Auction Business Frank Ross on 07 Oct 2006 06:51 pm
Questioning eBay’s Revenue Model
There’s a lot of talk and speculation going on right now about eBay. “What’s going on with eBay?” is one of the most asked questions on the web nowadays.
They’ve made some seemingly bizarre moves in 2006. First, they raised fees when they had previously said they wouldn’t. More specifically, they raised the fees for eBay store owners, not for auction listing. But for all I know, there was fine print in the original statement or someone at eBay was doing this:
Secondly, they made seemingly diametrically opposed agreements with Google and Yahoo! for advertising. All this lent to the speculation that eBay is might be struggling.
Let’s face it: the only revenue growth model they have is seller fees. The aforementioned Google/Yahoo! thing might produce some revenue down the road, but it’s too soon to tell. Last year’s acquisition of Skype has yet to show that it can produce revenue.
With eBay, all revenue roads still lead to seller fees. Fee-based businesses have been around forever and many of them work just fine. But in the case of eBay (a publicly traded company), they must please the ever-hungry-for-growth investor community. And the only way they know how to do this with seller fees.
Is that a sustainable revenue model in eBay’s case? Obviously they can’t keep raising seller fees forever. At some point (if that point has not already been reached) there will be a diminishing return where sellers simply cannot afford to sell on eBay at all. I’m fairly certain that eBay sees this; I just don’t know if they’ve found any other viable future revenue streams yet.
– Frank Ross
on 20 Oct 2006 at 9:02 pm 1.Bonni said …
I suspect that they’ve already reached the point of “pushing too far” for an awful lot of sellers, and the thing is, they don’t seem to care, nor do they appear to have any plans for providing actual value for those ridiculous fees (you know, by making sure the site actually works and isn’t flooded with scammers, postage pirates, and hijacked accounts).
Recent surveys have indicated that more than half of eBay sellers responding intend to sell elsewhere within six months, and many are only staying there now for the busy holiday season, but are busy setting up their own e-commerce sites or establishing a presence on other venues, and other venues are certainly picking up traffic and increasing in listings.
I’m wondering what their reports are going to look like in about the second quarter of next year, when a majority of sellers have left and the site is completely overrun with low-quality items (frequently from non-fee-paying members).
I think the house of cards will eventually fall. I can’t see how it could possibly be sustained with the bizarre decisions they’re making. Even if they succeed in driving off their reliable sellers and bringing in loads of advertising to send people offsite (that’s already in the works!), I don’t think people will continue to visit eBay just for the advertising, do you?