eBay: Long Tail Marketplace or Commodity Exchange? Part 1
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eBay is in a transition period. The auction sites early success was that of one of the world’s first “Long Tail” markets. eBay’s corporate vision seems to think that greener pastures lie in the realm of what is basically a commodities exchange marketplace.
What’s the difference?
A Long Tail market describes a niche strategy of business in which the market offers a large quantity of unique items in relatively small numbers. Chris Anderson coined the phrase, and published an influential book on the subject entitled, The Long Tail: Why the Future of Business is Selling Less of More.
This Long Tail concept in a nut shell is that there is money to be made in selling obscure goods to niche markets. The graph below provides a pictorial representation of the Long Tail concept. The vertical axis represents the popularity or mass market appeal for an item. The horizontal axis represents a particular product. For example’s sake, let’s call them DVD’s. The “Head,” the part of the graph that is shaded green, represents the popular, mainstream movies. This is where a significant portion of the market is concentrated – but not all of it.
Traditional markets typically are constrained to the Head (green area) because of physics:
- How many products can the merchant stock in a limited amount of space?
- How many customers in the local area are willing to pay for those products?
The niche strategy of business seeks to break these constraints by selling a large number of unique items.
The Long Tail
The yellow part of the graph represents the Long Tail. These are the movies that not everybody is interested in, but there are niches of people who would like to own or rent those particular titles. Your neighborhood Blockbuster is going to devote their limited shelf-space to the more popular titles in the green portion while, in aggregate, Netflix rents more videos from the Long Tail portion of the graph than the green portion.
The factors that keep most business models in the green section of the graph above deal with search, storage, and distribution. I’ll discuss these specific topics in greater detail in a future post, so let it suffice to say for now that the costs involved with marketing to small niches, storing the goods until they are sold, and distribution were so prohibitive for most entrepreneurs that most didn’t consider it a viable opportunity before the internet existed in its present form.
eBay’s early success has been in providing a marketplace for the Long Tail. The company provided a central location and a search mechanism for consumers interested Long Tail products to buy them, and a venue for Long Tail merchants to sell to this market.
The Consumer Commodity Exchange
Now eBay is heading away from their roots and focusing on becoming a venue for products that have a mass-market appeal. Even while more and more of the internet is becoming aware of the value of the Long Tail market (what Chris Anderson describes as “selling less of more”), eBay is focused on becoming what is essentially a consumers commodity exchange.
Economists define a commodity as something of value, of uniform quality, available in large quantities by different producers. Do a search for iPod or WebKinz on eBay and you’ll soon understand that these are basically a commodity.
The price of a commodity is universal and fluctuates based on supply and demand. There’s little profit for sellers of commodities unless they control some aspect of the supply or can successfully predict fluctuations in demand. Therefore, the sellers who will be able to compete successfully on the new eBay are not necessarily those who were able to compete successfully on the old eBay.
Why is eBay moving from the Long Tail market to the consumer commodities market?
- More consistency over who sells in their market and what’s selling. (Does this open them up to more piracy and counterfeit risk?)
- They think that’s what the consumer wants. (Didn’t Coke make the same mistake 25 years ago?)
- The think they will make more revenue. (After all, Amazon is growing.)
It’s worthwhile to remember that it’s the commodity brokers that make the most money in the commodites markets. They make a commission whether the market is going up or going down. The commodities traders (the new eBay sellers) are open to constant risk when they play the market – and are usually encouraged by the brokers.
Are you ready to play the market on the new eBay?
The phrase “old-fashioned internet auctions” seems like an oxymoron, but several pundits have declared traditional auction formats, if not dead, terminally ill.
According to the New York Times, the days of the traditional online auction format on eBay are numbered:
The golden era of the small seller on eBay, hawking gewgaws and knickknacks from the basement or garage, is coming to a noisy and ignominious end.
Consumers appear to be tiring of online auctions, and rivals like Amazon.com are attracting more shoppers with fixed-price listings, while eBay has been struggling for growth.
eBay seemed to confirm this sentiment a week later when they offered a promotion aimed squarely at encouraging the number of fixed-price listings on the “auction” site.
Maybe I’m just old-fashioned (seems like a strange term to associate with the internet) and stuck in the first part of this decade, but I still have a strong preference for buying and selling on eBay using the auction format.
Selling with the Auction Format is Still Fun
I’ll admit that I don’t sell on eBay full-time, so I my indulgence in the traditional auction format is a liberty that many full-time sellers can’t afford, but I still like my listings to have a absurdly low starting price with no-reserve.
Sure, some of my auctions will close for less than they should, but I’m still surprised by how often a listing will close for more than it should. That’s because there’s an emotional component to buying at the auction format that you just can’t duplicate when you are selling at a fixed price or on Amazon.
