  • The changes in the marketplace are on-going; probably not the best time, in the scheme of things, to commit to eBay, at least in a big way. Nobody really knows what the marketplace will be like a year from now.
  • Selling on eBay may put your brand at risk, is that potential worth the incremental sales?
  • eBay is a discount marketplace and some brands just won't work for example: Zappos is a premium brand not a discount brand? eBay customers are conditioned to get "the deal".

Many of the these large retailers will start small on eBay; to get a feel for the site, possibly with a secondary brand. I doubt any of them will jump in with 500K listings right off the bat. There is plenty of eBay talent out there, it would be wise for them to hire the right people. Wow, suddenly many eBay seller's resumes have some value.

Another option would be to buy an existing eBay business. Perhaps this is the time when eBay sellers, that are leaders in their categories, begin looking at their exit plans. Imagine your sales and eBay knowledge being part of a larger, more efficient and resource rich company. Nobody is going to get rich with any of these deals, but they might be a stepping stone to a brighter future.

When I was considering shutting down Glacier Bay, I looked into selling my business. I wasn't looking to get rich, but I was looking to continue the Glacier Bay brand and get access to additional resources. In Jan of 2006, I even had an agreement to sell Glacier Bay to a large media retailer but the deal ended up falling through, for reasons I won't go into, except to say; had I negotiated that deal in this current environment, the Glacier Bay brand would still be alive and kicking.

Glacier Bay had few assets, but was still generating $400K a month in revenue and the Glacier Bay brand was still valuable on eBay. The idea was to add my $4 million in annual revenue to this other companies cost structure without adding any of the overhead, except that I would have become an employee of the company.

Buying an existing eBay business would help these large retailers to transition onto eBay without hurting their brand and without having to learn all the eBay lessons from scratch, they could negotiate with eBay at the same time as they negotiate with the eBay seller, striking a listing deal at the same time.

The big online retailers are coming, but you may not know it.

Just my 12%

16 comments:

ms.pat said...

For the life of me I cannot see where buying into Ebay as a platform for a large seller is going to do any of them any good. Consider the buyers - ebay will tout that they have a huge base of buyers - but these are people who are presently being coddled - they are spoiled in that they expect the very best in service and goods for the least amount of money. Ebay can only hide so much in boosting their DSRs and ratings. I cannot see buyers even coming to ebay for the type of brick and mortar items that can be bought anywhere - AND can be bought much more safely on Amazon. I hear buy's sell thru rate is dismal at best and this kind of reflects what I've been thinking about brick and mortar store merchandise. I see failure ahead and I hope I'm right because nobody deserves it more than Ebay! I may yet get that photo of JD on the unemployment line!

www.ACEOart.net

Randy Smythe said...

Pat,

Buy's Sell-thru is low 2.4% but remember they don't pay listing fees, so sell-thru means little to them.

FYI, They did roughly the same GMV in one month that Glacier Bay did for the entire year of 2005.

These retailers look at eBay for incremental sales and access to a large group of buyers they couldn't reach any other way.

ms.pat said...

Randy - so what is ebay making off them then? FVF's on their dismal sell-thru rate? For say half a million listings wouldn't the sell thru rate on various sellers be a whole lot higher? Plus these various sellers pay listing fees too. I still can't see it.... Buy's listings don't seem to be "in addition to regular listings" at this point. So many sellers have left Ebay that I'm convinced Buy is keeping Ebay's listings looking a whole lot more successful than they are.

Randy Smythe said...

If Buy is not adding any new GMV to those categories they compete in, but is just taking business from other (higher fee) sellers than there is a serious problem for eBay.

If they are adding GMV to those categories then it works for them.

ms.pat said...

Randy - it works for them but where is Ebay's revenue out of the deal. Ebay gives them free listings and with a sell thru of a little over 2 percent where is Ebay's profit? See what I'm trying to say? That many listings from regular sellers would have a far greater sell thru and with their listing fees and FVF's would give Ebay a heck of a lot more revenue. So, I can't see where what Ebay is doing can possibly be worthwhile....at least not with the free ride they are giving buy.com

Anonymous said...

