Deep thoughts for sellers after yesterday's eBay news.

Ok, now that I've had a night to sleep on it, talked to some sellers this AM and re-read my notes I wanted to circle back and read through the truckloads of tea leaves we were delivered yesterday from eBay and see what does all this mean for sellers?

Q4 Ruminations

• It was a good quarter and beat expectations
• For PayPal, Skype and non-GMV (non-core) marketplace businesses it was a great quarter
• For the GMV-based marketplace business, when you peel the old onion, like a real-onion, things were kind of smelly in there and they make you tear up.
• If you take out foreign exchange (weak dollar), then GMV grew 8% y/y.  While this is right in-line with what we saw, there are two concerns:
  • Non-US GMV growth has come down to about 9% and is no longer a tailwind, but is neutral and in-line with the US growth.  In other words, the US ebay core flu has spread to europe (we are seeing this in DE, but not UK, so it maybe that DE is down enough to counter the other countries for all of ebay?)
  • Comscore is reporting that e-commerce grew 19% y/y in Q407.  When we take out eBay, we definitely see this trend (or greater) in Amazon, paid-search, comparison-shopping and 'direct' e-commerce transactions.
  • Thus, eBay is growing 11% slower than e-commerce which means they are losing share at a pretty rapid pace.
• The active user growth trend worsened.  Check out slide 8 in the handout.  Here's the quarterly trend for active user growth: 14%, 10%, 7%, 4%, 2%.  There are some adds (stubhub for example) and deletes (china?) in here.  My guess is true organic active user growth probably went negative in Q4.  Certainly in Q1 no matter how you slice it, it will go negative.

Management team changes

• I think it's overall positive that JD is now CEO.  We have new leadership, also this gives JD a chance to 'break with the past' (his words which I sensed had a much larger meaning - more on that in a sec) and change some things that historically were 'meg said no to this in 2002' kinds of issues.
• Some of the other changes are really wait-and-see.  One concern I do have is that more will change on eBay core than ever before and there's an entirely new management team that will preside over that.  No matter who they are, that's going to introduce some risk. I guess the good news is that they are all pretty darn familiar with the eBay world coming from the Paypal side, but still there are different cats under the skin in eBay core than Paypal.

2008 guidance and site changes

• I thought it was very very  AWESOME that eBay decided to not tell Wall St. about the fee changes first, but instead hold that for the seller meeting next week.  This was a between-the-lines signal from JD (to me at least and these are my words) that really said: "Wall St., we love you, but sellers are our customers and we're going to start telling them things first, because, dang it, they are our customers and not you."   In the last couple of years, I've felt (and trust me so have sellers) that eBay lost their way here and were treating the priorities as 1) wall st. 2) buyers and 3) sellers.  This seemed to at least move Wall st. to the back of the bus.  Smart Wall st'ers will understand this is the right thing to do.
• JD did say that fee changes are coming to the US/UK/DE
• They did talk about some kind of seller loyalty program (I'd presume a benefit to larger volume sellers)
• The messaging (based on the testing they've done) is that gallery will be free/reduced, listing fees will be reduced and FVF will be increased.  Previously they said it would be take-rate neutral, but I didn't really here that last night so maybe that has changed?  That's a positive because in some cases you could be looking at a 15-25% FVF on the lower priced goods. Also for the first time they talked about the fee changes hitting fixed price and auction - previously they talked fp-only.
• It sounds like even MORE feedback changes are coming (hopefully this includes fixing DSRs which are becoming a goat rodeo)
• There was some light messaging around trust and safety.
• One tidbit that stuck with me is both Meg+JD talked about a 'ebay unique' way they will mix fixed-price and auction-format items.  I'll dig into this in a future post as it's going to be the crux of the intersection of Fees+Finding changes, so needs to be nailed.
• BestMatch is coming in a big way. Rajiv is talking about the 'race to the top', sellers already think about this but it's 'the race to the top for peak traffic times'.  Now sellers are going to have to optimize against a black-box vs. the clock and that's going to be a massive change that I worry most sellers don't 'get' yet.  Many sellers are going to be constrained by the eBay seller tool's ability to do high volume posting, tied to inventory and back-end metrics.  While this is a positive for ChannelAdvisor customers, the bulk of sellers are still grinding it out on SYI, seller manager and blackthorne and that's going to be tough in a 'near free listing' world.

What's it all mean for sellers?

