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AuctionBytes interviewed top eBay executives by phone on January 29, 2008, after the company announced new fees and radical changes to feedback. John Donahoe is eBay's new President and CEO, replacing outgoing CEO Meg Whitman. Lorrie Norrington is President of eBay Marketplaces Operations taking over from Bill Cobb, who is retiring at the end of the year.

John and Lorrie were attending the company's Ecommerce Forum in Washington DC where they introduced the changes in person to 220 of their top North American PowerSellers. We asked John and Lorrie about the changes and about the concerns we were hearing from sellers.

You can listen to the audio podcast here (http://podcast.auctionbytes.com/cgi-bin/podcast/pod.pl?/pl/2008/1/1201665209.html); it runs almost 14 minutes. The transcript follows:

This is Ina Steiner of AuctionBytes.com. I had an opportunity to catch up with John Donahoe and Lorrie Norington of Ebay this afternoon. The interview follows:

AUCTIONBYTES: So I wanted to get right into the pricing if that sounds good. One of the things I'm hearing is that people are feeling like this is something where they are going to end up paying more in fees. So what would you say to people who say you are spinning this as a fee decrease but they are feeling that they are going to end up paying more in fees?

JOHN DONAHOE: Yes so let me just...when all else fails resort to facts. First of all, our goal with this pricing change is to do what the sellers have been asking for for a while which is rebalancing our pricing. So we're reducing the insertion fees and we are making Gallery free in the United States because our tests clearly showed that items with gallery have better conversion and that is better buyer experience and that is better for sellers. We have raised the first two tranches of Final Value Fees. Those things taken together had a net take rate reduction for eBay in US.

AUCTIONBYTES Can you actually explain what that means, what a take rate is, because it sounds to me like...I mean, my question is, why would eBay want to make less money?

JOHN DONAHOE: Because we are trying to design our pricing, we are trying to do really three things, Ina, with pricing. One is we're trying to lower the upfront risk for sellers. Because sellers have been saying that our insertion fees dissuade them from listing more inventory on eBay. The fourth quarter tests shows that by reducing the insertion fee and reducing the upfront fees that they will list more. Second, we are trying to improve the buyer experience, which is exactly what we think free gallery does. Then third by putting more of the fee in the back end, we're aligning our incentives with our sellers incentives - they don't pay the fees unless they successfully sell ... so we think this is a good thing for the market place, it is going to increase listings, increase successful items and we believe increase GMV and that is good for our sellers and that's good for eBay.

AUCTIONBYTES: I ran some of the numbers just to get a sense if I am a seller selling things at low price versus selling things with a higher price, and it seems like this is going to impact people selling higher price goods more than lower price goods. So can you explain, who is, really which kind of sellers are really going to save some money here, and is it really eBay's goal to have lower price items on the site?

JOHN DONAHOE: So two things. One, let me just complete the part of the pricing which I didn't reference before, which is the seller discount. In addition to the pricing changes which in and by themselves lower the take rate, we have seller discounts which are tied to, in essence, customer service, as you know, tied to the Detailed Seller Ratings or DSRs. Those offer PowerSellers an additional 5% or 15% off their final value fees which has the effect of lowering take rate even further and offsetting some of the increase in the final value fee. To your question, we have modeled out, if all sellers took their 2007 volumes and put it through the new pricing, the majority of sellers have lower fees.

Furthermore we feel that the lower upfront fees and the other changes we made to improve the buyer experience is going to lead to higher conversion, so we think in 2008, all the sellers will have better growth and in essence, lower fees or a lower take rate.

AUCTIONBYTES: I was just listening to the Q&A session and I am always impressed with the ability of the eBay executives to tackle that because people do get passionate. One seller, I have to say, I almost felt like he was going to start to cry because he said he was selling for 10 years and was doing everything he could do to deliver exactly what you are saying - the good buying experience, and yet because of this shipping and packaging - you know what I am going to say - the shipping and packaging criteria for DSRs. That he does not know - he's at his wit's end - on how to raise that. And if he can't raise it, he won't be eligible for those listing discounts that you are talking about - the 5% or the 15% So were you surprised to hear all those seller reaction during the Q&A session that really there seemed to be a lot of attention paid to that DSR shipping and packaging criteria?

JOHN DONAHOE: You know, No not at all, Ina. And I'll let Lorrie comment in a minute. But again, here is the principle we came from; around pricing we wanted to rebalance the fees, around the DSRs and the other changes we made, the operative principle is how do we retain...how do we provide a better buyer experience that brings buyers back to eBay where they buy more and they buy repeatedly. And all of the changes we made including using DSRs and including using shipping within the DSRs are geared for that, because our analysis shows that one of the major reasons sellers or buyers buy less on eBay is they don't feel great about the shipping fees after the fact. So that's a challenge we have to jointly face with our sellers.

AUCTIONBYTES: Is it fair to say that you are jointly facing...in looking at the total sum of all the changes that came out today, it seems like eBay isn't the one who is at risk. It seems like there is a real burden that is on the sellers and they are ones who are going to have to face the bad buyers. That doesn't necessarily affect eBay - they're actually going to save money, actually when you think about it, they are going to save money if a seller gets a lower DSR on shipping and packaging.

LORRIE NORRINGTON: So Ina, let me comment on this philosophically..Again our .. focus here is to make sure that we are with retaining our buyers and having the healthiest market place we can. When we looked at the data, and that is frankly one of the reasons we did DSRs for 8 - 9 months, to get the data, to understand what was going on, it was clear that we would have over 60% of our PowerSellers qualify for those discounts based on the DSRs.

