Bidding adieu to eBay
Is the bloom finally off of eBay's rose? John Wieber thinks so. His firm, Exel-i Inc., is one of tens of thousands of small businesses that have helped fuel eBay's spectacular growth. The computer and parts reseller in Gaithersburg, Md., has used eBay to sell some of its laptop equipment--$2 million annually, to be exact. But last month, eBay raised some of its fees, which Wieber says would have cost him at least $55,000 a year. "That's a substantial hit to our bottom line."
Actually, it's a hit to eBay's bottom line. Wieber has stopped using eBay's "Buy It Now" feature, which allows buyers to purchase items at a fixed price. The fee used to be a flat 5 cents per transaction, but eBay upped it to 25 cents on transactions of $50 or more. So Wieber began using Amazon.com last month and plans to sell more wares through his firm's website, www.laptopbroker.com.
Wieber's business is a drop in the bucket for eBay, whose auctions last year sold more than $34 billion worth of goods. But the negative publicity surrounding the fee increases couldn't have come at a worse time. "Many larger sellers are growing increasingly frustrated and increasingly disenchanted," says Derek Brown, an analyst with Pacific Growth Equities. "We've seen a pretty noticeable deceleration of revenue growth at eBay for the last several quarters." EBay's Hani Durzy notes that it did not raise mandatory fees, only fees on "selling techniques that are optional."
A penny short. The company's earnings, while growing, missed Wall Street expectations in the fourth quarter--though by only a penny. It was the first time in recent memory that eBay fell short. Its stock, which has soared over the past two years, lost 19 percent of its value on the news.
Meanwhile, eBay's competitors are growing more aggressive. Overstock.com recently launched its own fledgling auction site. "We've had 150 percent growth in listings since they announced their fee increase," says Overstock's chairman, Patrick Byrne. But Overstock's listings are a fraction of 1 percent of eBay's. At a recent analyst meeting, eBay officials jokingly pointed out that eBay has more listings for comic books than Overstock has for all goods. Morningstar analyst Joseph Beaulieu notes that eBay's size--it represents nearly a quarter of all online retail sales--makes it virtually impossible to attack eBay head on.
Moreover, Merrill Lynch analyst Justin Post says eBay remains among the most cost-effective ways to sell products. The recent dip in its share price, he says, is a buying opportunity. Overstock's Byrne admits it is an uphill battle. But "it took eBay years to pump up this bicycle tire," says Byrne. "We've punched a pinhole in it, and air is rushing out." -Paul J. Lim
This story appears in the February 28, 2005 print edition of U.S. News & World Report.
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