Negatives:

• Q4 showed that core-eBay US's flu is getting worse and even spreading to EU.  eBay is now growing at less than half of e-commerce.  I have to re-state the obvious here.  If eBay is your only sales channel, you need to really re-think your strategy.  Even if you are bucking the trend and growing at 20% on eBay, that is destined not to last.  It will be at least 6 months if not 12 for the changes eBay is looking at to have a material positive impact and even if you love eBay to death, you have to take a business look and realize there is risk that eBay doesn't accelerate and stays at 8% or decreases further.  We strongly recommend you use Q1/Q208 to diversify your channels and spread some of the risk to other places.  Trust me, you'll sleep better.
• Active user growth is in a death spiral.  I worry eBay isn't doing enough around trust to solve this.  Finding+fee changes help, but they have to really nail fraud/trust and hammering sellers isn't the 'solve'.
• A new management team is going to be making a LOT of changes to the site.  Long-term this is great, short-term there are destined to be mistakes/hiccups/glitches
• From what we know about fees+finding so far, selling on eBay is going to go from lots of thinking about schedules, listing items multiple times to, listing everything you have and working on understanding BestMatch and how you can optimize for it.
• I do worry that we used to have 100% of JD's mindshare and now he's going to have stuff like Skype and Paypal on that plate which is bound to take the ebay core mindshare to < 100%.  Let's hope it's north of 75, but my gut is there's enough going on over at skype to take on 50-80% of his time.  Paypal is something you just make sure you are feeding enough and then stay out of its way.

Positives:

• Lower fees!!  WOOHOO! Sellers are VERY skeptical and are looking for the eBay "gotcha", but I'm going to be glass-half-full and bet they are going to not only do the lower listing fee thing, but in some cases lower the take rate (like book/music/video), because, well they have to in order to be competitive with our friends in Seattle.
• The bulk program sounds good. Coupons - bring em on, top buyer programs - love it, more more more more more (but fix trust/fraud too pls)
• JD gets ebay core, understands sellers better than anyone at eBay has before and I think the 'break with the past' means some things that were always taboo at eBay such as the infamous "level playing field" can now be swept under the rug to
• Fixing finding will be good, I almost put this in wait and see, but they sounded VERY confident on the call so I'm going to go with them on this one.

Wait-and-sees:

• Feedback changes - GULP.  Every seller knows feedback is hosed, feedback 2.0 didn't help and now more changes are coming.  This one could go either way.
• All of these changes are going to be really disruptive to sellers.  eBay will basically be a different site and channel in 6 months. Some sellers will embrace this and dig in and get re-engaged.  For other sellers this will be the straw that breaks their back.  They will flame out and leave the site for greener pastures. There's a tier of sellers between casuals and top-sellers (kind of in the $2-10k/m GMV range) that are going to be the most impacted by these changes and their reaction will be interesting to watch as well (you listening that chopsueysisters/fruitcat? what do you think?)

Readers what do you think?  I know one thing for sure, next week is going to be interesting!

Comments

[Kevin M]

An interesting resource I found when talking about ecommerce growth, as it speaks of total retail growth as well.
http://www.census.gov/mrts/www/ecomm.html

[Josh]

Dear eBay:

PLEASE, PLEASE DO NOT reduce insertion fees and RAISE final value fees in high ASP categories.

[Randy T]

Scot states " Many sellers are going to be constrained by the eBay seller tool's ability to do high volume posting, tied to inventory and back-end metrics. While this is a positive for ChannelAdvisor customers, the bulk of sellers are still grinding it out on SYI, seller manager and blackthorne and that's going to be tough in a 'near free listing' world"

Scot, this point is so right on! There are thousands of us sellers in the around $30K monthly GMV range (with low profit margin catagories) who simply can't afford the existing tools that Channel Advisor offers. My business isn't big enough to afford the CA Merchant solution but we are still too big for the little CA version (when you compare it to the low cost of Blackthorne, its still a wash).

My tier of sellers would love it if Channel Advisor can provide some new, middle ground solution, so that we can
move forward with the new ebay of 2008! This is a huge opportunity for CA! We need your innovation on this one!

Randy T

[Marty]

Hi Scott, excellent post!

I just wanted to add that NET active user growth did go negative in the 3rd quater of 2007. There was a net loss of 300k in Active users. In 4th qtr 2007 there was a plus of 200k.

Compare this to when stores were in Core search in 1st Qtr of 2006 when the site added a NET of 3.5 Million new users.

I agree with much of what you wrote. I am not an Ebay basher by any means but I think they seem to be out of touch with the user base.

Id also like to mention that I have been waiting for Ebay Local to come out and that if you take a look at Walmart.com they had growth of double industry average (about 40%) and fully 1/3 of the people picked the items up in a store!!!!

I think shipping costs have really eaten into the perceived low cost benefit of shopping on Ebay, and we need creativity, incentive programs, reward programs and a darn gift card that anyone can use just like any other store in mall.

20% of holiday spending is gift cards now.

Marty

[permacrisis]

"Now sellers are going to have to optimize against a black-box vs. the clock and that's going to be a massive change that I worry most sellers don't 'get' yet."

