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4 posts from March 2011

March 18, 2011

Analyzing eBay's Controversial Fee Changes for the Spring Release

Earlier this week eBay announced their first big releaes of 2011 (internally SR11.1 - externally the Spring release).  There's a ton of changes in here and we'll be hosting a webinar that digs into the impact for our customers (but anyone is welcome to join) - watch for an announcement on that, we're still scheduling it.

There's a ton of information and discussion available on the Spring release such as:

  • eBay details are here
  • A handy checklist from eBay is here
  • There's a set of lively discussions (warning time sink) on eBay discussion boards here.
  • AuctionBytes has great coverage here with an interesting look at what looks to have been a very contentious Town Hall meeting (I missed it unfortunately).

 As I've talked to sellers about the changes, the overwhelming topic is the Fee changes announced in the Spring release, so I wanted to focus on those here as there is a ton of angst, misinformation, fear, and uncertainty around the changes.

There are five overall topics to cover the fee changes:

  • What are the fee changes?  Sometimes it feels like you need a PHD in Calculus to understand the eBay fees - this is our attempt to simplify the changes for you.
  • What are they thinking?!  A brief look at why eBay would do this.Who is impacted?  Here we break down those overall types of sellers are impacted (both positively and negatively)
  • What should I do?  if you are negatively impacted, here we go through some of the options you have to counteract what is effectively a price increase for you.
  • Top Frequently Asked Questions (FAQs) - Here I'll go over some shorter topics that we're getting a bunch of questions that also have a lot of misinformation out there.

Before jumping in, let me state that I've been thinking eBay should do this for a loong time (2006 looks like my earliest mention).  The reasoning back then was that eBay has always struggled with high S+H costs on the site.   Before 2006 you used to see the extremes of items for a penny with $100 S+H - total fee avoidance and a terrible consumer solution.  eBay caught on and implemented caps, but they have their own challenges (highlighted in that 06 post, so won't go into that again).

I still believe that charging FVF on item price as well as shipping is the single best way to stop excessive shipping amounts and it's good to see eBay finally addressing this.  However, I do wish they had thought through the negative impact to a lot of types of sellers that we'll get into later.

Let's look at the fee changes and then jump into the why and who is impacted aspects.

What are the fee changes?

Historically, Amazon, PayPal and many other e-commerce vendors have charged a % of sales on both the item price and the shipping price.  eBay announced that they are moving to this model  with the Spring release.  To help with the economic impact they are lowering the Final Value Fee (FVF in eBay-speak) across the board.  

I've been working on simplifying things and here's my best attempt: (click to enlarge)

Note: FP is Fixed Price, CE is Consumer Electronics, CSA is Clothing Shoes and accessories, P+A is Parts and accessories (eBay Motors) and of course these FVFs now apply to item AND ship price!

FVFs have tranches at < $50 and then at $1000, eBay's changes are all to the $50 tier except CSA/P+A which also knocks a percent off the second tranche.  So if you are in those categories and your average selling price (ASP) is > $50, you may have additional savings.

Here's an example to show the impact.

I'm a CE seller.  My ASP is $50 and I charge $8 in S+H

Before:  FVF is 8% * $50 = $4

After: FVF is 7% * ($50+$8) = $4.06 

(this one ends up to be effectively neutral)

What are they thinking?! (The 'why')

eBay spends a lot of time thinking through fee changes so in my experience it's usually interesting to approach changes from the 'why' standpoint first vs. the 'what'.  It's clear that eBay is trying to dramatically change the shipping picture on eBay.  While the caps have helped, there's still only about 30% of items sold that have free shipping.  I imagine Amazon Prime and SuperSaver programs are behind this.  eBay also has stated many times that in buyer surveys the number one concern with eBay is excessive shipping charges.

In fact you can back into what eBay must feel is not excessive by multiplying the decrease for your category times your ASP.  For example, you have a $50 ASP in the CSA category.  At a 17% decrease, you are looking at $50*.17 = $8.33 shipping that would keep your economics neutral.

Also based on comments, it looks like eBay is trying to underprice Amazon with these efforts as well.

Finally, this fee change hits low ASP items, larger auction sellers and heavy item sellers pretty hard, so eBay is sending a pretty clear signal to these sellers.

With that in mind, let's look at who is impacted.

Who is impacted?

 If you refer to the table at the top of the post, it  was designed to help you think through the 'am I seeing an increase or decrease'.  Simply look at your eBay ASP and your average shipping.  if the ratio of your shipping is higher than the FVF fee decrease  you are seeing a net increase.  If your ratio is lower, you are seeing a net decrease.  To keep it simple, we've calculated the 'break even point' for four categories and five different ASP bands illustrated here:


Note: This table is not 100% exact, but very close as it does not go through all the multi-tranche math.

The winners:

The biggest winners (they see a fee decrease) are:

  • Sellers already doing free shipping.  If you were already moved over to free shipping, this is a HUGE win for you.
  • Sellers with a item/ship ratio lower than the decrease.  In other words if your shipping is generally lower than these break even points in the chart above - congrats, you WIN.

