What's going on with eBay's core business?

eBay Strategies friend, UBS's Ben Schachter, lowered his eBay price point from $35 to $28 today which put some pressure on the stock.  He cited concerns over:

1. The core business
2. Paypal off ebay showing more traction
3. Skype

On the core business he said: "In order for eBay’s stock to work, we think investors will need to see reacceleration or at least stabilization in the core business..."

This got me thinking, there's all this talk on core is slow/broken/etc. (even from the eBay camp), but what's really going on here?

I dug into the plethora of Q2 analyst reports and wanted to highlight some of their data/findings in this post.  Then over the rest of the week, I thought it would be fun for us to brainstorm on creative ways eBay could "fix core".

What I found in the eBay macro-economics is:

1. Buyers are deactiving at a growing clip
2. Conversions are decreasing (most sellers would tell you ASPs are decreasing in their category too)
3. GMV/listing is decreasing
4. revenue/listing is decreasing

Getting to the core issues

Let's peel the onion on the core issue.  The first layer is concerns over GMV.  When you look at US eBay GMV it is growing slower than ecommerce. Jeetil@DB has this chart that really shows the trend:

Buyers deactivating?
Looking at the buyer trends, one thing I've noticed in the last year from a macro-standpoint is the growing delta between confirmed registered users (CRUs in Wall St. speak) and active users (bid/bought or sold something in last yr).  Bob Peck has a great chart that illustrates the trend here:

The trailing twelve month trend shown in the line with boxes shows how rapidly these two numbers are diverging. 

The bottom line: buyers are deactivating at a growing pace.

Conversion issues

One of the ways to measure conversions (listings that successfully close) is to look at GMV/listing metric.  Peck has a chart that shows this slowing y/y for both the US and International.

Safa chimes in with an interesting point: "Unfortunately for eBay and its sellers, market disrupting price changes and rebalancing of listing formats may have little effect on monetization in the end. The key component of monetization that has fallen are conversion rates."

Conversion's impact on monetization

The second-order problem when conversions are sluggish is it decreases eBay's revenue/listing.  Sure they get the listing fees, but they don't get the FVF when conversions don't happen. Safa has a great chart that shows the delta between listings
growth along with the decrease in monetization (due to lower conversions).

Conclusions
Putting all of these macro issues together with the micro-issues I hear about daily from sellers, it sounds like eBay has demand issues.  For some reason, people just aren't buying as much.  What do you think eBay Strategies Readers - what's going on?  In the next post, I'll post some ideas of what's going on along with how we think eBay can reverse the trends based on ideas we've gathered from eBay's largest sellers that live this trend daily.

Comments

[Twyla Robinson]

If anyone cares why eBay sales have decreased recently, as a Silver Powerseller for several years, I can tell you. eBay recently prevented sellers from updating auctions from 3 to 5 to 7 to 10 days, stating that buyers did not like it. However, if buyers did not like it, why have our sales decreased, since this change by almost 80%? If buyers do not like us updating so they can find their product, then why were they buying? I have been watching eBay stock since this change and it is troubling. eBay has never paid attention to the needs of sellers, and their recent change is a perfect example of that. However, over the last years, no change has affected their income such as this change. But they are too stubborn to admit it. Very, very sad.

[carl]

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[ridge-e-sales]

One of the major items happening in todays market, is customers are starting to appear back in the stores, finding they enjoy the shopping trips and have tired of the online market place.
I would say in the last 5 months I have seen my customer base at my brick and mortor store increase 5 fold and my ebay sales decline. Ebay sales have mainly declined due to the fact the items are selling faster in the store at a higher price then on ebay. I was planning on gearing up to do some major ebay store item listing later this year but have since thought better. Now my intent is to aim my business plans more on the store end of it and a little less on the ebay end.
So for the next 6 months or so I will concentrate on my own website and my store and list only a few items a week on ebay, more to hope to draw customers onto my website then to make money on ebay.

Eric

[Tim]

For a variety of reasons, as the metrics clearly show, auctions are on the way out in the US. But eBay refuses to see that. Instead of encouraging a business model that sellers have proven does indeed work (fixed price and stores) eBay tries to force sellers to use the more expensive and less successful auction format.

