Is eBay Past Its Peak?

Tuesday Mar 29th 2005 by Tim Gray
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As eBay prepares to celebrate its 10th anniversary, the Internet giant is having perhaps its roughest stretch since the company founder launched the site as a way to help his wife trade Pez dispensers.

For several months now, eBay sellers have aired a laundry list of complaints, from an increase in fraud to the reduced number of bidders and lower selling prices to poor service from eBay. And on Jan. 19, eBay announced it had failed to meet analyst expectations for the fourth quarter of 2004. The stock fell 19 percent.

Although no one has been foolish enough to suggest the company, which has grown gross merchandise volume from $5.2 billion in 2000 to $34.2 billion in 2004, is headed for Chapter 11, customer service and pricing issues might be driving users into the arms of other auction sites.

"I know that I'm not using it as much as I used to," Marshall E. said. Marshall, a registered eBay member since 1999 who feared the company would suspend his eBay privileges if his last name were used, claims a "chasm" is building between loyal customers and the San Jose-based company.

"I've had a lot of problems with the way they are doing business, and I never get any response from them," he said.

The chasm appears to have widened last January, when the company raised its fees for the fifth time in as many years. The price hikes kicked off a flurry of complaints that has led to a near revolt. Message boards on the site and across the Internet quickly filled with disgruntled customers who felt they were paying more and getting less. Some longtime eBay enthusiasts even began shopping around for another auction site.

There's also pushback from eBay store operators. There are an estimated quarter million storefronts on eBay, many of which produce the biggest fees for the company. Any rift with them could have an immediate effect on the bottom line.

Last month eBay increased the fee it charges store operators from $9.95 a month to $15.95. In addition, as of Feb. 18, storeowners pay eBay an eight percent commission on each sale, up from 5.25 percent.

Michelle A., who also asked that her last name not be used, has been selling on eBay since 1998 and more recently opened a storefront on the site.

"It's become hard to keep up," Michelle said. "It's not so much that I have to pay these increases, it's more that I don't feel I'm getting anything back for it."

Michelle was one of more than 24,000 people who signed a petition protesting the new fees. The petition circulated on PowerSellersUnite.com, a site operated by former eBay sellers. PowerSellersUnite.com claims that more than 7,000 eBay stores have shut down since the company announced the fee hike.

Joseph T. Sinclair, the author of several books about eBay and ecommerce including eBay the Smart Way, said that although increasing fees are making the service less attractive for individual sellers or those with only a few items to sell, the end to the auction site's dominance in the online marketplace is far from certain.

"Individual sellers who do a large volume of business would have a hard time making the same amount of money someplace else," Sinclair wrote in an e-mail.

EBay has an advantage over Internet retailers like Amazon.com, which generates twice the revenue of eBay, Sinclair pointed out. Although the revenue gulf between the two companies is vast, Amazon has needs that are more often associated with brick-and-mortar businesses. Most importantly, it must maintain and operate warehouses throughout the world. eBay has no need for such space, because it doesn't sell any tangible product.

As a result, eBay is nearly three times more profitable than Amazon.

Many analysts and experts like Sinclair argue that eBay is a maturing company, and its growth has to slow at some point, following the normal business cycle of any successful company.

Indeed, eBay's numbers appear to have peaked. Gross merchandise volume, which is the total value of all successfully closed listings on eBay's trading platforms, hit a record $34.2 billion in 2004 — a 44 percent year-over-year increase from the $23.8 billion reported in the full year 2003. In 2000 that number was $5.2 billion.

Whether the company is maturing or heading for a decline, it is undeniable that a growing segment of its customers are becoming disenchanted with the service. A recent University of Michigan survey showed that: eBay's customer satisfaction declined 4.7 percent in 2004.

"It is not the same as it was, but really, where else is there to go?" Michelle asked.

Adapted from internetnews.com.

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