Examples of winners:

I'm a media seller with an ASP of $12 and free ship:

Before: $12* 15% = $1.8

After: $12 * 13% = $1.56 (#WINNING!)

This amounts to a 13% fee decrease  The seller could pocket the winnings, or pass it on to the consumer in the form of lower prices.

The second example is:

I'm a CSA seller with a $50 ASP and I charge $5 for S+H (my item/shipping ratio is 10% which is below the 17% fee difference).

Before: 12% * $50 = $6

After:  10% * ($50+$5) = $5.50

I'm saving $.50 or 8.3% in this scenario.

The losers

The biggest losers in this change can be put into three buckets:

  • Low ASP sellers, not offering free shipping already
  • Heavy/bulky item sellers
  • Traditional auction businesses

Low ASP sellers

If you sell items for < $10 and charge shipping, most likely this is a pretty substantial increase for you.

Example: I'm a cell phone accessory seller with $7 ASP and I charge $5

Before: 8% * $7 = $.56

After: 7% * ($7+$5) = $.84 - a 50% fee increase!

Heavy/bulky item sellers

There a lot of categories on eBay where due to the weight or volume of the items, the shipping costs are just simply high.  Off the top of my head these include: Business and industrial, lots of auto parts, lots of sporting goods, lots of home and garden items, many computers and TVs.

Example: I sell baby strollers for $200 and $40 shipping (my cost)

Before: 12% * $200 = $24

After: 11% * ($200 + $40) = $26.4 - a 10% fee increase!

Traditional auction businesses

Unfortunately, this change will hit the traditional auction businesses the hardest.  I feel really bad for this group because they've been taking it on the chin for years now and I think this is the final straw for most of them.  The problem is these sellers have a business model predicated on low starting points.  Endless tests have shown that free shipping doesn't really change the bidding from consumers (which goes 180 degrees against what eBay is telling us that consumers pay more for free shipping, but I digress).

Example: I'm a $.01 no-reserve auction CD seller with ASP of $4 and (capped) shipping of $3.

Before: 9% * $4 = $.36

After: 8% * $7 = $.49 ---> A 36% fee increase

Thirteen cents doesn't seem like much, but a ~40% fee increase essentially puts these guys in a bad spot, even those with higher ASPs.

What should I do?

 If you are a winner (which will be the overall majority), you should think about how to spend those extra profits - let them drop to the bottom line, lower prices, invest in other parts of your business?

You should also look at offering free shipping.  Now your fees don't matter either way so no harm in trying free shipping. eBay's research seems to show it's the most important thing, so if you have a $50+5 item, why not try $55+0.  I have to admit, I'm a little sceptical here and it really all depends on the eBay search engine/BestMatch.

Losers - low ASP sellers and heavy item sellers

If you are in one of these two categories and you are seeing a huge fee increase you have these options:

  • Sell on other channels - we've been telling this story for 10yrs and it still is the single best way to make sure your business isn't disrupted by any changes at a single e-commerce channel.
  • Raise your prices -  You're going to need to raise your prices if you can't absorb lower margins.
  • Lower your costs/profits - If you eat the fee increase, you'll have a decrease in profitability which you'll need to either absorb or find a way to fund through costs of goods, automation, better shipping prices from your vendor.

Losers - Traditional auction sellers

Unfortunately the only option of the three above that is open to traditional auction sellers is the 'make less money'.  Because most of their shipping is capped and they can't control pricing due to the auction format, they are pretty much going to have to either eat the increase or dramatically switch business models.

Many sellers are saying this is the complete end of the auction format, I don't think so, eBay seems to want consumers to use the format as it is offering 50 auctions/month for free listing while at the same time they are making the format unattractive for larger businesses.

Top FAQs

Q: What if I have multiple shipping rates (free up to next-day/expedited?)

A: eBay will charge the FVF on the lowest domestic rate - another strong encouragement to have free shipping, even if it is very slow.

Q: What happens with my International business?

A: eBay will charge the FVF on the lowest domestic rate, NOT your international rates.  So this shouldn't change your CBT strategy

Q: Is Tax included too?!

A: No.

Q: When do these changes roll out?

A: Auctions - 4/19/11 and Fixed-price 7/6/11

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is a minority investor in ChannelAdvisor where I am CEO.


March 09, 2011

ChannelAdvisor Same Store Sales (SSS) for February 2011

Note: This is a monthly feature published by ChannelAdvisor highlighting the Same Store Sales (SSS) across our wide range of over 3000 retailers and ~$3b in GMV.  Details on the SSS including methodology and schedule can be found in this post.

Today we are releasing February data for Marketplaces (eBay/Amazon), Search and Comparison Shopping Engines (CSE) along with supplemental data.

