July 14, 2008
Buy.com Deal With eBay Angers Sellers
By BRAD STONE
SAN FRANCISCO — The golden era of the small seller on eBay, hawking gewgaws and knickknacks from the basement or garage, is coming to a noisy and ignominious end.
Consumers appear to be tiring of online auctions, and rivals like Amazon.com are attracting more shoppers with fixed-price listings, while eBay has been struggling for growth. To shift toward that model, eBay has struck a deal with the Web retailer Buy.com that allows the company to sell millions of books, DVDs, electronics and other items on eBay without paying the full complement of eBay fees.
The recent change is one of several under eBay’s new chief, John Donahoe, that is stirring rancor among the faithful who depend on the site for their livelihood. The deal with Buy.com has added over five million fixed-price listings to eBay.com since the beginning of the year — for items from Xbox 360 video game consoles to Weber grills.
Since eBay’s search listings favor larger sellers who can add perks like free shipping, which improve their feedback ratings, Buy.com’s presence has hurt many smaller sellers that compete in those product categories.
EBay is signaling that its future lies with big, reliable sellers, not the mom and pop shops that are objecting so vociferously to the Buy.com deal, said Tim Boyd, an Internet analyst with American Technology Research. “It’s a tragic ending to what was once a warm and fuzzy Silicon Valley story,” he said.
EBay says the Buy.com deal will fill gaps in its product offerings while making shopping more predictable. Wall Street will be paying close attention to whether people are indeed buying at eBay.com in greater numbers when eBay reports its second-quarter earnings on Wednesday. This task is made more difficult because while there are more listings, it is not clear that more people are buying.
“Frankly, we are challenging some of the core assumptions that we have made about our business,” said Stephanie Tilenius, general manager of eBay North America. “Instead of focusing on being an auction business, we are looking at what it takes to create the best marketplace out there.”
Buy.com, based in Aliso Viejo, Calif., was founded in 1997. Within two years it made an initial public offering, only to nearly implode during the dot-com bust. In 2001, Scot Blum, its founder, took the company private. Buy.com carries no inventory, brokering sales through the same distributors that sell products to physical retail stores.
Unlike many small sellers who have made eBay a home over the last decade, Buy.com is large enough that it can offer free shipping, readily accept returns and provide a toll-free phone number — just the kind of customer service that eBay executives have hoped to bring to the sometimes unruly Internet bazaar.
To accommodate Buy.com, and other large sellers in the future, eBay last month announced a new “Diamond” level for its power sellers. Unlike its other classes of sellers, which pay eBay fees to list each item and share a percentage of each sale, Diamond sellers can negotiate their own fee arrangements with eBay.
Details of eBay’s deal with Buy.com are being kept private, though it appears from the sheer number of Buy.com listings flooding the site that Buy.com is not paying listing fees.
That has enraged many sellers, who have uncorked a wave of vitriol on eBay’s community forums about this and other changes. Many believe that eBay has violated the sacred tenet of the “level playing field,” which its founder, Pierre Omidyar, established as one of the company’s basic principles.
The way that eBay’s relationship with Buy.com emerged into public view did not help matters.
Tony Libby, a seller of technology items from Maine, first noticed Buy.com’s products on eBay in a quiet experiment the two companies conducted last December. When eBay began promoting Buy.com’s listings in its search results this spring, Mr. Libby, who says he used to sell more than $250,000 in computer hardware each month, watched his sales drop 50 to 75 percent.
Mr. Libby tipped off My Blog Utopia, an eBay-watching site that published an item in April about the relationship with Buy.com before eBay had a chance to announce it itself.
“As an independent seller, I felt betrayed,” Mr. Libby said. “I’ve paid eBay many hundreds of thousands in fees over the past several years and believed them when they talked about a level playing field. And they just plain and simple are going back on their word.”
“There is fair, and there is outright stabbing you in the back,” he said.
Kevin Harmon of Charlotte, N.C., who sold books, CDs and DVDs on eBay, said he stopped selling books altogether when the Buy.com effort began. “The way our fees are structured, we can’t compete with a company with free three-day fixed price listings,” he said. “You can imagine why most sellers are pretty upset about that deal.”
Unlike many other sellers, Mr. Harmon takes a measured attitude to the changes at eBay. “We have to fit our business model to theirs. Most sellers think it should be the other way around. They are doing what they think is the best for them and we just have to try to hang onto their tail,” he said.
Ms. Tilenius at eBay said the changes were fair because anyone can achieve Diamond power-seller status and have access to the same fee discounts as Buy.com — with a certain volume of monthly sales and high feedback from buyers.
“This is open to everyone. It’s a strong incentive for sellers to strive for greatness and grow their eBay business,” she said.
EBay resisted this type of arrangement for years, arguing that bringing other large sellers to the site would dilute eBay’s brand and reputation as a dynamic flea market.
But buyers’ expectations for online commerce have changed over the years, while eBay’s stock price — it closed Friday at $28.01 — is where it was two years ago, largely because of investors’ worries about the lack of growth in the auction business, analysts said.
“People now expect that something you buy online should be nicely wrapped in a box and sitting on your doorstep 48 hours later. The best companies like Amazon do that,” said Mark Mahaney, the director for Internet research at Citigroup. “EBay has to make it clear that it can participate in the fastest part of e-commerce growth.”