EBay Courts 'Power Sellers'

By cutting fees for big sales and boosting defenses against fraud, eBay shows it's listening to top-flight users. But what about the little guy?

New management at eBay (EBAY) wants to send the message that it's listening to users' complaints. It did that Jan. 29 by announcing sweeping changes to what it charges people who sell items through the e-commerce giant. But if there's a subtext to the message, it's that eBay's listening to some users more than others.

The changes clearly favor larger merchants who sell higher value goods at set prices, as opposed to merchants who use an auction arrangement. The new fee structure reduces up-front fees up to 25% for listing items in an auction, but up to 50% on store items, which have fixed sale prices. Meanwhile, smaller merchants who sell goods priced at $100 or less will see fee increases. New fees on the final sale of an item decrease as the item price increases. EBay is also offering Power Sellers, the name eBay gives its highest rated, most prolific sellers, a discount of up to 15% on the final value fee.

Big-Ticket Items Get Big Breaks

Even the way eBay announced the changes shows the company is courting bigger merchants. EBay executives invited 200 of the company's top sellers to a Washington, D.C., hotel to reveal details of the new fee structure, which had long been forecast in the company's earnings calls (BusinessWeek, 1/23/07). "The sellers with higher average selling prices and fixed prices are getting the most advantage from the fee changes," says Scot Wingo, chief executive officer of merchant software providerChannelAdvisor, and one of those invited to the D.C. event. "The ones that start with one-penny auctions are getting the worse end."

It's no surprise that eBay is appealing to big sellers of fixed-price items. The online auctioneer has faced increasing competition for these sellers from the likes of Amazon.com (AMZN) and others. And it is their premium merchandise, offered for a clear "buy-it-now" price, that often draws the Web's convenience-conscious shoppers. As these merchants have listed more of their merchandise on competing e-commerce sites and on their own pages with a helpful dollop of advertising through Google (GOOG), eBay has found shopping activity on its own sites slow (BusinessWeek.com, 1/22/07).

Analysts are concerned that fee reductions will squeeze eBay’s margins. "The uncertainty regarding the new CEO’s efforts to boost core marketplace growth rates, as well as soft guidance, keep us on the sidelines," wrote UBS analyst Ben Schachter in a Jan. 24 note to investors. For its part, eBay is hoping that increased volume of merchandise on the site will make up for any profit decrease.

Smaller Sellers Slighted

In his keynote address, eBay CEO-elect John Donahoe gave a nod to this competition. "Consumers have more choices than ever, and they expect more when they shop online today," he said, alluding to the other places where both consumers and sellers are offering their merchandise.

Some smaller sellers—a group that typically favors auctions—felt slighted by eBay's changes. After all, it was small sellers with their often eclectic merchandise available for auction that made eBay a global phenomenon. The new pricing structure moves away from such roots. With the new fees a seller of, say, a used CD could pay more than 20% commission on the sale. "Would that kind of commission level bring you back to eBay to sell low-value items?" says Lynn Sturgeon, a former eBay seller who has since moved off the site. "I might sell some higher-value items on eBay in the future, after seeing how the land lays, but I won't be there selling small-value items anytime soon."

Increased Reliability for Buyers and Sellers

There was plenty of good news for buyers in eBay's announcements as well. The company is changing its feedback system to ensure that if a buyer pays for an item in a timely fashion they are given positive feedback. Previously, responsible buyers who negatively rated an unsatisfactory seller could be penalized in the form of unflattering ratings and comments from the seller. Such retribution brought down buyers' ratings and made future sellers less likely to do business with them. EBay also made it easier to shop by eliminating fees for pictures; the fees had kept some sellers from visually showing off their goods, forcing careful buyers to request photos and additional information by e-mail.

Low-Rated Sellers Deemphasized

Most importantly for buyers, eBay is rolling out new, site-wide search technology that deemphasizes items from sellers with low ratings. As a result of the new technology, which will be fully deployed in March, the items buyers are most likely to see first will not only best match what they are looking for but will also be from the most reputable sellers. "It is our intention to reward great sellers," said Donahoe during the event. "We think this will significantly improve the buyer experience overall."

Sellers also have additional protection from bad buyers coming down the pike. Through its electronic payment service, PayPal, eBay will offer reimbursement for items, even when sent to so-called nonconfirmed addresses. Previously the company would only reimburse a merchant when a buyer did not pay for an item if the ship-to address matched the one on the buyer's credit card as registered with PayPal. As a result many sellers could not claim losses from buyers with solid ratings who failed to pay. The new system also removes caps on the amount of fraud losses sellers can claim in a month. "The overwhelming positive is for some of the seller protections that are coming through," says Wingo. "I think everyone is excited about that."

What sellers find most exciting, however, is that eBay appears to actually be listening, says Wingo. During the event, eBay executives could be seen taking notes and sitting with sellers. That's a change, says Wingo, from past events when eBay executives and sellers were divided like boys and girls at a junior high prom. And it's a change that sellers and buyers have demanded. "The change that needs to be made is for senior management to listen to the buyers and sellers," says eBay seller Terry Norman. "eBay might try not thinking of buyers and sellers as cash-bearing pests." The changes announced Jan. 29 suggest eBay is doing just that.

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