eBay, Friend or Foe?

April 1st, 2008 PC Authority, Tech, Tech Features

eBay started when a California-based, French/Iranian-born programmer wanted to sell his girlfriend’s broken desktop printer online. Just over a decade later it’s a behemoth that turned over more than $59b worth of goods in 2007. The company made $1.5bn in the last quarter, more than Apple, Amazon and Nike combined. By the time any company gets to that size, there’ll have been a lot of hurdles.

eBay’s now historical lore, its name synonymous with online auctions. No wonder every move the company makes is ruthlessly scrutinised by everyone from stock markets to 276,000,000 eBay users worldwide.

Sure, it’s been a constantly evolving business with the usual changes and tweaks. But few observers predicated it would become a global economy and employer in itself, with 52,700 people in Australia alone relying on it to make a living. That means every small tweak affects a lot of people. No wonder every change eBay makes prompts fury in magazines, blogs and forums across the world.

Nor has the company stood still outside its core service offering. eBay’s Wikipedia entry lists at least 20 major acquisitions. Many were competitors or niche auction sites, but two in particular grabbed headlines.

After paying US$1.5bn in stock for Paypal in July 2002, eBay is doing its darnedest to topple the banks and credit providers. Because of payment dispute issues, eBay Australia spokesman Daniel Feiler considers bank deposits ‘not the safest option’.

Spin to push eBay’s own system? Perhaps, but bringing a dedicated online payments system in-house was a natural fit, and while not pervasive enough to pose a threat to credit card companies, Paypal is still their biggest competitor online.

Their September 2005 purchase of VOIP provider Skype made less sense. There’s a possible place for real-time IP voice communication in the bidding process of the future, but so far eBay hasn’t done anything with Skype except own it, and questions linger about the idea’s merit.

Neighbourhood Watch

eBay’s lynchpin has always been the self-policing feedback system. Unlike real-world selling, buyers and sellers have the power to see each other coming and adjust their conduct based on a person’s buying or selling history. Like Amazon’s recommendation-based system, it used the weight of aggregated collective opinion to keep users honest.

It also propelled eBay to an enviable position among online peers, a virtual clearinghouse of the masses throwing money at each other while it sat back and grabbed a cut of every transaction on the way.

PC Authority suggests to eBay’s Feiler the system was an advance YouTube prototype, providing the delivery platform but not responsible for the content. Perhaps wary of the legal landscape after Napster and Gutnick vs. Dow Jones, where an aggregating system can be held liable for the content, Feiler says eBay’s always been ready to step in. "It’s a great place to buy and sell anything, but that doesn’t mean everything," he says. "We have strict listing policies in line with the law."

It’s one of eBay’s biggest hurdles. Where’s the line between managing the content and being town sheriff, judge, jury, executioner and online Fair Trading authority? As one Power Seller contacted by PC Authority reminded us, ‘the biggest problem withy new users is they consider eBay to be the shop, and it isn’t, it just hosts the shops’.

Thankfully it’s also a system that runs for the most part smoothly, our seller reporting that ‘9 out of 10’ transactions go through with no problems.

The Beginning of the End?

But now, according to the huge, jittery and extremely vocal army of eBay sellers, that system is in danger. In May 2008 eBay will remove the ability to leave negative feedback for buyers, a move that has sellers up in arms.

"At the moment, a seller has a good idea of a buyer’s intentions by their feedback," said our Power Seller. Feiler asserts such protection still exists by reporting the buyer to eBay’s in-built arbitration process. He points out that sellers can also choose to simply not leave feedback, or relate their negative experience in the comments section of feedback areas.

"Leaving positive feedback and a horror story in the comments is ridiculous," the Power Seller responded. "Big sellers use buyer feedback as a tool to expedite action. If a buyer has good feedback, we know to give them the benefit of the doubt and try to settle a dispute decently. If they have bad feedback, we know we’ve probably been scammed and can act accordingly rather than waste more time."

To many sellers, the feedback issue sounds uncomfortably like the digital equivalent of ethnic cleansing, purging eBay of as many bad buying experiences as possible to make it look better.

Though eBay denies it, changes are afoot that seem to support such a conspiracy theory. Research by the company indicated that ‘retaliatory’ feedback by sellers was rife and discouraged buyers from coming back. Incoming CEO John Donahue, taking over from Meg Whitman in March, said in November 2006 the business is ‘recasting the site to focus on buyers, not sellers’.

To stem the tide of buyers not returning, eBay has to do anything it can to make bidding and buying compelling. On measure is minimising the technical learning curve that’s still difficult for new Internet users (see category changes in Now and Future eBay). Another is presenting a glowing front of happy buyers and efficient sellers rather than a slipshod flea market full of squabbling.

They’re trying hard to succeed at both, but who will pay the price?

Now and Future eBay

eBay’s recent state of being can be described as ‘beleaguered’. Shareholders and users have been baying for blood for some time. The stock peaked in late 2004 at US$59, and in two years had plummeted to US$23, currently steady at around US$27 at the time of going to press.