This keeps selling on eBay fun for me. And you don’t hear a whole lot of sellers talking about fun anymore. Maybe there’s a connection between the level of satisfaction and the listing format.
Buying on eBay is About Bargains
eBay is pushing the fixed price format because they want to be more like Amazon and “are concerned about the buying experience.” Message to eBay: I buy on eBay because I’m looking for a bargain. That’s the buying experience I’m looking for on eBay. The bargains are the lightly-used stuff that has been sitting in some person’s closet that they are listed in the traditional auction format.
Even when a listing has a buy-it-now price of only 5% more than the current auction-style bid price, I’ll take my chances placing a bid, thank you very much.
I’m looking for a bargain, and maybe hoping to have a little fun while I’m doing it. A lot of bloggers mocked eBay’s marketing slogan’s (Windorphins and Don’t just shop, win), but I think it really captured the true buying experience that I most enjoy on eBay.
Apparently I’m not the only person with a whimsical fondness for the glory days of eBay buying a selling. Here’s a few great comments from SlashDot’s post about the NYT’s article quoted above:
One feature alone would instantly pull me from eBay to whatever competitor there is: search and filter by “used item” vs. “new item” and also “individual seller” vs. “large retail outlet”.
When I go to online auctions, I’m looking for a deal on something used. I’m tired of living in a society where paying full priced new is the only option: it means individuals who’d be happy with a used widget have to spend more and our landfills fill up with still-useful widgets.
When I search eBay now for (tools/computers/whatever), I get 90% listings from large businesses selling new, usually crappy knock-off, items. I don’t want a cheap Chinese $20 wood router that barely functions. I want a used porter-cable router from some hobbyist who is downsizing his garage or upgrading to a newer tool. But the floods of cheap Chinese crap are all I can find on eBay!
I completely understand that businesses need to make money, and the buydotcom route may be one way to do that. However, eBay is WIDELY opening a door for another company to undercut them in the small seller market, and those of us who collect, buy, and sell anything used on a small scale and aren’t interested in just shopping online for new stuff that we can get down the street at Wal-mart or wherever.
How far eBay has strayed from it’s original purpose of being the “garage sale of the Internet” to now just essentially being an outlet mall. Perhaps it’s just an inevitable result of gaining too much popularity; regardless something tells me there’s money to be made in picking up the slack.
There’s your entrepreneurial idea for the day kids. I’m sure garagesale.com is already taken (and isn’t a Web 2.0 name anyway), but just go read a Klingon dictionary and I’m sure you’ll find a good alternative. Your tagline is “What eBay used to be”, at least until you pop up on their lawyers’ radar. Market it as specializing in collectibles, unique trinkets and such, and in your literature equate eBay with Wal-Mart.
I like the idea of a viable online auction site whose marketing mantra is “What eBay used to be.”
Randy Smythe argues that the company best poised to capitalize on the old-fashioned internet auction market is eBay itself. In a recent post, Randy suggested that eBay spin itself into three different entities:
The gist of the idea is this:
- eBay Stores have been the red-headed step child of eBay because they aren’t as profitable as other segments of the business, yet there are over 500,000 stores/shops worldwide. eBay should set them free –empower eBay store owners and get out of the way.
- Auctions: I contend that Auctions are dying because of Fixed price being in the same marketplace, many of you disagree. Auctions need scarcity and uniqueness of product to thrive and the concept of auctions is 100’s of years old — It just isn’t a high growth business any longer. eBay should set them free — empower auction sellers and get out of the way.
- Fixed-Price: A fixed price retail environment is the growth engine for ecommerce and eBay needs to maximize this business, but they can’t do it on the same platform as Auctions and they can’t do it without spending money. eBay Express was a good idea that was poorly executed from a business and marketing standpoint. It always need to be a separate platform with separate inventory and a huge, well thought out advertising campaign without one mention of the name eBay.
eBay has precious few months, if not weeks to turn this ship around or it will be a painful experience for all involved (employees, investors, sellers and buyers).
That’s great advice eBay, are you listening?
Killer Bees Will Kill Your DSR’s
Filed Under eBay Fraud | 2 Comments
I wonder if this will affect their feedback?
I had to share this post from the Consumerist Blog…
Pat won an auction for an RV on eBay last week. He bid a little over $15,000 for a vehicle that was listed for sale by the RV company for $29,999 on other sites. Pat was worried that Nelson’s RV might try to find a loophole to cancel the auction since he’d scored such a great deal, so he immediately sent his required $250 deposit to them and asked for someone at Nelson’s RV to contact him. Eventually, after some run around, he got the following email—with one of the ballsiest excuses we’ve ever seen.
