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Was eBay a fad?

June 03, 2008

We already know that the famously cute story of eBay's origin - founder Pierre Omidyar launched the site to help his fiancee trade the PEZ dispensers she collected - was a lie cooked up by a PR operative. We also know that the company's vaunted "reputation system" - the foundation of what has long been perceived as a radically new kind of self-organizing and self-policing commercial community - has been crumbling.

Now we're beginning to find out that eBay's seemingly revolutionary core - the online auction - may have been a fad all along. As Business Week reports, eBay's auctions are "a dying breed." Buyers and sellers are reverting to the traditional retailing model of fixed prices:

Auctions were once a pillar of e-commerce. People didn't simply shop on eBay. They hunted, they fought, they sweated, they won. These days, consumers are less enamored of the hassle of auctions, preferring to buy stuff quickly at a fixed price ... "If I really want something I'm not going to goof around [in auctions] for a small savings," says Dave Dribin, a 34-year-old Chicago resident who used to bid on eBay items, but now only buys retail ...

At the current pace, this may be the first year that eBay generates more revenue from fixed-price sales than from auctions, analysts say. "The bloom is well off the rose with regard to the online-auction thing," says Tim Boyd, an analyst with American Technology Research. "Auctions are losing a ton of share, and fixed price has been gaining pretty steadily."

Back in 1999 the big news in online retailing was the rush by companies like Yahoo and Amazon to roll out auction sites in emulation of eBay. Auctions had become, as CNET reported at the time, "a 'must-have' element for e-commerce sites." On the day that Amazon launched its auction business, the company's stock jumped 8 percent. "Fixed prices are only a 100-year-old phenomenon,'' Patti Maes, of MIT's Media Lab, told Business Week in a 1999 cover story. ''I think they will disappear online, simply because it is possible - cheap and easy - to vary prices online.''

Maes, and many others, made the mistake of exaggerating the benefits of the new and discounting the benefits of the old.

EBay made a ton of money running auctions over the past ten years, and it may continue to be successful as the operator of an online mall. But it is not the company we imagined it to be. Its story has become a cautionary tale about the dangers of wishful thinking and fanciful extrapolation.


I think we're just seeing a different kind of auction now, more like AdSense, in which sellers compete against each other for limited valuable advertising space. Maybe that's a more traditional model than consumers participating in an auction, but immediate consumer feedback is a more active factor in seller-vs-seller auctions than it was in "old media" ad sales.

And it's all people were looking for anyway - that their bargain doodad should be at the top of the page. "Bargain" being a somewhat subjective fitness function of course...

The BW article rings true to me. Personally, I found that ebay screwed themselves by permitting tricks (such as a $0.49 item with $50 shipping cost) and spam (such as $1.00 "how to find a bargain TV" sales.) The allure had always been the opportunity to find an under-valued sale (or for sellers, to sell your item at higher than retail.) Both take advantage of one party having limited pricing information. Now it's too easy to find accurate prices and too difficult to find treasures among the trash. If I'm going to spend a lot of time digging & getting sniped, I might as well just pay a low, fair fixed price.

Same thing is happening to Craigslist, by the way... without structured searching to help bring order to the chaos. Maybe it's just a function of # of listings vs. available screen real estate to sell "ads"? With Craigslist the answer is probably to go hyper-local, wonder if that would work with eBay too?

Posted by: SteveEisner at June 3, 2008 12:08 PM

Hi Nick,

I regularly follow your blog. Ever thought about allowing RSS feed of your blog ?


Posted by: Praful at June 3, 2008 12:14 PM

Auction shopping may lack lasting appeal, but eBay didn't become what it is by the innovation of online auctions. The business is built on the innovation of the e-commerce garage sale that sports a very long tail, made even longer by the network effect of a single platform. Kind of like the Web with trading built into the software. So the point is that the title you're using is kind of misleading -- eBay isn't a fad.

I'm hardly a representative eBay shopper or seller, but I've done both. Since 2003, they've provided users with the option of sorting through the flotsam and jetsam for "buy it now" items, which are essentially the fixed price system. I've tended to go to those first, rather than waiting a week to see if I could save a few dollars...

Posted by: Greg L at June 3, 2008 12:15 PM


Didn't notice the link right at top. Sorry, I withdraw my comment.


Posted by: Praful at June 3, 2008 12:21 PM

Its not as sad as it looks.

Auctions to reverse auctions: Given the vast number of online retailers selling most (of the popular) merchandise, the consumer hunts but not by fighting other consumers- she hunts for the best deal across multiple sites or sellers. As the market has become more liquid (large number of sellers & buyers), it is possible to get the "best possible price" without having to bid and wait on an item.

In a way, the sellers are bidding for my dollar everytime I look for a product.

Posted by: Anshu Sharma at June 3, 2008 01:36 PM

One of the big problems with auctions on eBay was the deals became less and less attractive as buyers and sellers became more sophisticated about how much something was worth. As a result, auctions started to lose their luster because didn't want to spend time and effort bidding as opposed to just buying what they wanted at a fair price.

Posted by: Mark Evans at June 3, 2008 02:15 PM

I wish you'd supply a full RSS feed. I read your stuff on my Treo and being forced to come to a website from a phone is a harder pill to swallow.

