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Archive for May 23rd, 2009

eBay Dying Because It’s No Longer Fun? Hogwash!

Posted by Bob Warfield on May 23, 2009

So I’m reading this Techcrunch guest post by Keith Rabois on eBay.  He apparently was at the Social Graph Symposium and was asked (by Dave McClure?) what the Social Graph could do to revitalize eBay.  His response was, “nothing.”  He thinks the Social Graph is what killed eBay, because people were largely coming to eBay because it was once.  Once the Social Graph provided other sources of online fun, eBay was toast.  In his words:

Over the years, it has lost online ground and eyeballs to pure entertainment destinations such as YouTube and social networking sites like MySpace and Facebook.

As someone who spent a lot of time with eBay, its buyers, and its sellers as part of founding a startup with a service called PriceRadar, I can tell you this is pure hogwash.  Rabois doesn’t give a shred of conclusive evidence in his post either for why this idea that eBay died over lack of fun has any legs at all.  He even points out that an internal eBay campaign aimed at restoring the fun called “windorphins” failed.  Why did it all fail?  Again, in Rabois’s words:

Chad Hurley and Steve Chen of YouTube fame, Peter Thiel (Facebook), Jeremy Stoppelman (Yelp), Max Levchin (Slide), David Sacks (Geni and Yammer), Reid Hoffman (LinkedIn, board member of Zynga) and others, myself included, were all too alienated by eBay’s bureaucratic and political MBA culture. So we decided to create our own fun elsewhere instead.

Oh come on.  LinkedIn is fun?  PayPal was fun?  Yammer is fun?  Really?  No.  They’re useful services that are differentiated.  eBay is too, but it was much more so back in the day than it is today.

So what really happened at eBay?  It’s pretty simple, really.  eBay benefited for many years from being a low friction way to list all kinds of things for sales on the web.  Amazon didn’t sell anything but books.  There was no Craigslist.  And creating a storefront of any kind was incredibly painful before the LAMP stack and Open Source software had come along not to mention PayPal for credit card processing.  The reality is that an eBay auction was the hardest possible way to buy anything.  Having to deal with an auction and to win that auction to get you merchandise was a lot of pain and trouble to go through.  At PriceRadar we heard eBay buyers ruefully shaking their heads that only eBay would call something “winning” whose definition was that you had agreed to pay more money for something than anyone else was willing to. 

The natural reason to use eBay today is because you like the auction format.  That is the only differentiated feature of the service.  All of the “Buy it Now” listings have to compete with Amazon, Craigslist, and a web that has a lot more merchants with real storefronts.  In other words, they are not a destination reason to go to eBay.  Who prefers the auction format?  Well there is no question there are a large number of people who do.  Auctions are perenially popular, in fact.  But not for everyone.  Some buyers think auctions mean bargains.  Many sellers think auctions mean elevated sales prices.  My startup, PriceRadar, was in the business of using some potent data mining algorithms to deciper the truth of what things were selling for on eBay.  To make the long story short, it was possible to list many items (certainly not all, perhaps not even the majority, but close to 50%) and sell them for more on eBay than they could sell for at retail.  We sold our service to companies like Sharper Image to help them do just that.

How could such a thing work?  Why would people pay more?  As I used to say back in my PriceRadar days, I think there is a gene that sits right next to the compulsive gambling gene (why play a game when the odds are rigged in the house’s favor?) for those who prefer buying from auctions.

The thing is, there are not enough people who prefer to buy at auction.  As I say, it is the hardest possible way to buy.  So for a time, eBay benefited because even those who wouldn’t normally buy at auction were going there to buy things that were otherwise hard to find on the Internet.  This is exactly how eBay got started.  Pez dispensers and other offbeat items were certainly hard to get any other way.  Particular comic book issues and items associated with exotic hobbies.  Industrial surplus items.  Fashion collectibles like Louis Vuitton.  Used items, for when you wanted something but were unwilling to pay retail.  All of that stuff and more was on eBay, and it was only on eBay. 