With the exit of long-time CEO Meg Whitman, eBay’s hoping fresh blood will promote confidence from across the market and user base, but so far the signs aren’t good. The announcement sellers won’t be able to leave negative or neutral feedback for buyers from May 2008 was met with horror (see What’s Gone Wrong with eBay?).

And it’s not the first time eBay has sprung sweeping changes that have upset the 17,500 Australians who use it to make their living at a stroke. A common complaint seems to be a lack of consultation about changes, and with sellers now a stated number two priority courtesy of new CEO John Donahoe, it’s possible there’ll be even less.

The most famous example was the stores fiasco (see Shopping eBay) that prompted the howls of protest from sellers soon to become routine.

Last year it was large-scale changes to categories. It was supposed to make searching easier, but many buyers complained it removed the serendipity of browsing. Sellers in several niche areas were again livid as specialist categories changed drastically or disappeared overnight.

In the light of such upheavals, eBay has often been left with no choice but to admit the egg on its face. Whitman famously admitted the mishandling of the stores issue, and when a Power Seller who contributed to this story complained bitterly to his dedicated account manager, the response back was ‘Our intentions for the change were good but the execution was not the greatest.’

White Elephant or White Knight?

So where’s eBay headed from here? The answer seems to be ‘big’, but maybe not in the way you’re thinking. It’s been described as a global garage sale and a global shopping mall, but it’s more correct to say those two terms characterise eBay’s evolution.

In the early days eBay was trendy, using it a geeky badge of honour. It generated its own cultural zeitgeist with stories about auctions of human organs (removed immediately) and red paperclips (traded up until the owner had a house).

What’s more, most of us know a story about junk we’d ordinarily throw out that somebody paid an unfathomable amount of money for. The axiom ‘one man’s trash is another’s treasure’ is what eBay was once all about.

Recent experience, anecdotal evidence and eBay’s stated intentions more or less confirm the company is transforming into an online shopping centre. That merchants come under siege from bigger competitors is as old as commerce, and it’s no different online; the bigger the seller, the more fees they’ll send eBay’s way.

But many of the larger eBay stores are the sort you’d find in malls. They’re often real-life bricks and mortar-based businesses offering more choice and a professional front, experiences we’re used to at the local Westfield, not a suburban garage sale.

With eBay saying they’re going to focus on buyers (see What’s Gone Wrong with eBay?), the trend to the consumer-friendly model of mall shopping looks set to continue.

Why? Just look at the contentious positive buyer feedback issue. Though scandalous, it merely emulates the real-world retail model. If you line up at Target’s customer service desk and accuse them of ripping you off, you don’t see an ad in the paper the next day with your photo warning other retailers about your argumentative nature.

Either way, eBay’s pioneering spirit may be far behind us. As one Power Seller told us; ‘it used to be about the community.’

The other future for eBay may be in trying to nab market share from banks and credit agencies. eBay asserts that subsidiary Paypal is the safest online payment tool because transactions are traceable in the event of a dispute. It’s already a widespread online shopping currency, and with a continued PR campaign, might eBay convince the world banks just aren’t safe?

Although it was once spoken of in the same reverential tones as Google, eBay’s now starting to look as bloated and second-rate as AOL. With new contenders on every side, it’ll be battling to regain former glories.

Time for a bid from Google, maybe?

Shopping eBay

In the early days, eBay comprised only individual auctions. When someone realised people were starting to get serious, the company introduced the eBay store, an online presence within the system where sellers could collect their items together and adopt a personality through welcome messages, design control and more.

eBay pushed shops hard, and the advantage for sellers was that visitors who came across their items in searches could then browse the rest of their wares. With cheaper listing fees and great deals on galleries, images and more, eBay store operators were cleaning up.

But eBay wasn’t. When they removed all store items from searches, the official line was that they were overwhelming the individual auctions.

Following the outcry by sellers, eBay reinstated store items in searches to a small extent, then changed everything again trying to find equilibrium everyone was happy with. Now stores hold a respectable but not prominent position in the canon.

eBay stores became a great place to sell and buy niche products, galvanising eBay’s reputation as the place to go to buy absolutely anything, but after the boom came the bust, where the stores-in-search stumble was joined by jacked up transaction fees. Recent fee restructure announcements aren’t going to clear the air either, with eBay claiming fees for some users will drop by up to 60 percent but influential eBay watch website Auction Bytes saying some user’s rate could go up by over 30 percent.

The new feedback changes (see What’s Gone Wrong with eBay?) has the blogosphere up in arms again, but there’s no doubt it’ll make life easier on buyers. eBay say they can justify the move because the feedback system was being abused, US spokesman Usher Lieberman telling Wired.com the company had seen a ‘four-fold increase in unwarranted negative feedback left for buyers in a retaliatory way’.

It fits in perfectly with the new strategy to keep buyers coming back, but it is at the expense of sellers, who cite a buyer’s feedback record as their only line of defence anticipating a problematic transaction.

Who Owns the Shopfronts?

