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August 22, 2008

eBay mega-changes day 3 - Wall St reaction and some 'deep thoughts'...

I'm still gathering feedback from sellers, the exec summary is that confusion abounds and sellers are having a hard time digesting the implications of the changes and specifically the fee changes.  I hope to have time to do a more lengthy post on that this pm.

Today however, I wanted to focus on the Wall St. view of the changes and some deep thoughts.

Wall St and eBay's changes
Not all of the analysts have chimed in, but as you'd expect the bears view this as vindication the model is broken and bulls are cheering  that the company is making progress on moving towards more CPA vs. listing fee model. Most analysts are concerned that here we are in September basically and the buyer experience hasn't materially improved yet.  Thus eBay is looking at a potentially disadvantaged holiday season vs. other retailers (they mean Amazon when the say this IMO).  Mark Mahaney nicely summed it up here:

Fee Cuts Only One Part of GMV Growth Turnaround Equation - Earlier fee cuts this year have yet to produce the desired effect of GMV growth acceleration, and site improvements made last year have not translated into an increase in traffic or conversion rates. We remain concerned that this raises the open question of whether eBay has perhaps "waited too long" or is structurally challenged given rising eRetail expectations/requirements. While the emphasis on fixed-price may improve growth picture for one side of the marketplace, we continue to believe the auction side of the business will be an anchor on overall GMV growth.

There's lots of fear around the effective take rate going down.  One analyst (James Mitchell @ Goldman) cleverly calls out eBay as being somewhat duplicitous on this:

eBay states that the basket of changes “does not impact the guidance we have already provided to Wall Street”, while providing three case studies of sellers who will pay it 11%-35% less.

His conclusion is that eBay must have baked a decrease in take rate into guidance which is what most analysts are also concluding.

All that being said, the market reacted with a resounding thud with the stock dropping from $25.5 like a rock towards $24 in the first two days which could indicate that the market is worried about the financial implications.

I'm a CNBC junkie and I found this video segment particularly interesting from FastMoney during pops and drops (eBay was a drop).

If you are on feed, the commentator basically says: "While Meg Whitman could be our next VP, the company simply doesn't work.  They are Amazon's weak little sister."  Ouch!

Did eBay's announcement/PR push actually help Amazon?
This brings up an interesting angle to think about.  By tacitly admitting publicly and some would say coming out swinging at Amazon (media pricing), yesterday eBay educated lots of people about Amazon's 3P business that I don't think knew much about it before.  I had several reporters ask for more information about Amazon's marketplace business and much of the press refers to the changes as the "Amazonification" of eBay. I'm not sure that's really where eBay wanted to position this, but with a microsite called "the best place to sell online", maybe I'm wrong.

Also listening to NPR, they got it all mixed up and said "the auction site eBay has changed prices to compete with other auction sites..." (there really aren't other auction sites - we're talking marketplaces here).

This leads me to the deep thoughts (queue the music) part of the program...

Deep thoughts
I try to keep an eye on what ex-ebayers are doing and stumbled upon this really interesting post by Adam Nash (currently at LinkedIn).  It's a ode to eBay Express which eBay plans to pull the plug on soon as revealed in the latest announcements.  Adam was the team lead for EE so it's interesting to see his thoughts on how the team came together, etc.  In the post Adam puts some great perspective on EE and how even back as early as 04 eBay knew they had a problem and was trying to address it via EE.  He laments that Amazon has a 3-4 year lead on eBay in this field now.

I was reminded by a joke we used to have for EE we had at ChannelAdvisor when EE first launched ribbing its mixed up brand message.  We used to compare it to something like: "diet oreos" or any other wacky brand we could think of (Green Hummer?).

This brings up the deep thoughts:

  • Consumers don't want auctions, eBay's auction biz is stagnant/shrinking. EE was an admission of that in 2004
  • Most consumers want convenience+value, some will trade convenience for more value (auctions), but they are diminishing as more options that don't force that tradeoff online exist (amazon, newegg, zappos).  They are buying more and more fixed price on eBay even though eBay did everything it could from mid 06-early 08 (with the exception of EE). 
  • eBay has been in denial about this for 4yrs (04-07). I remember sitting in eBay Live 07 when Cobb was talking about Windorphins and the old 'mall and chain' and how auctions are exciting again!  (Read this post for example).  Everyone that knew anything about eBay's financials was shocked that they would go this route. 
  • Auctions can't be revived.  They will always be there and useful, but they are saturated at this point and not growing.
  • Many sellers blame fixed price for killing auctions, this is wrong, it's buyers that don't want to buy this way.
  • Thus eBay HAS to embrace and succeed at the fixed-price marketplace game or look at something drastic like spinning out skype+paypal and selling off the auction biz.
  • Unfortuantely , this path eBay is forced down leads them right into Amazon's crosshairs.
    • Amazon GETS retail because they are a retailer (number 1 BTW)
    • Adam points out that eBay didn't know anything about retail during his tenure and none of the new management team has a retail background and to my knowledge there's not a big 'let's be a retailer' movement at eBay.

All of this leads to my main point: eBay's brand dilemma.

To thrive, and some would say survive, eBay has to be the winner in the battle royale of fixed-price marketplaces. 

However eBay's brand is synonymous with:

  • auctions (remember NPR?)
  • flea market experience (hunting for hard to find items)  Note that this is not the same as selection. Most people don't think - I need a blue size 3e new balance shoe -surely eBay has that.  Now if you need some collectible, eBay is first.
  • To some extent 'fraud', or at least 'risky'.

Amazon's brand is synonmous with:

  • buying online (of course fixed price)
  • selection
  • Safety
  • Low shipping (Prime)
  • Cutting edge (kindle, unbox and in geekier circles 'ahem', web services)

I'm starting to think that eBay's ability to change that brand perception is going to be the REAL deciding factor in this whole thing.  They can fix finding, fees and fraud.  But new excited buyers won't be coming back until eBay can convince them that this is a different eBay. With 10 years of auction, auction, auction baked into this puppy, that is going to have to be one heck of a campaign and it ain't "Shop Victoriously".

To achieve this, as I think through it, eBay almost has to throw auctions under the bus to send a hard message. Imagine an ad with this script:

Dear valuable inet shopper, you may have tried eBay and our auctions we are known for.  Today we want to let you know that unlike auctions that took tons of time and that stinky search engine we used to have and lack of selection, this is the new eBay! We have fixed-price, a great search and more selection!  Try us again. 

They face such an uphill battle brand-wise, I don't think eBay can come out with a soft: "Hey we still have the auctions you love, and we've added great fp items and more selection and we've made it really easy to find stuff."  It's not dramatic enough to convince shoppers that there's anything really special/different going on.

It's not all gloom and doom as eBay has a couple of things going their way:

  1. Fixed price is growing so some buyers out there must realize that eBay has it available.
  2. eBay's strategy with large retailers is interesting and if successful could be a sword in Amazon's only weak spot (as a large retailer, they have hard time partnering with other large retailers whom they essentially compete with).

Can someone pass the zero-calarie double stuff oreos please?

SeekingAlpha disclosure: I am long eBay and Google.

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