February 2011 results

February continued the strong growth we are seeing in e-commerce in 2011.   One of the biggest news items in e-commerce has been Google's release of their new organic search algorithm code-named'panda' (or panda-monium in the SEO world). Panda hit on 2/25 so it's impact wasn't really felt much in these numbers.  We're watching the impact closely as there have been numerous articles stating that the update has impacted retailers (JCP and Overstock) as well as CSEs. Next month we'll be better able to see what's going on with Panda.

  •  Amazon - Amazon came in at  74.5% y/y growth for February a very strong showing,  and continues to show Amazon's impressive share gains.
  • eBay -  eBay slowed slightly in February for our customers, coming in at 2.5% y/y vs. January's 5.8% growth 
  • CSE - Comparison Shopping Engines continued to struggle in FEb. swinging to a shrinking vs. growth at  -6.2% y/y making them the slowest growing e-commerce channel we track.  This will probably get worse as Google's Panda update ripples through and takes out a chunk of SEO traffic these sites enjoy.
  • Search - Search was the only channel that accelerated in February (definitely benefiting from Product Listing Ads, and Panda anecdotally) and came in at 24.9% y/y vs. January's  22% y/y.  
  • Overall - Overall we see that e-commerce in February came in at 11.3%, a slight dip from the 13.4% in January.

SSS Chart

The following chart details the SSS data for 2010 through February 2011: (click to enlarge)


Supplemental data for Search

For search, we are providing y/y SSS data for the following datapoints:

  • Clicks - volume of clicks
  • Orders - Volume of orders
  • Cost - Overall cost for combined campaigns
  • CPC - Cost per click on average
  • CPC y/y SSS delta - the difference in CPC for this month vs. the same month last year
  • CR - Conversion rate
  • CR change y/y - Year over year CR changes for this month
  • AOV - Average Order Value
  • AOV change y/y - Year over year AOV changes for this month

The details are available in this table:


SeekingAlpha disclosure: I am long Google and Amazon.  eBay is an investor in ChannelAdvisor where I am CEO.





March 08, 2011

Facebook Credits vs. PayPal - FB Credits take a big step today....

Over on sister-site, Facebook Commerce Strategies, we have details about Facebook's latest expansion of the Facebook Credit system.  Could it be a big step towards a more general online payment system that effectively competes with PayPal?  Definitely interesting to consider the implications....

March 04, 2011

Three quick items - Catalyst, Facebook Commerce Index and DLP comes to auctions

Greetings eBay Strategies readers.  I had a couple of quick updates that I wanted to share:

Catalyst is filling fast

Every year we host a show that is focused on what we call e-commerce channels called Catalyst.  This year we are hosting the show April 4-6 in NC in the US and May 17-18 in the UK.  Each year we have to turn away a good number of attendees due to capacity constraints.  We're nearing capacity for the US event and the UK event is filling fast as well, so I urge you to not get left out and go ahead and register at http://www.channeladvisor.com/catalyst/

This year we have a great line up of speakers (you can see them all above) and some surprises that aren't there yet as well as a pre-conference for customers that are interesed in a deep dive into our products and roadmaps for 2011.

I look forward to seeing everyone there. Note that while we have a lot of customers at the event, it's designed to be  open for customers and non-customers so come on down to NC if you want to learn more about the hottest topics in e-commerce.

ChannelAdvisor Facebook Commerce  Index

Yesterday over at sister blog Facebook Commerce Strategies, we launched a cool new feature called the ChannelAdvisor Facebook Commece Index (CAFBCI) - we'll be tracking the top online retailers on Facebook and detialing some of their best practices. If you are subscribed to eBay Strategies, you are not automatically subscribed to that blog, so I encourage you to do so if you have any interest in leveraging Facebook in your business.

Duplicate Listing Policy (DLP) coming to Auctions?!

Finally, speaking of our friends at eBay, we're receiving a lot of questions from eBay sellers regarding rumors swirling around about the infamous DLP coming to the Auction format. While we can't discuss anything under NDA, information on this change is out in the wild.  Reportedly TSAMs are calling top-sellers and alerting them that:

  • Starting March 28th, DLP will apply to Auctions as well as FP
  • You can have duplicates, but they have to have a > 30% sell-through rate over a 7 day period
  • If you don't achieve that, your listings will be canceled

eBay has sent out a link that is hidden behind a login with details (you can try it to see if you see the info here - I believe you have to be a top-seller).  I was able to see it but had to login once, go to an error page and then hit the link again and it worked.

Also, details have leaked into the help docs. In the search manipulation policy docs they have inserted this little tid-bit->


This raises a bunch of questions:

  • How exactly is the 30% calculated (all auction listings, only those that eBay deems dupes, something else?)
  • Will a seller be able to see their "successful listing rate"?
  • Will you get credits for all these canceled listings?
  • Will cancelations otherwise impact a sellers standings (eTRS?)

We're getting a ton of questions from customers on this topic in the last 24hrs so will try and get some clarification on these points and do a follow-up blog post soon on the topic of auction DSPs.  Yell if you have any questions or clarifications in comments.

SeekingAlpha Disclosure - I am long Amazon and Google, eBay is an investor in ChannelAdvisor.