Is It Time To Split Up eBay?

eBay Motors is an example of eBay splitting the site into parts. Would it make sense for eBay to split off other lines of business into separate sites?

eBay created eBay Motors for two reasons. The motors category was large enough –billions of dollars in sales, to work as a standalone business.  Secondly, given the high cost of automobiles relative to other products on the site, the traditional final value fee schedule just wasn’t workable.  So it made good business sense to break motors off to its own marketplace.

If you look at all the stress eBay and eBay sellers have been under for the past two years or so, it is mostly the result of competition from Amazon and other sites that has caused eBay to rethink their business model and move from a trading site to a shopping site. There are already two eBay’s today.

1. The old eBay where ordinary people buy and sell art, antiques, collectibles, vintage items, used merchandise, used books, CDs and DVDs, and handmade arts, crafts and other goods.  Mixed in with this are sellers selling new merchandise in small specialty niches.

2. The new eBay (or what eBay hopes to be) is a shopping portal for new consumer merchandise such as digital cameras, consumer electronics, computers, games, music and movies, house wares and name brand apparel and accessories.

The problem with these two very distinct eBays is that they are mixed together on the same platform.

The old eBay had its quirks but buyers quickly figured them out and came to love the site. The old eBay probably had more loyal shoppers than any other brand in history.

The new eBay was attracting more and more first-time buyers who didn’t really understand the site and how it worked –and these new products were responsible for most of the fraud.  After all, a $2000 Plasma TV or a $300 game player is more likely to attract fraudsters than a Great Horned Owl Coffee Mug for $12.95.

The new eBay was spending millions of dollars on keyword advertising, direct mail, Television and their affiliate program to attract new buyers to the site –and most of the action was in new merchandise.

The big boys also wanted a piece of the action and soon there were huge sellers listings thousands of items each –many of them earning fees for eBay in the millions of dollars per year.  Suddenly the small seller with their quirks became a pain in the butt for eBay.  Why spend money on a support organization to support 700,000 small sellers, when the top 10,000 of those sellers did 80% of the business and earned eBay 80% of their profits. And the big sellers were demanding special treatment and lower fees than the little guys got. eBay eventually caved in.

Yet, eBay couldn’t completely ignore the small sellers. After all the real appeal of eBay is the wide variety of merchandise.  It became known in the marketplace that “you could find anything on eBay.” And, the hundreds of thousands of small sellers still generated millions of dollars in fee income and PayPal fees.

So that is where we are today.  eBay sellers can gnash their teeth all they want, but the old eBay ain’t never coming back. However, a version of it could, if eBay would make the right moves. 

What has gone on for the past two years reminds me of the early days when PayPal was a separate company.  Almost everyone on eBay was using PayPal. It was at one point actually growing faster than eBay. Rather than doing what the buyers and sellers wanted and simply buying PayPal, eBay decided to create their own payment system with Wells Fargo Bank called BillPoint. It was slow, expensive and complicated. Both buyers and sellers hated it.  It took eBay two years to realize defeat. They euthanized BillPoint in 2002 and purchased PayPal for $1.5 Billion –about a Billion dollars more than they could have two years earlier.

There is a parallel here. The market always wins. The best thing eBay can do is admit defeat.  You can’t really run two vastly different business models on the same platform with different types of buyers and sellers, the same rules, the same search technology and the same support organization.  It’s akin to Gucci setting up a kiosk in a Wal-Mart.

I believe it’s time to split eBay into two parts:

eBay.com would be the home of the traditional eBay. This would be the place where buyers and sellers of new and used unique merchandise came together. Some of the new rules could be unwound and eBay.com could go back to being a community instead of an Amazon.com lookalike. No stores, no fixed price listings –just auctions and traditional buy-it-now (where BIN disappears once a bid is placed), second chance offers and make best offer would be the only selling format. eBay could set up procedures to prevent fraud such as requiring ID Verification and a verified bank account for anyone offering expensive items (over $1000).

eBayShopping.com (or some other suitable name) would be the place where the professional sellers, big box stores and other large merchants could go to list new merchandise and popular consumer goods. eBay could allow small sellers to play on that field too –but they would know there are different rules going in.

eBay sellers could operate on both sites. For example if you sold essentially new sports cards and memorabilia you may want to list your fixed price goods on eBayShopping.com and list your more collectible and vintage items on eBay.com.

And the sites could be linked –much the way eBay motors is linked to eBay. Both sites could have a search tab that would take you to listings on the other site –but the search results would be separate.

There are now dozens of alternative auction sites all vying to attract the traditional eBay user. So far none of them has made a serious dent but it is starting to look like a PacMan game.  eBay is being nibbled at around the edges by all of these little players.  Eventually one of these alternative sites will gain traction and eBay could see a big chunk of those 700,000 small independent sellers finding a new home.

Until next time,

Skip McGrath

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