« eBay introduces new 30-day FP listing with great economics | Main | eBay mega-changes day 3 - Wall St reaction and some 'deep thoughts'... »

August 20, 2008

Major eBay changes - a new listing type is born!

**Updated to reflect typo in 'other category tiers' and clarify effective take rate calculations.

Today eBay announced (microsite and ebayink) another package of changes (fingers crossed this is the last of them for 2008!).  The bulk of these changes roll mid-Sept so there's some time to ponder them and change strategies (more on that after the summary of changes).

There are some minor/expected/well predicted changes such as:

  1. Electronic payment policy - eBay is eliminating non-electronic payment methods such as cash and money order.  The argument is that these are the least safe methods out there.  Merchant credit-card accounts and paypal (of course) are now the only valid payment options.  There will be lots of consipracy theories around this effectively being a step towards a paypal-only world for eBay and what-not, but for business-oriented sellers this won't be a surprise or a big deal.
  2. Shipping limits - eBay tested these in DE and must feel they worked well as they are coming to the USA. Basically certain categories have S+H 'ceilings'.  You are not allowed to list anything that has S+H above the ceiling.  However,  if you have multiple S+H options, only one has to be below the ceiling, others can be above (e.g. if you have standard+expedited shipping, the standard has to be below the ceiling, but expedited can be above).
  3. FVF discount for free shipping - There's going to be some pretty compelling discounts for offering free shipping. I'm guessing these will DSR based so my concern here is that it's generally well known by sellers that DSRs are broken (UPI and international) and thus I worry that eBay continues to build on this 'less than perfect' foundation.

The meat and potatoes - Welcome the new FP30 listing!
Prior to today's announcement, sellers effectively had two listing types (and associated 'rate cards' for each): core and store.  eBay has now introduced a new, third, listing type that is kind of positioned in the middle.  It's a 30-day, multi-quantity fixed-price listing (I call it FP30 for short).  I say it's in the middle because it has the lower listing-fee and duration of a store-listing, but it has a lower fvf (by category) and it gets core exposure.   Sellers that wanted FP on core had to kind of wedge their item into the auction pricing (which is expensive because the listing tiers up based on price) and live with a shorter duration (7 days on avg).

Taken individually this is not something that I think would be a big change, BUT when you marry this new listing type with the changes that eBay has made to BestMatch and Finding (de-dupe and 10-limit), eBay's strategy has become much clearer.

With this new listing type instead of fixed-price seller wedging their listings into the auction marketplace, there is essentially a bifurcation of the marketplace.  You'll have the old auction world with it's rate-card  and search algorithm (BM that consideres ending-time)

And now we have a new fixed-price world with it's own listing type, search engine (BM that ignores ending time) and fee structure

The new FP30 fee structure
Here's how I've been thinking about the FP30's fee structure.

First it has a .35 listing fee - regardless of start point.  You can list an item for $1 or $1m and it's still .35.  Also remember this is multi-quantity so you can list quant=1 or quant=1m and it's still .35.

FP30 has different 'tranches' than auction-style listings (auction dips at $25, fp30 at $50).  I call them T1, T2 and T3.

T1: $0-50
T2: $50-$1000
T3:$1,000+

And finally FP30 has FVFs for these tranches that vary per category.  Here's a quick summary of top categories:

Computers: (this is the lowest and very aggressive IMO):

T1: 6%

T2: 3.75%

T3: 1%

 

CE+photo:

T1: 8%

T2: 4.5%

T3: 1%

 

Media:

T1: 15%

T2: 5%

T3: 2%

Motors parts+accessories and apparel:

T1: 12%

T2: 9%

T3: 2%


All other categories:

T1: 12%

T2: 6%

T3: 2%

Example of FP30 economics

To make sure everyone understands FP30, here's an example.
SellerX lists 20 pairs of shoes for $50 (each of course) and sells 10 of them over 30 days.

Listing fee: $.35 (note this is not *10 as it is multi-quantity for one price)
FVF: 12% * 50 = $6 * 10 = $60
Effective take rate: $60.35 for $500 in GMV for an effective take rate of: 8.28%

Comparing this to the auction rate card is a little apples to oranges because there are lots of variables, but let's do an exercise that gives the decent auction economics to see which comes out better.

SellerX lists 10 items for $50 (well that would be dumb so they list it for 49.99) and they all sell (100% conversion rate).

Listing fees:
10 * 1 = $10

FVFs: 10 * (2.19+3.5*25) = $30.65

total fees: $40.65.  Effective Take rate: 8.13%

So in this scenario, auction-style wins. However if you drop the conversion rate to 33%, you get to where the listing fees are 30*1=30 and the total fees go over the $60 FP30 range.

The other variable is ASP and I encourage everyone to experiment with this math for your items using your conversion rates and ASP to see what's right for you.

Impact on seller's strategy
In the economic example above, 33% conversion rate was a tipping point where the FP30 listing's lower listing and higher FVF makes it less expensive from an effective take rate perspective.  So one strategy would be to consider auction+fp30 as essentially three 'buckets' driven by conversion rates (look at it per sku):

  • If CRs > 50 - you should probably continue with the auction-style listings, use BIN if you need true fixed-price.
  • If CRs between 10-50, you whould consider fp30
  • If CRs < 10 you should look at eBay stores or not list the items on eBay.

The pitfall with this approach is my sense is eBay is going to really favor fp30 within BestMatch so most likely SKUs will behave differently under each and you'll have to experiment.  For an extreme example, you could have a boat load of an item that in auction format is basically hidden by bestmatch+dedupe and you get a 5% CR.  You'd be ready to move that puppy off eBay in a heartbeat.  However if you put it in FP where it's not de-duped and hopefully not going over your 10/page, you could bump up to 40/50% CRs which would indicate put it in auction-style, but that wouldn't be right in this case.

Another way to think about this is the fp30 gives you the chance to stuff as much product (opportunity GMV) into your 10 listings/page as possible for great economics.  So there's a 'store shelf' play here too to consider if you are having dedupe/10-limit issues.

ChannelAdvisor + FP30
Realizing the strategic importance of FP30, we've made sure that both our MarketplaceAdvisor standard and premium offerings will launch with support when FP30 hits the streets in mid-Sept (we're ready now).  We're also holding a free webinar for customers and other interested parties to discuss the new format and some other strategy ideas we have. This should be a great foundation heading into the holiday selling season and you can sign up here.


SeekingAlpha Disclosure: I am long Google and eBay.

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d83451d7ed69e200e5540f0c028834

Listed below are links to weblogs that reference Major eBay changes - a new listing type is born!:

blog comments powered by Disqus