EcommerceBytes-NewsFlash, Number 2331 - July 22, 2010     1 of 4

eBay to Tweak U.S. Search after Domestic Market Disappoints in Q2

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During a presentation with Wall Street analysts after eBay released second quarter earnings for 2010, CEO John Donahoe used a new term when discussing the eBay Marketplaces business. While last year, Donahoe said eBay would go after the $500 billion Secondary Market, on Wednesday he used the term "off price" merchandise. He expressed his dissatisfaction with the U.S. Marketplaces performance in the second quarter, and said eBay would tweak search to improve results.

eBay will "gently" increase exposure to higher-price and fixed-price listings, Donahoe said. "We've got some tweaks to make in U.S. search."

Donahoe told analysts to expect more vertical shopping experiences such as the Fashion portal rolled out this year in the Clothing Shoes and Accessories category. The next tailored shopping experiences would roll out in the Consumer Electronics and Auto Parts categories.

The CEO said eBay continued to make progress in its multi-year turnaround (he said he is now at the midpoint of the turnaround), citing better than expected results in the UK, and good performance in Germany, but said he was not satisfied with results in the U.S. Marketplace, which grew only 2% year-over-year excluding vehicles. "We aim to do better in this market," he said. He said he believes the changes implemented in the U.S. at end of the first quarter will ultimately have the same positive impact seen in Europe.

"However, we're in the midst of making a series of format and search adjustments following that price change, just as we had to do last year in Europe. But overall, we're not satisfied, and, we're on top of it."

eBay launched a significant price and search changes at the end of March, and Donahoe said the core search engine was processing three times the listings at end of the second quarter than at the beginning of the quarter.

Donahoe said selection in core search is up for U.S. consumers, and they are getting better deals. "ASPs (average selling prices) came down even more than we thought because a lot of lower priced items from the Store inventory came in core search. But velocity did not increase; sold item growth was 5% in the U.S. in the second quarter. That was a 2 point deceleration from the first quarter."

"We're in midst of making some adjustments in the format mix of auctions and fixed price. Store inventory came into core in fixed-price format, but we kept the auction-fixed price exposure the same. We're going to be increasing fixed price exposure gently, and ensuring high ASP items are getting appropriate visibility."

He said the tweaking was analogous to fine tuning eBay did in Europe last year after making similar changes there. He said it took - 2 - 3 quarters to "really work its way into a good place," and said he anticipates it would be same in the U.S.

"We don't want to over correct, we will make incremental changes."

When asked about marketing, Donahoe said eBay would spend roughly comparable amounts than in the second half of last year, less on Microsoft Cashback (which Microsoft ended), and more on eBay Bucks (eBay's loyalty program).

Chief Financial Officer Bob Swan shared data on Marketplaces, including the following points:

  • Global take rate was 8.03%, up 16% from last year, or up 10% excluding vehicles, Stubhub and gmarket, driven by higher velocity on lower priced items, and lower PowerSeller discounts versus last year.
  • Transaction revenue was up 12%, marketing services and other revenue was up 7%, representing 15% of marketplaces revenue;
  • Marketplaces generated 58% of its revenue internationally;
  • Classifieds grew 7% (Canada and Mobile.de);
  • Total global advertising grew 9% (Europe and display advertising);
  • Active users increased to 92 million, up 4% year-over-year;
  • Sold items, excluding gmarket, grew 11% (driven by UK and China's cross-border trade);
  • China's cross-border trade is one of eBay's fastest growing markets;
  • He is confident but cautious as eBay enters the second half of the year.

Before discussing the Marketplaces business, Donahoe had discussed PayPal's business, highlighting some of the following:

  • eBay's recent initiatives in Asia, such as its agreement with China Union Pay and Alibaba's AliPay;
  • Bill Me Later's accelerating growth in Q2;
  • 2.5 million people downloaded PayPal Mobile apps;
  • Bill Me Later - tests of BML integration on eBay show orders are 2X larger than average order size on eBay, "more on this in coming quarters."

See eBay's press release, and comment on the AuctionBytes Blog


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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