Its quite simple actually.

1. Ebay wants to attract buyers for NEW store like items.

2. Ebay's fee structure doesn't support this type of merchandise acquired through legitimate channels.

3. Ebay's (as well as Amazon's) fee stricture creates the perfect incubation ground for stolen and counterfeit items, the difference is Amazon sells the same items NEW, is reliable, and in many situations offers free shipping.

4. Most sellers can't compete wit Amazon so they resort to selling used, refurbished type merchandise, which has higher buyer dissatisfaction rates.

5. In order to bring Amazon like buyers to ebay, ebay strikes a deal with Buy, which ironically sells tons of refurbed items on their site. They do however compete with Amazon in new media and books, which is what ebay is using them, to lure buyers back to the site.

Is this a good plan? Maybe, maybe not.

1. It alienates long time sellers who cannot compete with the likes of Buy, Amazon, Sams, Costco, etc.

2. It will hurt most sellers in those categories because they simply cannot compete.

3. Some unintended (or maybe intended) effect might be that:

a. Buyers see BUY's BIN prices and bid up used items more than they would have.

b. Buyers don't see the good deals anymore and leave the site anyway. (check BUY's video game prices, $1 discount from amazon's prices on most titles, hardly a savings).

I'm not sure what the aggregate effect will be but I know thatif I had the opportunity to post all BIN auctions at 0 risk like BUY can that my sales would go way up.

In a way ebay is silly, they saw this behavior in 06 with SIS, and its taken them 2 years to figure this out.

Maybe the ebay kids have some grand plan and they will shock us all but somehow I doubt it.

Randy Smythe said...

Pat,

eBay is making about 7% off of Buy's sales about $2 million a year.

ms.pat said...

randy - 2 million a year is pocket change for ebay and on half a million listings it a terrible return. They're going to have to do better than this. I see nothing but doom.

One thing they might not have figured is that buyers don't want yet another retail store online. Especially not one with such a bad reputation. Buyers that do shop on Ebay are still looking for the deal, or the unique and rare - for those they might be willing to put up with the bad reputation ;-) It will be fun to see who is right in this. I hope I am because I want to see Ebay on its face....groveling!

ms.pat said...

Ebay is down approximately 2 million listings from where it was before the Feb. boycott. Even with the slowdown for summer they should not be that low - AND that figure contains the half a million buy listings in that figure (and who knows how many more). I look at the listings on other sites - Ebay took a hit of at least 5 million listings that took off and now list elsewhere. The figures are there and I don't think I'm that far off the mark. Ebay's change has been a losing proposition and still is. Had they put that effort into physically ridding the site of fraud and scams they would be much farther ahead and would have saved themselves the 61 million or so the French are going to take off them - and they still have Tiffany waiting in the wings along with dozens of others. I can't seem to sell on the site - even with an excellent record - so now I'll sit back and watch the action ;-) I'm hoping I'm right.

nadine said...

Since Buy.com is not paying listing fees, it will have to replace every dollar of GMV it drives off Ebay with at least two dollars of Buy.com GMV just to be revenue-neutral. The exact numbers depend on how you calculate the front end/back end fee ratios for the departing sellers, but you get the picture.

I'm waiting for the Q2 revenue numbers. They will get a YOY bump from the fee increases that took effect in Feb, but if as many sellers are cutting back as anecdotal evidence suggests, that may not be enough to make the numbers look good to Wall Street. TWT

REJOICE Music said...

Hasn't eBay failed before in attracting big retail sellers? I wasn't so active on eBay at the time, but I seem to recall Sears, Smarter Image and a few other biggies with a presence on eBay? My impression (please correct me if I'm wrong) was that their FB percentages were pretty low, S/H costs high, etc. And I'll bet they were amazed at the level of buyer expectations from eBay buyers - even "back then".

