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Topic: Unhealthy Marketplace Dynamics - Seller Perspective
Author: Professional eBay Sellers Alliance
Published: June 2007

"eBay shoppers are unable to find the items they want
at the price they are willing to pay."
- Professional eBay Sellers Alliance
Unhealthy eBay Marketplace Dynamics:
Is it the finding (search), or is it buyer confidence?

Answer: Both.

It is the opinion of PeSA, that the eBay marketplace has continued to degrade and the current state is unhealthy. As PeSA highlighted in its ‘Eroding Marketplace Integrity’ statement dated January 2005, negative buyer experience would hurt the marketplace if changes were not enacted. In the interim of more than two years since that statement, eBay has made virtually no structural changes to the marketplace to address the issue. In fact, eBay only recognized buyer experience as an important issue at the beginning of 2007, two years after PeSA identified it as the marketplace’s number one challenge. From the seller perspective, eBay’s policies and pricing are driving sellers to make decisions that are not in the best interest of the marketplace.

It is of great concern to the members of PeSA that eBay’s slow recognition and even slower response to important issues will result in the permanent decline of the eBay marketplace as a channel for merchants. As a trade association of eBay-focused merchants, PeSA is dedicated to working towards the identification of issues within the eBay marketplace and contributing workable solutions to return the marketplace to a vibrant state.

The eBay Marketplace has Lost its Efficiency Advantage

As eBay has grown to become mainstream, the features that helped mass adoption are now working against it. eBay was a perfect example of the efficiencies of the internet. Broad reach at a relatively low cost was immensely attractive to individuals and businesses that wanted to connect with the community. At a smaller scale, eBay’s product search (called "finding" by eBay) was sufficient to give shoppers a general listing of items for sale. However, as eBay has grown, the relevancy of search results to buyer desires has declined sharply. Today’s Internet shoppers value convenience and eBay needs to develop easily accessible search tools to give shoppers the ability to shop the way they want. In our opinion, eBay shoppers now have even greater needs since seller performance is a relatively unregulated variable that concerns shoppers.

Buyer experience, or more specifically, poor buyer experience, has had a much stronger negative impact on the marketplace than eBay acknowledges. The result is that approximately 45% of active eBay users stop using the site each year, according to eBay’s published reports. It would not be surprising to see net active user growth of zero or negative in the very near future. Press reports and shared experiences by millions of users have educated shoppers that eBay is a ‘buyer beware’ marketplace because most shoppers find the quality of merchandise and service lacks consistency. The result is that shoppers are assigning a higher risk discount and lowering their spend tolerance. In almost every category on eBay, the lower relative cost of the eBay platform is now outweighed by the lower realized sale price of the merchandise. Trends in average selling prices and conversion rates have compressed margins for sellers on the platform and now eBay no longer holds an efficiency advantage over the other channels on the web.

Seller Behavior is Changing

eBay’s policies and marketplace economics are having an influence on seller behavior. Unfortunately, it is to the detriment of the marketplace. eBay’s current structure of seller management encourages merchants to target bare minimum service in the marketplace because eBay provides no incentive for superior seller conduct. Due to eBay’s "Level Playing Field" philosophy, an outstanding seller that provides premium services to shoppers such as free shipping, convenient return policy, and responsive customer service support receives no benefit from eBay. It is only a matter of time before the seller realizes that the extra cost of providing those features, while considered part of best practices in ecommerce, carries a negative ROI. Recently, eBay has been somewhat more active in disciplining sellers for poor performance, but has yet to structure any incentive program.

As marketplace economics continue to be more challenging, sellers are cutting costs by lowering services provided to the bare minimum. This effect will hurt the buyer experience, which is exactly what eBay is trying to address. From a seller’s view, it appears that eBay is enforcing rules without understanding the effect on seller behavior and the marketplace. The current marketplace environment may not be a result of a lack of rules enforcement, but rather, the current rules’ structure.

For example, eBay has recently been enforcing a rule that is more than 2 years old which prohibits sellers from posting their phone number on their eBay Stores home page, ostensibly due to the risk that the buyer and seller will enter into a non-eBay transaction. However, sellers are allowed to post their phone numbers in every single eBay listing. Given today’s eBay focus on buyer experience, isn’t it better for sellers to post a phone number in as many places as possible to increase buyer confidence that the seller is a credible merchant? During the past month, eBay has forced many sellers to remove their phone numbers from their eBay Stores home page. It will be interesting to see how eBay handles its planned Skype integration.