I suspect there is more going on here than you get into because eBay stock has been dying for a long time now. I suspect the bulk of items are from few enough sellers that they can find buyers via search engines. It's been a long time fear of eBay, but what's the reality of that? Is that what is driving the stock down? Or is it that Craig's List continues to be ascendant? I'm a bicyclist and noticed that eBay's category seemed to die where Craig's List content went up in that category. I think it's because I'd buy a bike I can see, but there was too much fraud for bikes selling in the low thousands on eBay.

I suspect the story is about geography. People will buy something of value they can see. But, does eBay's geography searching capability cause a lot of transactions? I did buy a bike in person that I found through that feature and eBay didn't get a commission from that.

What about cars though? That's a hot, hot category on eBay. I wouldn't be surprised if that one category produced a very outsized portion of profits. I've had delightful success selling 2 cars on eBay that fetched better prices that I guessed they would, I think because of the reach of buyers I was able to reach.

I think it's rash to say that eBay was a fad. I think the economics of different categories and scenarios is where the story is on why their stock is down. It's an internet story and eBay doesn't understand what's going on themselves. What are the key external economic drivers? I don't think it's entirely the auction structure.

I think there's a economic theory here waiting to be described that combines why Craig's List is able to maintain 50% margins and eBay is dying. Perhaps eBay is just too 'direct' in how it makes money. Perhaps monetizing a small part of an much bigger, information driven, value proposition will be the rising new paradigm.

Posted by: Lloyd Fassett at June 3, 2008 02:42 PM

I wonder whether a similar fate can befall AdSense as well. As more ad-blocking tools are implemented by users and web browsers, and more "intrusive" advertising becomes necessary, the textual/contextual ad is probably going to fall by the wayside.

At that point, there will be an opportunity to simplify significantly the auction-based process of buying keywords with mumbo-jumbo SEO "techniques".

Posted by: Samir Raiyani at June 3, 2008 02:50 PM

I have tried eBay on two occasions last month, after a more than two-year vacation.

In the first auction I bid on a somewhat high-ticket item, ultraportable laptop. Won the auction, paid the seller, and then had the account locked up and placed under review by PayPal Security Team. Which is fine, since my normal pattern of Paypal usage is $20-30 payments, and there suddenly was this thousand-dollar item.

However, the time it took to resolve the issue was 36 days. The last step included a phone verification, and since they refuse to verify a mobile phone, and require a landline (the company owns Skype, mind you), their mechanism involves sending a letter with the secret code to your shipping address. The letter took two weeks to arrive, and by the time all was said and done, the seller was pissed, since he never got the money (Paypal locked the transaction), and got charged eBay's commission, and I was willing to buy the item, but didn't want to pay again, having my money locked in by Paypal's monkeys.

So few weeks later I buy a computer component with buy-it-now price of under $5. Do the buy-it-now thing, money leaves Paypal account. Two days later eBay e-mails me, telling me the listing was removed for whatever reason (why do I care two days after I did buy-it-now?), and I might not see the item. They recommend contacting the seller, but their UI doesn't allow me to look back and find out who the seller was, since the transaction completely evaporated from the system.

Anyway, a bunch of their processes are so broken, and the rest are so retarded, that I personally would avoid eBay at all costs. I thought I was wrong, gave it a try, and was taught a good lesson.

Posted by: Alex Moskalyuk at June 3, 2008 02:58 PM

Well, I personally got burnt a couple of times on eBay purchases, usually in the shipping cost department.

However, the badly broken thing about eBay is the lousy, decades old UI: where AMZN constantly cleaned up and polished its UI, eBay's remained messy, noisy, hard to use for all but the power seller or buyer.

Every time I must re-learn where are my trades, the messaging interface is butt-ugly, not to mention the double sign in procedure to use PayPal (which they own); for a company that thrives on its community they did a royally incompetent job of harnessing the power of Social Media.

So while Nick's prognosis is IMHO dead on, the causes are not that grandiose, but simply the story of company that is being punished for thinking it could do no wrong and sitting on its ass while others were catching up and offering a better experience.

Posted by: gianni at June 3, 2008 05:16 PM

I agree with Nick. Fixed pricing is the norm - auctions only make sense for one-off deals. And when you do run auctions, you need a community, or at least a basis of, trust for striking those deals. eBay doesn't seem able to create this.

Someone else was thinking this before, and saw it as a deliberate eBay business shift. Regardless, I don't know of any firm that can generate 1.4 MB of spontaneous complains :-D

Posted by: Thomas at June 3, 2008 09:03 PM

If online auctions are a fad (and that's a big IF), Ebay must shoulder a good amount of the blame. Ebay has been vary hostile towards auction format for several years now. Ebay has made some major missteps in this area including: folding half.com into ebay.com, Ebay Express, Ebay Stores, defaulting to Best Match, preferencing BIN and, most glaring of all, sticking to fixed end times.

By expending so much energy in fixed price, Ebay risks losing its lucrative auction monopoly while it pursues lower margin business that it doesn't have a great deal of competence in.

Posted by: pwb at June 4, 2008 05:13 AM

Isn't it just like the hula-hoop, fun for a while, but ultimately how does it make your life better?

We've become such a fad-driven society that we can't even tell the what is real anymore. A competitive, risky way to some-times getting the deal of the century isn't a bargain, it's just entertainment.

Posted by: Paul W. Homer at June 6, 2008 05:29 PM

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