Oh we get it Scot. We left.

[Scot Ghostlake]

My hunch is 2008 will open up real opportunities. It's been my experience that when the playing field changes; lots folks leave in a huff, do nothing, or perhaps do nothing but waste time on the boards complaining.

However, sellers with their nose to the grindstone have a chance to gain market share.

From how I understand, BestMatch opens up new opportunity for inventive copywriting to compete (especially if no longer constrained by fee risk) with price. I've played around with how ad titles behave in BestMatch...and it is a significant (and not always logical) change.

Differences as subtle as arranging otherwise identical keywords can spell the difference between landing at page 1 all to yourself and not showing up at all. Perhaps as all these changes come to be, sellers can compete in ways other than price. And this would be a good thing because except for the rarities categories, a pricing death spiral has taken over the entire site. And with changes, maybe a few of us can make a bit more money.

[Online Auction Trader]

The fee re-structuring should come as a welcome announcement to the legions that complain about the high fees on Ebay, personally it has never really been an issue for me but every little back helps I suppose.

Lets also see what the management changes actually achieve, most of the commenst across the net seem positive which is always a good starting point.

Regards,

Mike

[Abe]

I am worried about the catagories that are SKU oriented becoming even more oversaturated. If there are no insertion fees for media sellers, it will look like half.com does now or maybe even worse.

Media sellers who already have multiple ebay stores with typically between 40,000 to 100,000 skus listed (mostly DVD/CDs), will just throw all the same skus up again, in yet more ebay IDs. Supply will completely exceed demand (and it is already that way). And don't forget how unbelievably easy it is for more new media sellers to come on board these days; a quick read through the file exchange user guide and one call to the dvd distributor with a credit card is all it takes to attempt selling....

I'm suprised they simply haven't forced a fixed allowable amount for media sellers to charge for shipping, same as Amazon always has. It is the only way to get this catagory on the road to reform and restoration.

[Fruity]

Dear Scot,

After working in the sweatshop known as ebay all this time I know that I am to O-BAY, accept what is given and not make any trouble and continue to produce product.

You're right, our segment of sellers are the most impacted. But this segment has split off. Its split between those who want ebay to see it our way (just a little way) and those who are gonna work their business and if ebay wants to come along for the ride so be it. This segment is mixed with part time & full time sellers and that caused us to not have a mutual understanding. Now sellers are seeking out those with the same needs and we are evolving. We are where the growth is.

Lets not forget that the bulk of us all fell for the pitch of the American dream. To own our small business, to get away from working for the man. To have a work / life balance that allowed us to live a modest life and make it on our own. We saw ebay taking a personal stake in our business, that was a failure on our part. And why wouldn't we? Our naivity on running businesses clouded our ability to see what was really happening. Our failure was we believed what ebay was saying. What's changed? I believe in me and every seller that I have grown to know, I believe in them

So to answer your question, I think wait 'n see is a nice way to say ummm we're not telling what we're working on. We are limited by our funds but not our desires to be successful. We are used to being the bastards of ebay and getting these turd polished seller engagements and any one of those analysts or wall street types, you all had your chance to hear it our way. Too focused on the megasellers to recognize that our segment is the emerging businesses

Never believe that you can own a cat. Cats own you. Now I have to get back to the spaceship.

[Fruity]

Oh lower fees, whoooppeee then we can get back that poorly priced crap and turn this place into a dollar store of China sellers registering under USA accounts. All of us are supposed to clap our flippers at this fish. Ork ork ork!

[Kevin]

1. Scot, I don't think JD's ever said "dang it"
2. My bet right now is on a good news/bad news fee restructure. Example - "Hey Sellers! You'll now get a volume discount on X number of listings as long as you qualify for the PowerSeller program! You only need 99.5% positive to qualify!(which knocks out 95% of the top sellers)", or "Hey Sellers! We'll advantage you in search/finding if you have a Shipping DSR of 4.8! (NONE of us would qualify)".
3. For my part, I am hoping that eBay finally gives us embattled Media sellers a break. It would be nice to make some money again on eBay. The last fee hike probably knocked 40% of the available CD DVD and Book skus off of eBay, and guess who got them all? The River. Personally, I'd like eBay to once again be the place where you can get IT.

Kevin

[pcat]

My ebay sales more than doubled during the test month of no listing fees for fp, but were still less than half what they were a couple years ago. I'm in the 2 to 10k bracket mentioned and I'm optimistic about lower fees. I really don't mind higher fvf as prices can be adjusted when the selling cost is known to begin with.

I am a bit skeptical about the new dsrs as I don't think some buyers realize just what shipping cost the seller and are prone to ding the seller for something that's beyond his control.