Yesterday’s article highlighting eBay’s seller dissatisfaction (eBay Noise: ‘5 days straight and not 1 sale’, Sellers rant) went live before I had an opportunity to review Citigroup’s Internet Stocks Q2:10 Preview, which provides a relatively negative outlook for eBay.
Some key highlights from the report:
- eBay’s traffic was surpassed by Amazon in mid-2009 and continues to decline;
- Amazon continues to be the selection leader when compared to eBay, Buy.com and Walmart.com;
- Expected “growth deceleration” due to “materially tougher comps, FX headwinds, and arguably some transition/execution issues in the U.S. with the new pricing policies and Search algorithms“;
- Buyers will continue to migrate away from eBay (but I don’t believe for the reasons stated in the report, but I’ll get to that).
Let’s review the above highlights.
eBay’s traffic was surpassed by Amazon since mid-2009 and continues to decline; Buyers will continue to migrate away from eBay. The report suggests that buyers will continue to leave and take sellers with them; but the overwhelming anecdotal evidence suggests that buyers are leaving because the sellers who provided unique, hard-to-find, and one-of-a-kind merchandise have either been driven out by eBay’s increasingly nonsensical and counterproductive policies, or are voluntarily leaving. Buyers who want new CDs buy on Amazon; buyers who want lawn furniture buy on Walmart.com; buyers who want vintage Danish candleholders buy on eBay . . . or at least they did.
Amazon continues to be the selection leader when compared to eBay, Buy.com and Walmart.com. Sure it does, when you compare apples to apples. Amazon has also held reasonably true to its core business. But one of these things is not like the others; tell me which one, do you know? That’s right — eBay. The other three are actual retailers — they supply, sell and ship their own inventory. They may have affiliate seller programs, but their core business is their own inventory. eBay, on the other hand, is not a retailer no matter how many times Wall Street says so, and even by its own definition “eBay connects a diverse and passionate community of individual buyers and sellers, as well as small businesses”.
eBay. Is. Not. A. Retailer.
eBay does not supply, sell or ship its own inventory. It has no inventory; no bustling warehouses on a lonely stretch of highway, no order fulfillment or returns departments. What eBay does have is a great platform to bring individual sellers and buyers together. At least it had one before it became unfriendly, unrecognizable and virtually unusable.
Expected “growth deceleration” due to “materially tougher comps, FX headwinds, and arguably some transition/execution issues in the U.S. with the new pricing policies and Search algorithms”. Spot on, Citigroup.
Many years ago, my former boss, mentor and friend, Henry Beck, Esq., once called me into his office to scold me for not “digging deep enough” for information for a project on which I was working. It was one of the most constructive pieces of criticism I’ve ever received. Perhaps he should have a talk with the analysts at Citigroup; the apparent lack of in-depth research at the end-user level is astounding.
Citigroup: ” . . . we continue to view EBAY as containing a very robust Payments business and a competitively & structurally challenged Marketplace business. Given that eBay’s Marketplace accounts for over 80% of overall profits, it has to grow its Marketplace segment in-line with overall eCommerce — without sacrificing its operating margin – in order to sustain solid double-digit EPS growth. We believe that’s a Tall Order given: a declining U.S. user base, an Auction Format anchor, a still sub-par user experience (our latest eShopping Cart analysis showed Amazon with comparable prices for Fixed Price items and arguably greater selection), and increased high-end, low-end competition from Amazon, multi-channel retailers, Craigslist, etc.
eBay’s payments business is PayPal. PayPal is a a very popular and convenient payment method even off eBay; however, what is not mentioned that the vast majority of eBay users, both buyers and sellers, use PayPal because 1) it is by far the most well-known and popular form of payment that eBay allows (eBay does not allow Google Checkout); 2) sellers are not allowed to offer cash, checks or money orders as viable methods of payment (except in a few select categories); and most important 3) PayPal is the only one promoted by eBay to offer buyer protection. The problem with PayPal, however, is not on the buyer end, it is on the seller end. PayPal has gained Capone-like infamy for instituting random holds on sellers’ funds without providing any explanation, for up to 180 days, without interest. In fact, Freed & Weiss LLC, in conjunction with Lexington Law Group, has filed a class action complaint against PayPal and eBay for this very reason. This complaint is not the first of its kind filed against PayPal, but what comes of this particular lawsuit remains to be seen.
