Thursday, January 24, 2008

EBay Completes Transition to Retail Integrator

When people think of eBay, they think of online auctions. But the company has been quietly abandoning the auction business and trying to turn itself into a retail integrator like Now it appears ready to complete that transition with the ouster of longtime CEO Meg Whitman, and her replacement with eBay Marketplaces head John Donahoe.

It’s a sign of how quietly eBay wants to make this move that most press reports about the CEO change don’t mention Donahoe’s title. They don’t want the headlines to be hinting that “Marketplaces” is taking over what used to be an auction company.

Yet this change has been a long time coming. The mere fact that there is no auctions division in eBay shows how little concern they have for what used to be their core business. Two years ago, they launched eBay Express, a trial version of the new eBay in which auctions and most eBay sellers were excluded. Starting around the same time, eBay quietly dumped most of its active auction sellers, apparently more than 100,000 of them (merely “tens of thousands” in the company’s public statements) leaving would-be bidders with nothing to bid on. New, secret rules virtually prohibit small-scale sellers. These “micro-merchants” used to be the heart of eBay, but the new eBay seems to hope to reassure buyers that each of its sellers is an ongoing business at least on the scale of a regular retail shop. Yet with fewer items for sale, the number of buyers on eBay has declined for the first time in its history.

At the same time that discouraged bidders were leaving the site in droves, eBay raised its auction fees and the U.S. postal service drastically raised postage rates for small packages, making it much harder for casual sellers to make any money on auctions. A visit to the eBay site last summer showed that most auction listings failed to get any bids at all, with less than 10 percent attracting the two or more bidders necessary to turn the listing into an auction.

EBay at that point had already turned into a fixed-price listing site. They have since cemented that transition with a web site redesign. Visit eBay today, and there is nothing on the home page to tell you it used to be an auction site. “Shop your Favorite Categories,” it purrs, almost as if it were the online version of JCPenney. “Don’t just shop. Win!” exudes today’s featured promo item. Below that, a smaller promo offers “Free shipping on Valentine’s Day gifts.” You have to scroll all the way to the bottom of the page to even find the word “auction” — “Live Auctions” can be found in the middle of the corporate links, between “Jobs” and “Announcements.”

EBay’s search result pages still have tabs that let you choose between “Auctions” and “Buy It Now,” but that too is set to change when the eBay search interface is replaced with the eBay Express search interface in the coming weeks.

You might wonder why a company like eBay would undertake such a complete transformation while publicly denying that anything is changing — and why the press would obediently go along with the story. It’s really no mystery. EBay must believe it can make a bigger profit by competing head-on with the likes of in the retail integration category. The famous eBay brand would be an advantage in going up against the more established companies it would be competing against. Yet obviously it wants to keep the old business going as long as it can and take as much of the customer base along as it can to give it the best chance of success in its new enterprise. And the press wants eBay to succeed. If you work for the press, your salary comes from advertisers, and there are few advertisers bigger than eBay, so you tend to want them to succeed.

If you are a customer, though, your interests are somewhat at odds with eBay’s. EBay hopes you won’t notice that most of the sellers and most of the bargains are gone and that much of what you find on today’s eBay is listed at or close to full retail price. They don’t want you to think of them as a retail integration web site because then you may compare them to a dozen other sites that are more established and may give you a better chance of finding the bargains you are looking for. The longer they can keep you from noticing these things, the more money they can squeeze out of you during this critical transition period for them.

The sad thing about all this is that the world has lost one of its iconic marketplaces. One might have hoped that eBay could find a way to keep its old auction business going. As recently as two years ago, eBay stood for something in terms of buying and selling. It was the “worldwide garage sale,” as one songwriter put it, putting one person’s junk in the hands of someone else who could make use of it. Although Craigslist has picked up a little of the slack, many of these surplus personal and household items will simply be thrown away now.

But the fact that this kind of activity has been taken over by nonprofits and charities suggests that maybe there never really was any profit in it for eBay to begin with. EBay always hinted that it made most of its money from a few thousand dedicated eBay sellers, and if they’ve decided to rebuild their business around those sellers, it might have been the right move in a business sense. And while eBay may never become a match for large-scale retail integrators like, at least it will still exist in some form, still pursuing its goal of bringing buyers and sellers together.