eBay: Not Everything Needs to Be Auctioned

by: Mathew Ingram posted on: June 04, 2008 | about stocks: BID / EBAY    

Catherine Holahan has a piece in Business Week about eBay and the decline of the company’s traditional auction business — or rather, the increasing growth of its non-auction “Buy It Now” business, which she says currently generates almost half of the company’s revenue. Nick Carr (always eager to pronounce something dead) asks whether eBay was “just a fad.” Some fad: eBay has a market cap of about $40-billion and year-over-year quarterly revenue growth of about 24 per cent. But it’s certainly worth asking whether its business model is evolving toward something non-auction based.

If anything was a fad, it was probably the idea that the eBay auction model could be applied to almost anything — that online auctions could solve virtually any problem, from disposing of human organs to getting rid of all your life’s possessions after a divorce. In that sense, eBay was seen as a giant hammer, and everything started looking like a nail. But it’s been known for some time that the auction model works for some things and doesn’t work for other things. And if you think about it, one of the main downsides to the auction model — as my friend Mark Evans notes — is that it can be a gigantic pain in the ass.

The auction — whether it’s the English style (used by Sotheby’s, etc.) or the Dutch style (known as a “reverse auction” because the price starts high and comes down) — is a method that is best used for goods that are scarce and for which there is plenty of demand, such as paintings by the Group of Seven or tulip bulbs in the 17th century. Some products on eBay might fall into that category, but certainly not every single one. And the other requirement for an auction model is time — something many prospective eBay buyers don’t have a lot of.

Does the increasing interest in the Buy It Now option mean the online auction is dead? Hardly. But not everything is a nail.

 

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Mathew Ingram

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This article has 4 comments:

  •  
    InvestingPen
    nies.com
    Jun 04 01:02 PM
    My Website
    Auctions are here to stay, and in the mean time offer an avenue into an often neglected trend. Sotheby's has recently seen meager resistance over the last month that could be interpreted as a positive turnaround. Oversold as is, and dwelling in an industry resistant to the credit crisis, we believe that an investment misconception has taken place here that has linked BID with a downturn economy. In fact, we see Sotheby's to be a play on the wealthy elite and open opportunity at the current price. Read our full recommendation here:

    investingpennies.com/i...
  •  
    roliky
    Jun 04 01:20 PM
    Compared to fixed price format sales, auctions are nearly as exciting as gambling and are more fair, at least when properly regulated.
    The online auction site eBay should do more to protect its members from the abuses of a one-way "feedback" system where buyers can blackmail sellers and unscrupulous Paypal users can claim "item not received" and receive a refund without proper investigation.
    Member history can easily be developed with the use of a fair "transaction rating system". US government agencies use similar systems. Buyer and seller performance levels should be as visible as the hood ornament on your car.
    A secure and safe online marketplace would be universally welcomed.
  •  
    thomas k
    Jun 04 01:49 PM
    Auction is just one form of trade. it does not work for everything and not for everyone. what is more surpising than Amazon.com, they provide auction listings for the same books they are selling, right next to their own price. only ebay did not limit themself to aution, but provided a pretty shy feature "Buy It Now". price product seller is part of the equation, when ebay figures out and expand to other parts of the equation (location, large sellers, modern search, etc..) then it is time to buy ebay stocks....
  •  
    Tony P.
    Jun 04 03:26 PM
    Mathew, by Jove, you've got it! Too bad you can't convince ebay of these principles. Don't even try - you can't. That is part of the equation; their belief that *everything* is a Nail.

    Maybe it's not a true belief; maybe it's more like an obsessive mindset. They must produce Growth - all of The Street tells them to do that - so they end up attempting to turn commodities into Nails. But that basically fails.

    The commodities will naturally morph towards the regular retail experience, which was happening back in 2005, or even earlier. Ebay finally gets on board with that, but does so while trampling over the true Nails. Why?

    The Nails market has a ceiling, albeit a somewhat dynamic ceiling, but a ceiling nonetheless. The scarce, rare and collectible goods can be found and sold, but only at a slow rate; a slow rate compared to a manufacturer producing iPods, etc.

    Ebay simply is not satisfied with that rate and what revenue it can produce. Well, maybe *they* could be satisfied, but The Street is not. Ebay reacts to that by ignoring, or more aptly put, running over the golden goose.

    They should have done one, simple thing that would have prevented all of this current turmoil AND kept the revenue pouring in: divided the site into eBay Classic and Newbay. When this scenario was presented, and rejected, they lost many good top execs.

    The ones that remained - the current ivory tower elite - just knew they could make this work as one package. They just KNEW that, because their egos told them so.
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