posted on August 22, 2008 01:35:48 PM
Here are some of the highlights:
Tuesday night, eBay, the world's biggest and most famous auction company, took the first step to becoming an auction company no more.
For such a momentous move, the announcement was decidedly low key: Tuesday evening, eBay quietly announced that it was instituting special fees for fixed-price listings in its "media" category (books, music, DVDs and movies, and video games). Henceforth, it would charge just 15 cents per listing, and extend the standard duration of that listing from seven days to 30 days.
What I find more interesting at the moment, especially given my long history with the company, is why eBay would make such a brazen move now. It is, after all, synonymous with online auction, having conducted literally millions of them in the last dozen years. And you can't say the business hasn't been lucrative: EBay is one of the great success stories of e-commerce, currently with $8 billion in sales and employing 15,000 people, not to mention several million more individual sellers. The company has also served as the platform for the creation of thousands of small businesses, which have made eBay their primary sales channel.
So why turn its back on the auction business now?
If you look closely at eBay's business and its financials, the reason becomes clear: For all of the attention they receive, auctions are now a minority business for eBay, and even those that still occur offer little profit for the company.
How can this be? There are several explanations. One is success: EBay has done such a brilliant job of clearing out the world's attics and garages that the days of valuable caches of unknown goods are over. By the same token, both buyers and sellers have gotten much better at pricing most items, so the era of bargains is largely over.
At the same time, the novelty has worn off the idea of auctions and bidding -- now the process seems to most buyers and sellers as both tiring and time-consuming. Finally, other online retailers have gotten so good at offering extensive catalogs and good service, that any non-monetary advantages enjoyed by eBay in years past have also largely disappeared.
It's not surprising, then, that a quick tour of eBay these days yields a surprising number of Buy it Now offerings already -- a type of transaction that may not be as fun (or frustrating) as auction bidding, but allows for a quicker "churn" of sales items, multiple sales and easier access to the kinds of sales inventories currently going to sites like Overstock.com.
But if eBay isn't making profits on its auctions and fixed-price listings are the company's future, where are the company's current profits coming from?
The answer to that is the real story, hidden within the eBay announcement this week. When you study the company's financials, you suddenly appreciate that eBay is no longer an auction company, or even a retailer… but a bank. PayPal, eBay's subsidiary payment processing operation, turns out to be the company's big cash cow.
And so, the most important part of Tuesday's announcement was not what everybody noticed -- the shift to fixed pricing -- but what appeared to be an afterthought: eBay's announcement that it was eliminating payment via checks and money orders and shifting all electronic transactions through PayPal.
This announcement, little more than a footnote, is the real story about eBay this week. Amazon aside, this is eBay's actual new business strategy. And as Pierre Omidyar understood far better than me that day in the parking lot, eBay is a very flexible and adaptive company name. It even holds up well against, say, VISA and MasterCard …
posted on August 22, 2008 08:16:14 PM
Good post, Caroline. I vaguely remember (I think it was in the 80's?) reading that Sears was primarily a finance company, making a large portion of their profits on the Sears card. Of course, they didn't prohibit most other forms of payment..
posted on August 23, 2008 05:33:36 AM
Stores with their own charge accounts profit both ways when you use (and keep a balance) on the store accounts. They don't mind so much if you use another charge, since they get immediate payment from the bank and have use of the funds.
If eBay relied only on income from selling fees, they would either have required higher fees, or have gone the way of the other on-line auctions (dead or dying). PayPal is a great business synergy for them.
Ebay is probably doing the right thing. Just because some people are unhappy with it dosen't make it wrong.
posted on August 23, 2008 08:23:55 AM
All the retail stores are making money on their credit card operations until now when customers fall behind on making payments-Target,Office Staples etc.
Neiman Marcus only accept Amex and their own credit cards.
Back in the early 20th century,there is a company called Pullman ,it makes railcars and the employees live in company compound,shop in company stores,buy on company credit ,they are indebted to their employer for life.
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Gulag-a Soviet era concentration camp is now reincarnated as EBAY with 13,000 rules.
Just a quick favor... would you mind changing your tagline? I know what you're trying to go for... but I really think it's kind of offensive to say that eBay is like a Gulag. eBay is tops on my hate list right now... but even so, I don't think that it is right to compare it to something as truly evil as a Gulag. And I would think that anyone that was in a Gulag would say that we could have much worse things to worry about than where to sell our merchandise. Thanks in advance.
(and my apologies to Caroline for slightly hijacking the thread)
posted on August 23, 2008 09:42:03 AM
I agree eauctionmgnt. Not a good comparison, but I am sure it was in innocence. Have known people that were in the concentration camps, and you said it all.
Caroline 