I think that you will find this article to be of interest:
The eBay Revolt
Can eBay stop frustrated sellers from jumping ship?
October 9, 2006 Issue
After four years selling The Lord of the Rings memorabilia on eBay, Melinda Burnett has called it quits, saying its latest fee hikes left her no choice but to close up shop.
Ms. Burnett, who lives in Atlanta, calculates that the increases in merchandise listing fees, coupled with higher commission fees, would add up to as much as 40 percent of her gross sales on the site.
“It was just too much,” she says.
Like Ms. Burnett, thousands of other sellers around the world are at their wit’s end with eBay, which they say is charging sellers too much to list and sell merchandise on its site. Indeed, an estimated 5,000 sellers have yanked their virtual stores off the site since eBay raised fees on August 22. Some sellers in the United States, the United Kingdom, and Australia have been outraged enough to stage eBay boycotts.
“People are so upset, and it’s snowballing,” Ms. Burnett says. “They’ve killed goodwill.”
Kevin Horan, another “eBayer” in Charlotte, North Carolina, has two stores on the site, but he’s closing one and cutting inventory in the other. “I’ve been doing this for four years, and I’ve never seen anything like this,” says Mr. Horan, who sells movies, books, CDs, and games in his two eBay stores. “It’s putting companies out of business right now. We had 25 big competitors about a month ago. Now we’re down to four.”
eBay traditionally charges a listing fee and a sales commission. The initial bill can rise with charges for extras like photos and requests for better positioning. Although eBay’s new fees are at most an $0.08 increase per listing and a 2 percent increase on commission fees, they can significantly ratchet up the total amount sellers pay eBay. Before the new pricing scheme, a $25 item sold on eBay would cost sellers $2.02 in basic listing and commission fees. Today, the same item costs them $2.60. For people who sell thousands of items on the site, the increases can quickly add up to hundreds or thousands of dollars in additional payouts to the San Jose, California-based company.
“The reason sellers are angry is they used to make $150 in gross profit for every $1,000 in sales,” eBayer Randy Smythe says in an email. “They are now going to make $90 on those same sales.”
eBay, however, says it had no choice but to raise fees to “rebalance” its entire online marketplace business. The company faces slowing revenues and declining profits as more people list on auction sites like Google Auctions which don’t charge listing fees, or open their own storefronts.
Sales Shift
Another trend that helped push eBay’s net income down 14 percent in its second quarter is a change in the way sellers list on the site. Over the past two years, sellers have shifted most merchandise listings to so-called virtual stores, where items sell for a fixed price, because store fees are significantly less expensive than traditional auction fees. Today, more than 80 percent of eBay’s 208 million U.S. listings are in virtual stores, but store sales account for just 9 percent of gross merchandise sales. Auctions still account for most of the company’s sales volume.
Auctions are by far the most profitable format for eBay, since sales prices tend to be higher, allowing eBay to chalk up higher commissions, and turn over much quicker. (It takes on average 14 times longer to sell store items than auction items, which usually sell in two weeks, eBay says.)
Currently, eBay hosts 500,000 virtual stores and has 200 million registered users. The company doesn’t break out sellers from buyers and won’t say how many have left because of the new fees, though it expected some defections.
Fewer higher-paying customers could well be the way to go, but eBay says it still won’t know for a few quarters whether the new fees revitalize its business in the end.
Myrtle Beach, South Carolina-based Caris & Co. analyst Tim Boyd says eBay needed to raise fees to flush out groups of sellers that list thousands of the same low-margin items, such as sweaters, telephones, and DVDs. “This isn’t the first time eBay has raised fees,” Mr. Boyd says. “Every time they raise them it’s almost like anarchy in the minds of eBay sellers.”
Still, eBayer Jeff Johnson says the new fee hikes are penalizing the sellers that built up eBay, and he blames the company for mismanaging its business. “The downturn in core [auction] listings is an eBay failure—be it marketing, business strategy and planning, or a combination thereof,” says Mr. Johnson, who lives in Mill Valley, California, and sells baseball trading cards on the site. “eBay is punishing store owners for its own failures.”
Contact the Writer: WTanaka@RedHerring.com
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