PeSA Finally Tells it Like It IS!

Released: September 30, 2008


PeSA Official Statement on eBays Marketplace:
Deteriorating eBay Market Conditions Erode Seller Confidence
Members of the Professional eBay Sellers Alliance have been concerned with the vibrancy of the eBay marketplace for the past few years. In the first nine months of 2008, we have observed a substantial deterioration in the value of the marketplace for merchants. Broader e-commerce growth is in the high teens while eBay’s GMV has increased at low single digit rates; a clear sign that eBay is losing wallet share among online shoppers.

We were encouraged with the culture of change that swept through eBay during the past 12 months; however, we believe the flawed execution of change has accelerated the deterioration of the marketplace. Today eBay merchants have an increased level of business uncertainty due to eBay’s poor execution of changes in many areas including seller performance measurement, fees, site search, buyer activity, and seller communication. The result is that merchants are changing their behavior in ways that we believe is not beneficial to the eBay marketplace.

Merchants are pursuing alternate channels for their businesses which are more economical, including launching their own website, participating in other third party channels such as Amazon and Overstock, and even opening brick and mortar stores. Based recent feedback from PeSA members, merchants are focusing on other channels at higher rates than we have ever measured in the past. Prime products that used to find their way to eBay, are now being diverted to these new "premier" channels that are reportedly delivering higher margins with greater certainty and decreased overhead.

Merchants that used to prioritize the eBay channel now regard the marketplace as a venue of last resort used mainly for liquidation of product that doesn’t sell elsewhere. eBay has acknowledged that it may have an undersupply of merchandise on the site, however, they fail to recognize that the supply issue on eBay is a direct result of their relationship with their customers, the sellers. The lack of credible communication from eBay to its sellers about its strategy has resulted in a marketplace of skeptic sellers, which is bad for business. We would like to highlight eBay’s recent move to allow "big box" retailers free access to eBay, at a competitive advantage to its existing seller base, as an example of a decision that exacerbates the situation by threatening the diverse supply of merchandise that shoppers expect on eBay.

As PeSA has stated in its prior position statements, the real issue affecting eBay is buyer activity. We believe that issue still exists. According to eBay’s latest published results, eBay’s annual active user churn rate was close to 40%. eBay has discontinued reporting the data that allowed us to actively monitor the issue, but based upon the flat active user growth, we believe eBay is still seeing poor user activity.

Unfortunately, most of the changes at eBay have been focused on sellers, not buyers. We are proponents for measuring the performance of sellers and rewarding those sellers that provide positive customer experiences. The concept is used in other marketplaces; however, the eBay execution of that concept resulted in a Detailed Seller Rating (DSR) system that is substantially flawed both in its measurement and transparency. We understand that a new system will not be perfect and should be adjusted as experience builds. The real problem is that eBay seems to be building on top of a flawed DSR system that has not been adjusted to reflect true buyer experience.

At PeSA, our position on eBay fees has been that as long as sellers are receiving value, eBay is certainly entitled to share in that value. During the past few years, that economic balance has shifted dramatically to the disadvantage of merchants. In our opinion, eBay still does not recognize that their excessive extraction of value in the form of fees and other monetization techniques has resulted in dramatic underinvestment on improving the marketplace. Declining buyer activity also has a direct result on average selling prices and conversion rates on the platform. Thus the lower margins in conjunction with rising eBay fees, results in eBay taking more value while leaving less for merchants.

In addition, the diversion of traffic off the eBay platform in the form of advertising (run by Yahoo in the US) helps eBay monetize the marketplace, but leaves less buyer traffic for merchants that list on eBay. And, the greater compliance burden of operating on eBay combined with the risk that a merchant business will be shut down with little visibility creates an unworkable environment.

We embrace the effort that eBay has made to adjust fees to better align with the success of merchants. But, again, the implementation of the changes comes across as an effort to increase the take rate on merchants without really investing in the marketplace. While eBay lowered the upfront cost to list on the marketplace, they dramatically increased the fees on the back-end. We were disappointed with this approach and would have preferred that eBay show some commitment to increase value to the marketplace before raising final value fees on its customers.

We argue that the declining economics on the marketplace justified lowering front end fees without an associated increase on the backend. After all, less buyer activity means that the marketplace is not as valuable a channel for a merchant and the cost to list on the marketplace should be less. Unfortunately, eBay does not see it that way and the result is that eBay is placing the burden of all the changes on the marketplace on the backs of its customers, which are its merchants. We continue to experience one step forward on concept and two steps back with execution. We cannot find any other case where a company, with the desire to restructure and improve its business, places the burden squarely on its customer base.

PeSA is focused on promoting professional and successful selling on the eBay marketplace and are actively working with all professional sellers to help them navigate the changes on the marketplace. We believe eBay still needs to better understand its customers and we hope that sharing our views helps highlight the most pressing issues. it is our intention to continue working with sellers and with eBay to effect positive change in the marketplace and will be publishing additional papers with more specific commentary in the near future.