Will eBay Fee Hikes Recharge Growth--or Drive Away More Merchants?

Rob Hof

A lot of people, especially eBay sellers, assume that the online marketplace raises fees largely to extract more money. But the bigger reason is usually an attempt to alter seller behavior--to change what kinds of products they list, for how long, and so on, to keep the marketplace humming for both buyers and sellers. Same deal today, when eBay announced it's hiking listing and sales fees by an average of 6% on items merchants list in their eBay Stores. Apparently, the moves eBay made in the second quarter to promote auction listings over Store listings in search results didn't do the trick, which put a damper on U.S. revenue growth.

No doubt, a lot of merchants will scream bloody murder. Big whoop. The thing to watch for real insight into whether this will help recharge eBay's growth--which ain't bad but not good enough for investors--isn't how loud merchants yell. It's what they end up doing.

Will they dump listings of commonly available, often overpriced merchandise piling up in their eBay Stores, as eBay hopes, thereby improving the appeal of overall eBay inventory? Or will they get fed up and list those items on their own Web sites or on Google Base or somewhere else?

When I talked briefly this afternoon with eBay CEO Meg Whitman following the second-quarter earnings call, she sounded confident. She thinks the pricing moves will cull out sucky merchandise--my term, not hers--as early as the middle of the current quarter. "Some stuff will simply disappear" rather than get listed in eBay auctions, she said, because it's simply commodity merchandise at standard prices that you can find a thousand other places.

I get the clear sense that as eBay expands its other marketplace and ad venues, from its international classifieds sites to Shopping.com to the new eBay Express site, it's no longer trying to make eBay.com the place for all kinds of merchandise. That way, she hopes the fun experience of bidding on eBay for unusual items won't get further "diluted."

I think that's probably a wise strategy. As Whitman herself has noted, brands are like quick-drying cement. eBay's core brand appeal is set, and it isn't, as Whitman points out, interminable listings of Mariah Carey's latest CD. The big question is whether the pricing move will also spur bidders to return and buy more stuff. We'll know before three months are up whether eBay's latest gamble pays off.

Before it's here, it's on the Bloomberg Terminal.