eBay Rewrites the Rules

by Michael S. Malone

It goes without saying that eBay is one of the defining companies of the Internet age.  Begun as one of a score of on-line auction sites, its unique business model (it left the transaction to the buyer and seller) and playful persona quickly turned it not only into a business giant — more than $8 billion in sales, 15,000 employees, and millions of items sold — but a cultural phenomenon.   It took the notion of an ‘auction’ — once the rarified world of tobacco growers and antique dealers –and made it into an everyday activity participated in by hundreds of millions of everybody folks around the world.

But like many new technology-based services, eBay, though still hugely successful, has begun to suffer from its own success.  The idea of participating in an auction  — thrilling a decade ago to both sellers (who anticipated higher selling prices) and buyers (who thought they had an inside track on bargains — has lost a lot of its luster.  What once seemed like an incredibly efficient and quick way to connect sellers with customers, now in our speeded-up world, seems like a time-wasting process of checking and rechecking bids and then lurking around the site as the auction closes . . .only to often lose the bid to some sniper equipped with special software.

Meanwhile, the rest of the Internet retailer world has caught up with eBay.  These days, most on-line sellers offer an unbeatable combination of competitive pricing, convenience (one-click ordering) and a broad catalog of offerings.  And no company has done this better than Amazon.com, which has taken its expertise in selling books on-line and slowly turned itself into the Wal-Mart of the Internet.

Not surprisingly, the once-explosive growth of eBay’s auction business has begun to slow; not just because of the fading appeal of on-line bidding, but also (one suspects) because, as the ultimate global garage sale, eBay has done a pretty effective job of moving all of the world’s attics into all of the world’s garages, and vice versa.

None of this has been lost of eBay’s management, from Meg Whitman to the company’s new CEO John Donahoe.  eBay realizes that if it is to maintain its historic growth rates it must find a way to make the company’s service more appealing to sellers and buyers.  Hence last night’s announcement:  as part of its shift to more “Buy it Now” type fixed pricing, eBay is creating special special fees for fixed-price listings in its ‘media’ category (books, music, DVDs and movies, and video games), charging just 15 cents, and extending the standard duration of the listing from 7 days to 30 days.  During a special promotion, beginning September 16th and obviously designed to give this new business model some momentum going into the Holiday season, that fee will be cut to just 5 cents.  There are also changes being made to eBay’s final value fees in this category, which are enumerated here.

All of this is big news, of course.  And eBay isn’t going to entirely abandon its auction model:  it remains the best way to deal with high-demand items and in situations where the seller is unclear about the real value of the item being sold.  But the real story here is that two of the biggest success stories of the Web 1.0 are now heading on a collision course — something no one would have predicted just five years ago.  And it is unclear at the moment which one has the natural advantage.  Is it Amazon, with its breadth of new product offerings and powerhouse delivery system?  Or eBay, with its distinct culture, user-driven distribution channel and its growing ability to mix and match new and used items to offer each customer the best deal.

This battle is going to take a year or two to fully engage, but when it does (probably during the next boom) it will likely redefine both the retail world and e-commerce.