We are devastated with our discovery this morning of a swarm of Africanized killer bees in the 2007 Sandpiper 325RG 5th wheel that you have a deposit on. We have used multiple poisons in an attempt eradicate them. We have vacuumed up the bees that covered the floors, cabinets, and furniture. We tried to clean the traces of honey on the countertops and cabinet tops as completely as possible. This is one of the terrible acts of Mother Nature we have in Arizona. As best we can determine, the bees entered from the door that had been left opened yesterday morning. The interior of this trailer does have a strong chemical odor from the poison and is TOXIC. Our insurance regulations prohibit us from selling this 5th wheel at this time.
Due to these circumstances beyond our control, we are unable to proceed with the sale of this 2007 Sandpiper 325RG 5th wheel. This vehicle is unsafe for occupancy or use. We are therefore refunding your deposit at this time. We have attached several photos. Watch EBay for other close-outs we will be posting soon.
Pat examined the photos, but they are very small (we’re posting them exactly as he sent them to us) so it’s kind of hard to tell if they’ve been manipulated.
Pat writes,
The two cans of “TOXIC” chemicals pictured in the second picture are indoor household foggers manufactured by Hot Shot and Ortho. Both were designed to be used, and are safe, for indoor use.
Within a few minutes of receiving the e-mail, I received another from PayPal indicating that my deposit had been refunded by Nelson RV.
My attorney advised me that he felt all the elements were in place for a contract and that even if their story were true, it should be my decision as to whether I wanted to accept the trailer in that condition. If a product that has been offered for sale does not turn out to be as advertised, then the buyer can decide to not go through with the sale. He told me that if I wanted it, I should send them an E-mail explaining my position and see how they respond.
So Pat resubmitted his $250 deposit and sent Nelson RV the following email:
After discussions with my attorney today and reviewing material safety data sheets of both the Ortho and Hot Shot brand indoor foggers that you used, I have decided that I will still take the 5th wheel. Thank you for disclosing the unfortunate event.
I would like to send a local representative to your dealership to inspect the unit as my agent. I would also like to resubmit the necessary deposit as required in our contract.
Please call me to arrange a time for closing as I intend on traveling to Arizona to pick up the Sandpiper within the next week.
This seemed to push Nelson RV to the breaking point, because they dropped the killer bees story and have turned to a new tactic, saying Pat was mistaken and never bought a trailer from them, and in fact there is no trailer anymore, so quit bothering them.
I received a call from Jim Nelson. Jim said that he understood that I “think” I have bought a trailer from Nelson RV and that it was just EBay and Bee’s nonsense that I was talking to James Nelson about.[Editor: What?] But that he had the owner there, Angelita Nelson, and that he was going to put her on the phone.
Angelita got on the phone and said “You did not buy a trailer from us and to quit calling and e-mailing us.” I Responded that the trailer was offered to the highest bidder in an auction, and that I was the highest bidder. Therefore I believe we have a contract for the sale. Angelina replied forcefully, “There is no contract! And we don’t even have the trailer anymore.” I responded by saying, that is not what the e-mails I have from you say, and I hope you still have the trailer because we have a deal. She then said in a very angry tone, “We do not have a deal! And we will not allow you to swindle us out of $15,000.” At which point the phone went dead.
Pat sent one more email to the Nelsons—Jim, James, and Angelina—in which he tried to educate them on how eBay works, and urged them to seek legal counsel so that they’d understand their obligation to fulfill the contract. As of Thursday July 24th, they haven’t responded and Pat hasn’t received a refund on his second deposit.
The Nelsons have indicated to him that someone will get back to him today, July 25th. Unless, of course, Africanized killer bees infest their computer and render it unusable. Once killer honey gets all up in your motherboard, you can forget about it.
(Photos: Bee, aussiegall; RV, Beige Alert; Honey Bears, buskuit)
eBay Compromising on Best Match?
Filed Under Best Match | 2 Comments
According to AuctionBytes:
eBay is starting to roll out (or test) the new search-results design that shows a scrolling horizontal gallery with “auctions ending soonest” above regular search results.
This is something eBay has been testing extensively on their Italian site.
This was first reported on the eBay Observer Blog where you can see a screen shot of how a scrolling horizontal gallery of listings that are ending soonest are posted above the regular Best Match search results.
This appears to be a fairly limited test in the U.S. affecting a very small sample of visitors to the auction site.
However, it could mean eBay is considering a compromise for the disaffect buyers and sellers who are dissatisfied with the Best Match sort order in the search results.
Will eBay put this new feature into production? It really depends on the impact to their bottom-line. If it generates additional revenue – they will almost certainly make this feature a mainstay of the search result pages. If it doesn’t impact sales either way, I would imagine that they would make the change anyway – so they can tell those users who don’t like Best Match that, “You talked, and eBay listened!” If the feature detracts from their revenue – forget about it!
The fact that they have decided to test it on the eBay.com site after analyzing the data from their initial experiments on the Italian site is a positive sign though. It obviously worked well enough to move along to the next phase of the evaluation.