So I want to be clear that I actually think that the dialogue we are having with the sellers is exactly the dialogue we want to have with them because the number one issue that the buyers talk about is excessive shipping and handling in the marketplace, and so, this is exactly where we want to be, I want to make sure that we are having the constructive dialogue because this is what is right the buyer. If we win with the buyer together, we are both going to have a better market place.

JOHN DONAHOE: And you know Ina, I gotta be honest. I disagree with a little bit of your characterization - and let me just be direct. I became named CEO a week ago and the first day we announced to Wall Street we are lowering our take rate. If we weren't serious about it, we wouldn't have referenced this to Wall Street. I said we are going to invest in our customer experience. We are going to make it safer and easier to use eBay, and that to do that, we have to make bold changes. Five days later - today - we announced some of the boldest changes we've made in the past 10 years to our eBay ecosystem. We announced changes to the feedback system that are long overdue - that everyone knows are long overdue. We announced changes that allow - we introduced seller discounts for the first time in our history and we changed our pricing in a way - I think the first time in eBay's history - that actually lowers net pricing and, perhaps you don't believe it, but we have done the analysis and I messaged it to Wall Street.

So we have a very clear priority and focus in the coming year to improve the buyers experience on eBay because we think that's good for our sellers and that is good for eBay. And so we put the words out there, we are backing up our words with action, and yes, is there going to be some noise along the way? There is. Are we are going have to engage with our sellers about different dimensions of that? We are. Absolutely. The good news is all of a sudden there is a lot of attention on shipping and how we are going to end up having our buyers feel good about the shipping on eBay. Right now there's break outs - there's ideas coming forward. Lorrie and Stephanie and the eBay North America team will be taking that and will be evolving how we implement these policies.

AUCTIONBYTES: One of the things about feedback is that I heard Lorrie say during Q&A that you are going to be investing more in customer service to ... and I imagine what you were really getting at, let me ask you, was that in terms of...because one of the questions that I really wanted to ask you is what do you do as a seller when a buyer leaves you a negative rating... if you're taking away the ability to let sellers leave buyers negative ratings, what's to prevent a buyer from extorting refunds and discounts from sellers. I am a buyer, I got my item, it is perfect, but I contact this seller and say, "Oh there is this stain on the shirt so give me 10 dollars or give me 20 dollars back." Now this seller does not have any leverage. So is the customer service geared to deal with complaints against buyers? I hear a lot about the burden on the seller, but what is the burden on eBay to kind of clean up the buyers and prevent things like this. Can you get specific about what the customer service changes are?

LORRIE NORRINGTON: So I would say two things, Ina. First of all let's make sure that we understand the major change that we are making is that we are going to remove the feedback from buyers who have unpaid items or who have been suspended. And they are being suspended obviously, because they are being reported by sellers for bad behavior on the marketplace. Plain and simple. And that is a process where we have invested, we'll continue to invest to make sure that we really understand the behavior of those buyers and that we will not only remove the feedback percentage, but we will remove all the comments as well.

JOHN DONAHOE: First time in the eBay's history for removal of negative feedback.

AUCTIONBYTES: Yeah, there were definitely some good things about feedback coming out today, but one seller I spoke to, he sold someone a leather jacket and the person read the description, could see how many inches long it was, and yet they left the seller a negative because it was shorter than they really liked when they put it on. They could have measured, they could have decided before they bought it. And the seller said, "Return it to me, I will refund you I will make you whole." Yet that negative stayed, so when you're saying look we will get rid of bad buyers. How? When it was clearly documentable, but yet this seller told me they couldn't get eBay to remove that negative.

LORRIE NORRINGTON: So again, I would come back to fact that with this new policy, we're going to put new processes in place and can we comment on every edge case? Absolutely not. What we need to do is make sure that if we've got accurate descriptions with sellers. That seller are being very clear about what is being offered to the buyer, that we make sure that the buyer and the seller both have a vehicle to be able to express their satisfaction with the transaction, and to do that in an accurate way, and that's what our role is.

AUCTIONBYTES: I want to shift gears a little. When you look at the fees, when you take into account the higher final values...

HENRY GOMEZ: Ina, excuse me, this is Henry Gomez, you've got about - two minutes? Two minutes left.

AUCTIONBYTES: Okay, let me ask this question then. Including the higher value fees and PayPal fees, it seems like you are moving closer to Amazon's fee structure but without the benefits of, you know, lower customer interaction you get on Amazon and so forth. How is that an incentive for sellers to stay on eBay?

JOHN DONAHOE: The incentive for sellers to stay on eBay is that they are continuing to sell great volumes on eBay. This is so, again, we had the largest number of traffic in the 4th quarter. We sold 16 billion dollars of GMV in the 4th quarter - 16 to17 billion dollars of GMV - and what these changes do, is they incent sellers - they lower the risk upfront for them to list more items and these changes along, with the pricing changes and other changes increase the buyer experience and increase buyer conversion, which we think will lead to incremental GMV and sales for our sellers. What is good for our buyers is good for our sellers and it's good for eBay, and that is why we've announced these changes.

AUCTIONBYTES: John, you said you are throwing out the playbook and you really are. You are changing, things are almost upside down, my eyes are crossed trying to absorb it all. I really wish you good luck, I wish all the sellers good luck, and I think that ultimately there is a lot of reason why people are concerned, a lot of reasons why we're scrutinizing this, but you know, I do want to say we certainly appreciate you taking the time to talk to us.

DONAHOE, NORRINGTON: Certainly, nice talking to you.

AUCTIONBYTES: Thanks a lot.

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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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