eBay Needs To Stick With It’s Core Competency: Auctions
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In yesterday’s quarterly earnings announcement, eBay revealed that the company experienced its first-ever quarterly revenue decline (16%). This after John Donohoe, the CEO, decided when he took over last year to basically abandon the firm’s core competency – online auctions – and compete directly with Amazon in the marketplace of fixed-price consumer commodity products. eBay blamed “a weakness in consumer spending and strength in the U.S. dollar, which reduces the value of overseas sales,” but it seems that Amazon (which announces earnings next week) was unaffected. In December, Amazon reported its most successful Christmas ever, selling 6.3 million products during the holiday shopping period.
eBay needs to sit down an think deeply about the company’s core competency. According to Wikipedia:
Core competency is something that a firm can do well and that meets the following three conditions:
A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers.
The core competency that led to eBay’s success was the online auction marketplace model. Acquisition of PayPal fundamentally supported that model. Branching out into and an eventual focus on the fixed-priced marketplace in the name of continued growth has caused eBay to stray from their core competency – with dire consequences. (Who knows where Skype fits in?)
It’s time for eBay to get back to its roots. Re-focus on the auction format. Make selling fun again. Sellers are actively looking for an alternative to you eBay – something that reminds them of how you used to be. Don’t be afraid of transforming yourself into that alternative for us. Remember Coke Classic?
There’s been a buzz in the blogosphere regarding the eBay listings falling out of the natural search results lately. Scot Wingo speculates it’s because eBay has changed their site in a manner that it makes it difficult for the search engines to crawl them. Some folks even suspect that Google is kicking eBay while they are struggling through their “disruptive innovation” period.
Here’s another theory. Perhaps Google is putting the smackdown on eBay for keyword stuffing some of their pages?
Pass the tinfoil please…
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?