Friday, July 18, 2008

The Road to Ruin Has No Speed Limits

In April at the ChannelAdvisor Catalyst Conference Stephenie Tileneus General Manager of eBay North America, gave a speech in which she promised even bolder and faster changes at eBay, stating that eBay’s goal is to deliver a more retail-like experience. She indicated that ensuring buyer confidence in every eBay transaction and taking care of its customers was the company’s first priority. She also made it clear that the concept of an annual price change no longer existed at eBay and that further pricing adjustments could come at any time.

She is also quoted recently on the subject of power

Those with true power share the ability to influence, inspire and, ultimately, lead people to pursue a common goal and vision.

Almost exactly six weeks ago my Australian friend Kevin wrote
Surely a company that attracted sellers by using the dynamic pricing model that competitive auctions creates, and, importantly does not invest anything in merchandise for their site, is not trying to set themselves up so that they are offering the cheapest mass volume merchandise on the internet.

That may explain the shift from treating the seller (who actually pays eBay's fees) as being the customer, to now treating the buyer as their customer. In this environment, the customer is indeed never wrong - they are protected from criticism while being *encouraged* to criticize the seller they have bought merchandise from.

In his reading of the July 16th eBay Q2 2008 Conference call transcript Kevin focused on a question from Brian Fenske of Lehman Brothers
.. there had been discussion about rolling out category specific pricing. In the U.S., you’ve rolled out media. Is there any sort of time line for rolling out more category specific pricing in the U.S.?

And secondly, can you comment .. more about the deal you are doing with and how the economics work there .. how you manage that with other power sellers?

answered by John Donohoe (bold emphasis is mine):

on category based pricing .. we did roll out specific media pricing in the first quarter .. it’s our intention to move in that direction, .. most likely in the second half of the year .. sellers make very different margins in different categories .. so we think over time that our pricing has to reflect that .. the relationship is one that really symbolizes what we want to do going forward, which is really incent and reward sellers to provide low prices to buyers and great service

He then went on to explain that
the movement to .. reward great prices and great service to buyers is not limited to larger sellers .. we have many small sellers who are achieving very high DSRs and are providing great prices and great service to our buyers, under these conditions, as well as larger sellers .. we intend to continue to incent and reward that across sellers large and small.

There it is again "our buyers" so, while increasing their profits by 22% and continually seeking growth on those profits, eBay is "incenting" the businesses that use their service to trim their profits in order that Ebay can "sell" cheap goods.

In other words Ebay and buyers should profit from Ebay transactions, good sellers should NOT.

How is this business model sustainable?

Y'all come back!

PS The BrewsNews also had a very thoughtful and well reasoned post on the subject of lower prices from a seller viewpoint.


tula said...

What a deal! eBay is assuming absolutely no risks. They are charging sellers more, providing fewer services, and forcing sellers to assume all of the risk. Sellers cannot even decide for themselves how to manage the customers who buy their items. eBay provides little or no protection to sellers from fraudulent buyers. They only seem to care about rousting fraudulent sellers (though, this needs to be done, too) And to top it all off, sellers no longer get to contact their buyers without eBay's involvements. If eBay's message center has a problem, then it's the seller who gets stuck with an unhappy buyer. Everything that goes wrong is now the seller's fault.

So why, exactly, should sellers want to sell on eBay? What are we getting for our fees? Traffic? Sure, they provide some, but the numbers are declining. We have to provide top-shelf customer service, pay top-shelf fees, constantly revamp our listings to keep up with myriad changes -- with no help from eBay and no protection from the crooks who want to rip us off -- only to get decreasing sell through and lower final prices.

Yep, what a deal.

Kevin_T said...

A friend who saw my quote of the Q2 Conference call elsewhere, commented also on a portion of John Donahoe's comments that you also highlighted, Henrietta:

"sellers make very different margins in different categories .. so we think over time that our pricing has to reflect that"

Interestingly he read it in terms of higher margins meaning Ebay can charge more, although the intention may be to trim for areas of lower profit margins, but he made the legitimate query as to what business it is of Ebay's what profit margin anyone makes. It is simply none of their business and should have no bearing on how they charge different users for the same services.

Of course, it could be argued that Ebay has decided that instead of fighting arrogant Governments around the world, they have decided to become an arrogant Government, and are now just implementing income tax as well as all other fees and charges.

Facetiously, Kevin

Henrietta said...

I read it that way too Kevin. You will recall after the IF fee decrease in February with the adjustment in FVF the IF for media dropped even more.

I believe if you look at the 25 top volume sellers they are heavy on media. I think someone pointed out, probably quietly and politely, that the 'fee decreases' might result in them adjusting right off eBay.

eBay is very much aware that the margin on music and dvds is extremely low. I believe we will see greater increases in categories that eBay perceives to have higher margins.

Kevin_T said...

Hi Henrietta,
A point I previously made about the benefits of so-called "free" gallery, also particularly applied to media. As an example if you are selling books, a picture of, say, a blue rectangle really doesn't make the item more saleable. Thus someone like me who mainly sells paper, listing at $8.00 without gallery and selling much at about $20.00, got a net benefit from "lower listing fees" and "free gallery" of a 40% increase in fees in many cases.

When I pointed this fact out on the Australian boards when Australians were whingeing about not getting free gallery, I was accused of being selfish. The fact though, was that I don't see why every other seller, including those who don't see through the hype should be burdened with 20% to 40% fee increases either. It is not selfish, it is looking at a fair fee base for all sellers.

In the end we got compulsory PayPal and our 59 cent gallery, and no entitlement to "seller discounts" no matter how much we meet the qualifications. Ebay may have gotten some egg on their face in Australia, but financially they won hands down, and are still likely to punish us for it in the coming months.

Bah, Kevin