Is the eBay Uber-Super-DoubleGood-Diamond Level perks really that fantastic that a company is doing to devote that much time and manpower to eBay when they could just continue selling on their own online channels?

ms.pat said...

rejoice that's going to be ebay's biggest problem. Large sellers like sears also have large overhead costs and they want to charge big fees for shipping and handling. They also have a price they need to get - no, I doubt they'll be standing in line at the door to get onto Ebay - especially with Ebay's tarnished reputation. Not unless Ebay gives them almost free access - and then where's Ebay's revenue? Donahoe thinks he can turn the world upside down and become even better than Amazon because he feels that's where the money is....but he will not put in the money or sweat equity to do it...therein lies utter failure. At least that's my hope ;-) I'm hoping that Ebay gets the soundest thrashing it can't even imagine - just like any spoiled brat! Ebay needs to learn some humility.

Anonymous said...

In the bigger picture, down the road, ebay hopes to benefit
financially in big way by dealing with fewer sellers-not more.

There is less overall business overhead when dealing with a large corporate company like Buy who has more resources than every independent ebay seller in all those catagories combined. Everything from ebay's end will run way more efficiently and buyers of new goods will get a better customer service experience.

Please note: I'm speaking about the commodity catagories of new, wholesale goods; none of this post
refers to artists, small hobbyists, or sellers of used or truly unique items (you know, the fun stuff)!

Ebay would be way more happy to deal with one very powerful media seller who can actually afford to provide customer service than the hundreds of virtual sellers out there now, selling below wholesale cost, listing thousands of items with no way to get a fill from a distributor in the timeframe the buyer is led to expect, and getting hundreds of negs a month....how long could such a trainwreck business model go on before things had to change?

ms.pat said...

anonymous - this is true but I'm hoping between ebay's tarnished reputation and the fact that what they'll be selling can be had anywhere - I'm hoping they fall flat on their faces.

In the meantime, a lot of us are working to get buyers who want original and handmade work over to Etsy.com and places like artbyus.com instead of on Ebay. In the end, perhaps they did us a favor when they bounced us out of the nest. ;-)

nadine said...

I found this rather amazing comment on Ina Steiner's blog. Can anybody who attended Ebay Live! comment? Posted in its entirety:

Disconnect at eBay as It Moves toward Amazonification
by: Brogans Antiques

Wed Jun 25 16:04:08 2008
Overheard at Ebay Live, before one of the PS presentations: Donahoe referring to Ebay users as "crazies". Also had another Ebay staff member confirm that is the jargon used at corporate headquarters to describe Ebay users.

Overheard: Ebay personnel and Pay Pal personnel acknowledging that they didn't know the new head of T&S, and that he has no experience with that department - was the quality assurance manager who has no clue what the fraud issues are on the site.

Overheard: Ebay personnel admitting their resumes are circulating because working for the company is an exercise in frustration and incompetence. This from 2 employees that have been there for over 6 years.

Overhead: Ebay personnel discussing the long term plans that Meg and Bill Cobb had established, that Donahoe is now carrying out. Bill Cobb was known internally as the guy that "hated" sellers.

Overheard: An employee from Ebay SLC discussing the Voices participants as "stooges" that served Ebay's needs. *overheard by about 15 people, several of whom participate in the Voices program*

Overheard: Ebay personnel at a restaurant where Community Board posters from bidding & misc fits were meteing discussing Donahoe's stated plans to leave Ebay after 18 months, because Donahoe wants to use Ebay as his entre into the field of "turn around" consultants. Donahoe is set upon removing bidding auctions and making the site an Amazon/advertising model for dependable revenue and he believes the auction platform is dead.

Ebay Live was great, if you wanted to hear confirmation of your worst fears.

RIP eBay.

BTW, someone was handing out flyers encouraging Sellers to contact the FTC to file complaints about Ebay's activities including forcing Pay Pal on new sellers and then holding funds for unlimited amounts of time.
http://blog.auctionbytes.com/cgi-bin/blog/blog.pl?/pl/2008/6/1214057399.html

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