Sellers are on eBay to make money. If they cannot make money they will go elsewhere. Forcing sellers to use a dying format with declining conversion and declining prices for goods, will just hasten many sellers' departure.

Instead of listening to their customers (sellers) who have told eBay through their actions that fixed price and stores are the future, eBay looks to past glory. And even then, instead of encouraging auctions by cutting auction fees, they punish the stores format with higher fees.

For a company that says they base decisions on data, data and more data they sure are ignoring basic trends. It's a vision thing. Or should I say a lack of vision thing.

[David Armstrong]

A few months back, I had an email conversation with Chris Anderson of Long Tail fame. The bascis are this, eBay moves down the Tail from retail outlets, but their listing fees and auction format cause the Tail to fall off. Ironcially...eBay stopped their free listing days as it created a 'sea of noise' of listings in their ebay's own words. Essentially, free listings did extend the Tail but without a user interface to improve the signal-to-noise ratio (pg. 119 The Long Tail) means certain death. They state the 'noise'is why they don't do free listings any more...but do they think we are stupid? free listings means no listing fee for them, storage/bandwidth costs for them and no final fee as the seller doesn't have to start it at a penny and pray.

So...root cause? they are not listening nor paying attention to even the obvious customer needs, improve the interface and start participating in the success of the transaction..duh.

[Red]

I am an avid buyer and seller on eBay. I am not going to talk technical about the problems, but the magic on eBay has gone as people selling off bargains from their attic are stung by huge fees. eBay will become a pure business to consumer marketplace soon and the prices will rise. No more bargains, no more traffic for business sellers, no more fun.
eBay should vastly reduce the eBay listing fee for auctions and fixed price to incourage business sellers to lower their prices and tit for tat sellers to come back. Last time I emptied my attic of 80 items....I made £400 but paid ebay £87 and paypal £30....thats a lot of moolah for selling off your unworn clothes. At a car boot I could have made the same, with a day out and only £5 parking fee. Car boots and markets are back...eBay is too expensive. Plus you will find many traders charging less on their websites. I know I do. We pay dearly for a little bit of traffic.
Roll on google checkout in the UK...and ebid...go guys!

[dennisw]

I can only speak about computer items but I can get much better deals at NewEgg and other online stores. I rarely see bargains on eBay for the computer item I want. Margins are tight at NewEgg and other smart retailers. You can buy it cheaper there and with a reliable return policy.

But on unusual fashions my sister likes the deals on eBay. She buys European fashions that are hard to find here (USA)

All in all I think eBay is good for buyers and a pain in the butt for sellers. Ebay is definitely skimming too much off each auction when you factor is PayPal

[Bill]

Yes all that is happening is a very logical result. The result has been played out many times before. Woolworth was destroyed by K-Mart and K-Mart is being destroyed by Walmart. eBay does not realize that and as long as the current mangement is in power they never will. The retail market through the years is constantly changing and a business needs to know how to flow with those changes or they will die in the process. A statement that has been said many times again is and that I always go by is "Know thy history or you will be doomed to repeat it"

Bill

[Raf]