The thousands toiling away in their living rooms making a living on eBay are now an archetype, but plenty more operate dedicated premises, employ staff and run their eBay store like any other retail business.

Of those polled by PC Authority, there seems to be two major kinds of eBay store owners. The first experimented with selling their old stuff, loved it, sought out more stuff to sell and found themselves with a business almost before they knew it. One of the respondents to this story — a librarian by training — has been a full time eBay seller for almost five years. She began by selling her old clothes in 2002 and in 2007 shipped over 6,000 units of specialist apparel, now with almost 10,000 positive feedback ratings to her name.

The other common shopfront owner is an established real-world retailer with a sudden global market rather than a few surrounding suburbs. Niche products do well, but the other big area is ‘choice redundant’ goods like computer parts, where the look and feel of the product matters far less than whether it simply works.

The Financial Lowdown

The distinction between hobbyists selling out of garden sheds and eBay shopfronts sourcing stock to on-sell is difficult. Even though it’s like the difference between a garage sale and a shop in a mall, the only reliable guide is the turnover of a seller. Twice now, eBay has turned the earnings of major sellers over to the Australian Tax Office, a measure agreed to by every user when he or she signs up.

More problematic is the dispute process. When a serially bad seller is deregistered, all traces of their account and transactions are removed by eBay. Having no record of the transaction of presence of the seller makes chasing money or goods difficult.

Advice from the ACCC is commonsense, and as always keep your paper tail is crucial to make any sort of claim. They recommend printing out or taking screen shots throughout the transaction and correspondence with the seller or buyer (see breakout). Pay using traceable methods and take advantage of any escrow or insurance facilities if you can.

eBay Alternatives

Frank Bannnigan, the Australian founder of Kambrook, failed to patent the electric power board in 1972 and regretted it every time he walked into a department store to see a hundred cheap knock-off brands.

Might eBay feel the same sting? A search for ‘online auctions’ returns 20,000,000 results, but why use them when eBay simply is online auctions? In two words; fees and niches. First, fees have steadily climbed and driven increasing numbers of sellers away. Second, eBay is broad, while there are auction sites for everything from musical instruments to houses.

Grays Online

Grays is a traditional auctioneer that’s made a successful jump online. They don’t cater to people with old stuff to sell, their goods come from vendors, retailers and the usual sources of auction goods.

Not as comprehensive as eBay (a search under Grays Whitegoods category produced 19 results) but it’s is professional and easy to use. It pushes an interesting $9 auction gimmick, where everything starts at that low price and doesn’t have a reserve.

Bidsell

A colourful, clean looking site, bidsell.com.au is very similar to eBay in everything from the site design to the bidding and buying method. Once again the content doesn’t cast a shadow over a single corner of eBay’s territory — browsing sci-fi DVDs produced 3 auctions.

Bidsell is pushing for users with several hooks like relisting your item for free until it sells and reward points for introducing other users.

Bidmate

Bidmate has the most comprehensive first page category listing of any auction site we looked at, with 27 main categories taking up the main area of the homepage and around 5-10 subcategories below those.

It’s easy to use and navigate but it’s also living proof of the need to change people’s perception of eBay being the only site for online auctions. A quick survey of over ten pages showed not a single bid on any item.

Oztion

In the wake of ever-rising eBay fees, many experienced sellers spread their businesses around, and Oztion was one of their first ports of call. It’s this influx of users that’s made it one of the most widely used eBay alternatives. Though many items seem to have Buy Now prices, plenty of auctions have bids in numbers that suggest healthy competition.

There’s a tendency to start auction prices too high, which may be symptomatic of the eBay effect, where online auctions are no longer just for getting rid of junk for spare cash but trying to make real money out of goods.

Shopbot

One of the biggest new ideas bought about by eBay was the notion that sometimes we don’t want to bid, we want something for a fixed price and we want it now. Enter the Buy It Now world, a staple of many auction sites and the cornerstone of Shopbot.

A search produces listings of products from online or real world merchants for a single price you can purchase straight away, the ‘buy’ link taking you to the vendor’s own online shopping system. It follows the notion of bringing buyers and sellers together that eBay forged, but has dispensed with the auction element.

PriceUSA

It’s a bemusing idea at first. Why would you want to buy stuff direct from the USA when we can get anything from anywhere in the global marketplace? Perhaps, but a late model Apple Macbook costs US$1,499 (AUD$1,678) from the US Apple store. The same thing costs AUD$2,199 at the Australian online Apple store. Even with PriceUSA’s 5 percent mark-up and a hefty delivery fee you’ll save several hundred dollars.

And yes, there’s still plenty we can’t get in Australia, such as the iPhone, which is PriceUSA’s most popular item to the extent there’s a question about it in their FAQ.

Froogle

No, Google isn’t going to sue somebody for ripping off their name, Froogle is their shopping system. It made perfect sense to apply their world-beating search technology to shopping since it can already websites, images, news stories, books and blogs.

Similarly to web and other searches, the results are a list of links that then take you to the relevant online merchant.


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