Another example of eBay policy that influences sellers into decisions that are not conducive to a positive buyer experience involves the gallery image fee. Currently, eBay charges an additional fee to show a thumbnail view of the item in the search results. One of the undisputed practices for properly selling merchandise online is to have good pictures. Shoppers respond to images more than text, but eBay’s approach to charging for a standard feature degrades their site from a shopper’s perspective. Due to the regressive nature of the fee (it’s a fixed price, which hurts low ASP sellers more than high ASP sellers), categories like music have motley search results with more than half the items having no gallery image. That is not a "best practice" experience.

In the past, PeSA has not had an issue with eBay fees. Our perspective was based on value received and that as long as sellers were receiving value for those fees, we found it to be a fair relationship. However, over the past 2 years, sellers have seen eBay’s take rate of member sales increase, while the value received has diminished. Sellers, not eBay, have felt the impact of the additional cost and lower sales. The tighter economics have driven sellers to pull what eBay calls ‘unproductive listings’ from the marketplace and have developed other channels to sell the merchandise. As a result, many sellers now have new sales channels and view the eBay marketplace as a channel of last resort, using eBay as purely a liquidation/cost recovery channel. Viewing this as a positive rebalancing of the marketplace, eBay misses the underlying change of the quality of merchandise. As eBay becomes more of a liquidation channel, rather than a seller’s primary sales channel, the quality of the merchandise will decline along with the service levels that a seller will invest in the channel. eBay merchants respond to demand in the marketplace. As the demand challenges on eBay have worsened, sellers have responded by pulling merchandise and cutting listings. Until eBay fixes the marketplace demand, sellers most likely will not re-commit to the marketplace.

Distraction by Acquisition

In the past few years, sellers have seen eBay invest billions of dollars in many places, but not in their core marketplaces. Aside from the Paypal acquisition, in which the seller community was a very vocal proponent, eBay has not made any complimentary additions for sellers. and Skype still do not have significant cross over even though the deals were accompanied by promises of marketplace synergies. The lack of investment in the core marketplace is clearly starting to show.

Additionally, the recent marketing relationship with Yahoo, which allows the display of banner advertisements across the eBay site, further dilutes the marketplace and creates a chaotic experience for the prospective buyer. Although eBay has stated that it will only show those ads when there is a limited search result, it has been our experience that those ads appear on the site for common search terms such as "Apple iPod".

PeSA Recommendations

The eBay marketplace is still very active and should be the primary tool eBay uses to power a recovery. PeSA has a few core recommendations that we believe would develop renewed growth of the eBay platform. Google and Amazon have both successfully used customer metrics to reward positive performers with better placement. As mentioned earlier, eBay has no such program.

eBay should reward positive contributors in their marketplace. Sellers that have shown outstanding contribution to the marketplace should be rewarded with better placement in search. If the better sellers are shown higher in search, then buyers would have a greater chance of a positive buyer experience. As more buyers have positive experiences, they will return and be more active. As under-performing sellers find themselves in lower placement, they will have a strong economic incentive to pursue best practices.

Give buyers what they want. Shoppers are interested in convenience and safety. The finding mechanism needs to be improved. If shoppers are interested in patronizing merchants based on a merchant’s high feedback, or return policy, or speed in shipping, for example, then eBay should allow shoppers to run searches for products from just those specific merchants.

Manage by category. eBay needs to address the unique needs of each category when implementing fees, setting best practices, and optimizing search. A fashion seller has very different economics than a CD seller or an electronics seller, but eBay requires them to use the same fee structure.

In Conclusion

Sellers understand that positive buyer experiences result in greater buyer retention and activity, which is good for their businesses. From the perspective of PeSA, eBay needs to make structural changes to its marketplace to inspire positive seller performance and consequential positive buyer experience. Reward of best practices and coordinating policies and responses with marketplace needs would be a better way to move the marketplace in the right direction for everyone.

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"PeSA has helped thousands of merchants optimize their eBay sales and I am pleased to say that my business is one of them."

- Jonathan Garriss, Executive Director and online merchant of shoes and posters.
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