Is eBay Giving Up on Auctions?
21 August 2007With the recent purchase of Skype, and the releases of services like kijiji and gumtree, is eBay giving up on auctions and moving into new realms? Matt at Aroxo sure seems to think so. And he’s got some very nice theories on the why. All backed up by numbers of course.
I believe that that eBay’s management thinks that online auctions have reached the limit of their natural growth.
The first clue came when it raised its prices. It only makes sense for a company to do this if it believes the increment in price will offset the reduction in demand, in short it’ll come out earning more money. eBay raised prices because it believed that the drop in listings would be offset by the increase in revenues. Pushing up prices is the way to grow revenue in a flat market. A company which still expects growing demand, doesn’t raise its prices.
The second piece of evidence comes from its eclectic strategy, starting with the expensive and hard to understand Skype acquisition, eBay has embarked on a range of new initiatives including blogs and wikis, launching kijiji in the US and continuing to roll-out Gumtree.
That’s some pretty good analysis if you ask me. It hadn’t really dawned on me other than a few fleeting thoughts that they were “expanding their horizons” in order to soften the blow of a weakening auction business. It does make sense that they are doing that, both because of dropping numbers and merely as a cushion if something nasty were to happen like eBay sellers needing auctioneer licenses.
The fact of the matter is that the online auction business shouldn’t be anywhere near peaked out yet. Growth will certainly have slowed, but there is still a huge mass of people who are not using an auction system. The problem is that the influx of users isn’t making up for the outgoing sellers who are frustrated with fees and the buyers who are frustrated with fraud. We’ve also seen the release of several alternative sites that have made a small dent in the new user flow as well. Sites like ebid, ubid, wagglepop and others are drawing a greater percentage of new users than they did before because of much lower fees and a lower instance of fraud.
I agree with Matt on this one. eBay is covering themselves by buying new properties and releasing new services. I don’t think they have given up on auctions completely, but they certainly are trying to make sure that if auctions give up on them, they have a backup plan.
[tags]ebay,ebid,ubid,wagglepop,auctions,kijiji,aroxo,gumtree[/tags]
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August 21st, 2007 at 7:23 pm
I do not think eBay is giving up on them at all. They have been diversifying for several years, which is wise in my opinion.
The elasticity of demand doesn’t necessarily relate to a stagnant market just how sensitive customers are to price increases - this has to do with suitable alternatives not growth or stagnation - in this case in auctions.
The decision (to raise prices) would (logically) partially relate to current elasticity of demand and the long term effect (will raising prices allow competitors to get into the market and/or invest more in the market opportunity - due to eBay raising prices). I have actually been surprised that Amazon has not been able to make a bigger dent into EBay’s business, so far.
August 22nd, 2007 at 3:45 pm
Ah, he mailed you as well, did he?
I don’t think Matt is right. For one thing, eBay are consistently promoting *auctions* to sellers and buyers alike. I think Meg and co. believe that auctions are where their future like (fwiw, I think they’d do a lot better if they’d diversify this marketplace platform, but there you go).
Buying up other companies is largely augmenting their existing business - Stubhub, pretty obviously, but you can see Meg’s new catchphrase “social commerce” behind most of the rest.
What you forgot to point out is that Matt has a vested interest in preaching an “eBay is finished” message, as his own “major competitor to eBay” (so he says) is due to launch next month. Of course, if he *had* got a “major competitor to eBay”, I don’t think he’d be mailing the likes of me asking for publicity, but maybe I’m just too cynical. Without any indication of what his secret squirrel project might be, it’s hard to say
August 22nd, 2007 at 5:37 pm
na, I think eBay are just spreading their wings abit.
The on-line classifieds market isn’t very consumer friendly at present (in my opinion)if eBay can bring a customer friendly platform to the table, they could easily take over what’s there now!
August 22nd, 2007 at 5:50 pm
interesting analysis. they probably wouldn’t stop auctions all together, but probably try to own something that google doesn’t already own.
August 23rd, 2007 at 7:03 am
I think that the notion that eBay is giving up auction is utter rubbish. Auctions make eBay, they drive the traffic which keeps the site alive. Perhaps the company is diversifying, but that is not to say that they are giving up on their core business
August 28th, 2007 at 5:45 am
Hi Guys, I can see I’m coming to the debate slightly late…
Firstly - Sue you are correct - we do have a vested interest here (I include a disclosure notice in my original).
However it is pretty clear from the data that eBay is failing to achieve concerted growth in its business - which is the message I am trying to convey. eBay’s share of US online retail falls by approximately 5% per quarter, and this is in a growing market, and that should be a worry for sellers.
I don’t profess to know what all the reasons for for this decline, but I do think that their brand positioning is starting to hinder rather than help their business. In effect, their move away from collectibles into higher value items is now constraining their business as the brand doesn’t appeal to someone who wants the latest iPod.
A lot of sellers have suggested that eBay’s fee hikes are as a result of eBay attempting to reduce the number of spurious listings which appear on its site - however, if this was their only aim they could have increased their listing fees and reduced the final value fees to maintain a revenue neutral position. That they didn’t do list suggests that it is to continue to deliver revenue growth to Wall Street.
As a company I think their concentration on areas outside of pure auctions isn’t helping them and they are running the risk to taking their eye off the ball.
As for Aroxo, well, we’re not an auction and this is deliberate as you cannot compete with an established auction house.
September 4th, 2007 at 1:30 am
Auction in Ebay is the driving force of their existence. if they give up the auctions to shopping, then they are in trouble. Walmart Homepage and other shopping sites are very good in that business. I should say that Ebay should not give up the auctions.