eBay is going through very needed growing pains, simply put eBay has been a "media (and Internet) darling" for way too long. Like any other business taking up a long term residence on Easy Street makes them soft, and that is fatal. eBay's top management behavior and decision making strikes me as a group of people with a sense of entitlement to the profits that it has grown accustomed to, while it's dedication to the overall customer experience is secondary at best. This might seem to be a harsh statement, but I feel the numbers are proving my point. From the proprietors standpoint, profits are fundemental to running their business. From their customers' standpoint, value is the core fundmental of any business. When a business focuses on it's profits and subsequent models that deliver that to them and minimize the importance of what sort of value is being delivered to the their customers, then a one-sided business relationship is harbored. Naturally, customers notice this, get the hint, and exit. I have been on ebay a very long time (relatively speaking) and the one thing that I've always felt while using the site both as a buyer and seller is that the true customer experience FROM THE CUSTOMER'S PERSPECTIVE (somebody sound an alarm and get some high up at eBay to read that please) is generally overlooked. eBay has an overbearing way of telling their customers what their experience on eBay should be, how great they are and how their customers should be thanking their lucky stars that eBay exits, how much they value their customers and want their feedback, and ok shows over now go back list, buy, and make us some more money. That "attitude" just permeates the entire site. That said, it's a great idea, it is a staple of e-commerce, there's a lot of good experiences I've had on the site, I enjoy the site overall quite a bit. eBay's been patted on the back for way too long and is just too smug for it's own good. It needs a good scare, enough to rattle it up and make it start scraping again like a young hungry company. I want eBay to succeed and to do that it needs to stop taking bows and get serious about delivering value to customers. Practically speaking, I would start with tightening up the fraud and excessive hidden fees some sellers charge for example. Buyers are sophisticated enough to know when this "hands off" policy, "the Free and Open Internet blah, blah, blah" is just a cop out (like happens on Craigslist now and again) when a company makes good profits from the open Web structure but doesn't feel an equal sense of responsiblity for how the open ease of e-commerce leaves the customer open to fraud in the purchase experience. That sort of environment where the proprietor makes a good profit and is slow to sure up the risks for their customers due to that same environment, sends a clear message to the customer base - "You are not the priority." Obviously that has to change, and what Scot has brought up here is the logical result of this attitude in my opinion.

[Greg Haslam]

Totally Anecdotal, but as a casual ebay buyer/seller I have found that my usage has waned as the economy has picked up. No need to sell my wares and no time due to the rigors of the job. I wonder if there is any correlation between macro-economic trends and ebay usage?

[Garry King]

The problem for Ebay is the world marketplace that is the internet has changed. For new products, it is now very easy to "froogle" a great price on just about anything, and buy it immediately without having to jump through Ebay's hoops or wait for an auction to close. Even the used and collectable categories have been affected to a lesser degree.

Most successful ebay sellers have adapted to the market changes and have grown their fixed price longer exposure business (STORES) as a reaction to the market. Ebay's management has failed to recognize the trend. Rather than recognizing and capitalizing on market trends, Ebay management has focused on trying to manipulate thier sellers business models. These actions have created a hostile selling environment and added to volitility. Seller confidence in the stability of the Ebay marketplace is at an all time low, and many are leaving - making Ebay's problems worse.

[Bill]

Being a 7 year seller on eBay and a PS I have seen in my own stats that my store and fixed price percentage in sales has been rising and auctions are falling off to where auctions are less than 1/4th of my total sales. This is a fact that has been going on with many sellers on eBay. Their fool hardy attempt to force sellers to move more items in auctions with the raise in the store fees are in reality moving more sellers off of the site. I myself, as many other sellers, are moving their own core inventory to their own web sites and using eBay only as a marketing tool. While talking to many sellers at Live this year about how eBay is turning into a marketing tool for our company some understood but many looked at me like I was talking Latin. Many sellers are lost and dismayed at eBay's changes that are constantly happening. Management is confused and lacking any direction. Compound that with their inability to control fraud and the constant glitches that are happening on the web site it is little wonder that the buyers are fleeing and there fore so are the sellers.
The regular buyers that I have told about our soon to be opening web site are happy and waiting for it to happen so they do not have to deal with the problems that are constantly popping up on eBay in regards to the antiquaited platform that eBay is running on. Managements unwillingness to update that platform and especially Ms. Whitman's band-aid approach to dealing with operating problems that are constantly popping up are the real reason that eBay is falling off and loosing the traffic and the market that was once a robust and thriving business. That plus the divergance into areas that the company really has no business to be in is what is driving the value of the company down and can not be over come without a complete overhaul.

Bill

[Jonathan Marcus]

Core growth is done. eBay's inability to generate significant adoption by Top 500 retailers sealed the deal. The market for "out-of-season" goods has a ceiling relative to total retail sales; its amazing that eBay reached that ceiling so far in advance of traditional retail. eBay's lack of UI improvements didnt help. In-Season retailers have spent the past ~ 3 - 5 years refining their offering and honing their message / marketing tactics. Google / SEM / SEO obviously helped. But the fact is that as much as people say they want the best deal, what they actually mean is that they want the best deal from a retailer theyve heard of before. eBay seller ratings have served as a good proxy for brand, but from a mass market standpoint, the more heavily developed brands / robust web-front site offering that are price competitive are advantaged...