EcommerceBytes-NewsFlash, Number 1854 - August 15, 2008     1 of 3

Donahoe's Big Gamble: Free Listings on eBay?

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eBay is moving toward a free listing-fee model. But will eBay's new CEO John Donahoe roll out such a dramatic change in one bold move, or will he roll out free-listings in stages - by category? It appears the former scenario is well within the realm of possibility, and in fact may be coming in time for the holiday shopping season. This could explain many of the changes eBay has made in 2008.

One reason eBay feels pressured to lower listing fees - or eliminate them altogether - is Amazon, whose third-party sales have increased dramatically in recent years as it has cherry-picked eBay's biggest PowerSellers. Amazon offers free listings to sellers - but a high commission fee - 15 percent in most categories. (Amazon handles payment processing for all sellers, and a monthly subscription fee is waived for large sellers.)

Writer Nicholas Carr wrote about the effect Amazon would have on eBay fees last October in a post, Platforms Want to Be Free. "The apparent shift of product listings away from eBay and toward Amazon, and eBay's decision to sharply discount listing fees heading into the Christmas season, indicate that competition is driving the cost of listing a product on a platform toward its marginal cost, which is, of course, zero," he wrote.

Wall Street has urged eBay to make its fees more competitive with marketplaces such as Amazon, and eBay is listening. In June, eBay's Stephanie Tilenius talked about fee changes coming before this holiday season and told AuctionBytes, "We want to be the most price competitive marketplace on the web."

Analysts would applaud an eBay fee structure more in line with Amazon's - if eBay could prove the buyer experience would not be harmed with the influx of listings that would follow such a move. One analyst we spoke to felt that such a move would be a gamble if eBay's "Finding" experience had not improved. It was eBay's former CEO Meg Whitman who told analysts in 2006 that low Store fees led to a bad buyer experience when she said, "The marketplace has been overwhelmed with identical, often poorly-priced items that have diluted the magic of the eBay experience."

But eBay has made changes to the platform since 2006, most notably its Best Match search algorithm that is designed to bring back listings by relevancy and tied to seller "quality." It has also made policy and technology changes to reduce fraud and counterfeiting on the site. Some might argue whether it's enough to withstand a flood of new listings resulting from free listings, and this may not be a good week to ask - eBay temporarily disabled Best Match "trust factors" due to a Detailed Seller Ratings (DSR)-related glitch.

eBay has implemented a policy to help prevent any one seller from dominating search results pages - even if he or she dumps product on the marketplace. With its new Multiple Listings Policy introduced this month, eBay will display only one identical item from the same seller in Search results, and will limit the number of unique listings for different items per seller to ten per page. The policy does not appear to take into account one seller with multiple accounts, however.

With free listings, eBay would have concerns about sellers using the site as platform to advertise their other sales venues. In May, it announced a more restrictive no-links policy, but postponed implementation indefinitely.

eBay is expected to change its Accepted Payments policy very soon, requiring sellers to accept only electronic payments and banning checks, money orders and postal orders. This would give eBay more control in a free-listings environment.

eBay might also move to make commission fees, which are currently based on the final selling price, encompass the entire transaction amount - including shipping & handling charges. Some sellers look to S&H - which buyers pay - to help them achieve profit margins - particularly in the auction format and in certain categories. But eBay has been pushing sellers to decrease shipping charges for a long time, and charging sellers fees on S&H would provide a strong incentive to sellers to keep those charges in line.

eBay's Donahoe is a big believer in running live tests to a subset of users before rolling out changes to the entire platform. eBay ran a number of price promotions last year on the .com site, including a 33 percent discount on listing fees during last year's holiday shopping season, and it lowered listing fees and raised commission fees in February 2008. It has also implemented fee structure changes on international sites.

Importantly, Donahoe was able to test the effects of free-listings on search and profitability in a large subset of listings through its special deal with Buy.com.

Some are already expecting eBay to go to free-listings in the media category with a higher Final Value Fee - possibly as high as 12 percent. Add in PayPal payment-processing fees, and it looks a lot like Amazon.com fees. If eBay went to free listings site-wide (excluding eBay Motors, which is implementing a quasi free-listing model next month), it might have different Final Value Fees (FVFs) for different categories, just as Amazon.com does. It could also impose a monthly subscription fee, with exceptions for certain sellers.

Another benefit to eBay of a boost in listings would be the resulting increase in ad revenue. With more listings, there would be more opportunities to display contextual ads.

Because sellers would no longer be paying for listings, eBay could also be more free with its ad placement - even putting ads in the sacred Item page, if it so chose. Yahoo saw this potential in 2005 when it made its auction site completely fee-free and began placing ads within the item description pages. Yahoo's Rob Solomon explained at the time that Yahoo monetized the auction platform with its core graphical media (banner advertising) and search-based services.

How would free listings affect sellers? Sellers like low listing fees, but also know they lead to more competition and lower sell-through rates. And single-channel, eBay-only sellers might be shocked at the prospect of double-digit FVFs. But free listings would likely prove irresistible to most sellers.

Many sellers have complained of their exposure in search results with the new Best Match algorithm, and they would likely fear that an influx of new sellers and new listings would reduce their exposure in search results.

For eBay, which individual seller successfully sells an item is less important than the quality of that seller. It believes it has figured out how to measure the quality of sellers - through DSRs - and how to expose buyers to the best quality sellers - through Best Match.

An eBay UK executive said in the spring that the company was heading towards free insertion fees, but gave no timetable. In June, eBay Marketplaces President Lorrie Norrington said eBay's move toward lowering the risk of listing and moving towards success-based pricing was working, and that eBay saw an increase in volume. "Between now and the holiday season we'll do more to support your success and ensure we are price competitive in every key category. The intent of all this change is obvious: We want great stuff and great deals on eBay - new, used, and collectibles. Please stay tuned for more pricing information on the Announcement Board later this summer."

Seller eyes will be turning to the Board to see what changes eBay may roll out and how to adapt their selling strategy accordingly.

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About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.
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