And then the world started changing.  Used items were readily available on Craigslist.  Especially for people afraid of being ripped off by unscrupulous eBay sellers, Craigslist put you in contact with people nearby who had what you wanted.  You could go look at it before buying.  And you didn’t have to go through one of those blasted auctions.  The WSJ says use of online classifieds has doubled to 49% of Internet users from 22%, and that 9% of all Internet users visit these sites daily.  That 49% is the same number Rabois quotes for eBay’s reach Back in the Day.  These people did leave eBay because it wasn’t fun, but not because eBay made it less fun.  They left because they were never power auction participants anyway.  Auctions are the hardest possible way to buy things.  These people left because they just wanted classifieds, and they killed not just eBay, but newspapers too.

Amazon now accounts for 1/3 of all US e-commerce transactions according to RBC analyst Stephen Ju.  That’s truly a staggering number.  It represents the great sucking sound made by people who used to have to go to eBay to buy a lot of new items moving over to Amazon.  Amazon makes it trivial to create a storefront, just as easy as eBay.  They deliver tons of visitors to their search.  If you have a product that people want to buy, they’ll make sure your customers find you if you joing their ecosystem.  Back in the day, eBay was the only game going for this. 

At PriceRadar, we interviewed all kinds of sellers in this category.  Yes, there were the people that ran around garage sales, estate sales, and flea markets buying merchandise to resell on eBay.  But there are not enough goods, and buyers of those goods, to make for a very large eBay if that’s all there is.  People selling new merchandise are very much the majority.  We talked to no end of people who got started with mall stores and other bricks and mortar store fronts, and then found their margins were better if they sold out of their houses via eBay.  They liked their hours better too–work was at their pace, not their store front’s business hours.  But why would you sell your new merchandise only on eBay when it is so easy to list on Amazon too?  And having done so, it then becomes a battle over who has a search engine better suited to the task.  This has always been an Achilles Heel for eBay.  Their search is terrible even today.  Back in the day, you got different results if you search for “binocular” versus “binoculars.”  Merchandising of the kind that Amazon understands so well (people who bought X, also bought Y, so they make sure X buyers see that Y is available too). 

But it isn’t just Amazon.  PayPal is darned near as big as eBay’s selling business.  That tells you there are a lot of PayPal transactions that have nothing to do with eBay.  People are doing e-commerce in all sorts of places.  It’s dead easy to create a web site, and PayPal makes it dead easy to process credit cards there too.  That took away one more advantage for eBay being the easiest place to create a storefront.

Then there was the unsavory aspect of eBay.  A lot of people were defrauded.  I lost $1000 myself on the purchase of a welder.  For years eBay completely favored sellers, even sellers ripping off buyers, because only the sellers were paying eBay fees.  I went through their whole dispute process on the welder, they adjudicated in my favor, but I never saw a dime and the seller was allowed to continue to sell on eBay.  When I brought that to their attention, they ignored me.   This went on a lot, and is something I never have seen happen with Amazon.  With Craigslist, you go see the merchandise because it is local, so it doesn’t happen there either.

So eBay didn’t die because it wasn’t fun, at least not in the sense that Rabois intends.  People didn’t go there for entertainment, except for the dyed-in-the-wool-yes-I-have-the-compulsive-auction-gene players.  They went there to buy.  And there simply got to be better places to buy.  Places that were focused around the kind of non-auction buying most people prefer.  Places that had better merchandising and other amenities.  Places that had just as much or more traffic than the old eBay did.

Forget competition from Facebook or YouTube for fun.  Think about it like a buyer.  eBay stopped being unique and started being one of the harder places to buy from instead of the only game in town.

Unfortunately, I have a hard time seeing how the Social Graph will fix that, so Rabois and I agree on that much.  It may already be too late for eBay to get ahead.  Back in the day we tried to sell eBay PriceRadar as a better search engine that would give them the kind of merchandising capabilities that Amazon had.  They were completely uninterested.  Hard to invest in the future when the franchise you’re sitting on is growing by leaps and bounds without any effort at all.

Posted in business, strategy | 2 Comments »

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