With respect to eBay and ecommerce, it is likely that Wall Street never understood what eBay end-users — buyers and sellers — understood: eBay was never meant to be a regular retail ecommerce site. eBay management has long tried to force a square peg into a round hole with abysmal results. eBay built its reputation as an auction site with unique offerings from individual sellers, not a retail site providing mass-produced products. Granted, the buyer experience needed improvement, but eBay management has thrown the baby out with the bath water. Had eBay kept its core auction business and acquired –let’s say, Buy.com — as its retail side, the potential to compete with Amazon and Walmart as an internet mega-retailer would have been a real possibility. Instead, eBay struck deals with several large retailers, including Buy.com, to sell their products on eBay. To date, Buy.com (eBay user ID “Buy”), is eBay’s top seller with just slightly less than 800,000 active listings.
What Citigroup failed to mention in its report is that Buy.com was acquired by Japanese ecommerce powerhouse Rakuten in May of this year. A few days later, Rakuten announced its joint venture with PT Global Mediacom, Indonesia’s largest media company, to launch Rakuten Ichiba in Indonesia; and in late June, Rakuten acquired PriceMinister, France’s most popular ecommerce site. Rakuten is obviously and aggressively making a play for a leading position in global ecommerce. What effect would it have on eBay if Rakuten pulled its number one player off the site?
Citigroup: Management Update on Marketplace Initiatives – On March 30, eBay rolled out two large changes to its U.S. Marketplace that were first announced in late January. They include: 1) Reduced or Eliminated Seller Fees: In an effort to better align eBay’s success with Sellers, eBay has eliminated Listings fees for Auction-style listings with a start price of $0.99 or less and has reduced to as low as $0.03 per item the Listing fees for Fixed-Price listings; and 2) Enhanced Search Results: In an effort to provide more robust and relevant Search results, eBay will once again include Store listings in Core search results.
Our checks with key eBay Seller sources like ChannelAdvisor, which we detailed in a May 6th note, indicate uncertainty over the impact of these changes, with specific concerns over both whether the net fee impact to Sellers could actually be an increase given a rise in some Final Value Fees and whether the new Search results could actually create a less relevant/more cluttered Buyer experience on eBay.
The paragraph directly above is just lazy research and a lack of performing simple math.
” . . .indicate uncertainty over the impact of these changes, with specific concerns over both whether the net fee impact to Sellers could actually be an increase given a rise in some Final Value Fees . . .”. Final Value Fees (FVFs), which are the fees assessed upon successful sale of an item, were increased. For example, auctions FVFs were increased from 8.75% on the first $25, 3.5% on $25.01 to $1000, and 1.5% on $1,000.01+, to a flat 9% FVF with a cap of $50. This means that in order to see any benefit to the new FVF structure, a seller’s item would need to sell for $555.55. Some categories have different FVFs, but this applies to most categories. Considering that a majority of the items on eBay don’t sell at that amount, that would be a huge FVF increase for many sellers.
“. . . and whether the new Search results could actually create a less relevant/more cluttered Buyer experience on eBay.” Again, just lazy. It’s isn’t complicated to figure out that if you merge millions of store products into core that search results would be more cluttered. Analogy: If you have 10 photos on your main hard drive, and 10 subfolders with 10 photo in each, it is less complicated to find a specific photo. But if you merge them all onto your main hard drive, now you have 110 photos to wade through to find the correct one. Frustrating? Absolutely.
Don’t expect a positive turnaround at eBay until corporate decides to get back to eBay’s core business, and most important, begins to listen to the “noise” of its end-users instead of attempting to fix what ain’t broke. Otherwise, eBay might find itself in the middle of another EachNet-style fiasco.
- Citigroup Internet Stocks Q2:10 Preview
- eBay – Overview
- Rakuten Makes Major Global Expansion Move With Acquisition of Buy.com
- Rakuten Enters Indonesia’s E-Commerce Market by Forming a Joint Venture with PT Global Mediacom, Indonesia’s Largest Media Company
- Rakuten to Acquire PriceMinister in France
- How eBay lost the China market
- Special thanks to Henry Beck for guiding me gently (and not so gently) those many years ago