Deep thoughts for sellers after yesterday’s eBay news.

January 24, 2008

Ok, now that I’ve had a night to sleep on it, talked to some sellers this AM and re-read my notes I wanted to circle back and read through the truckloads of tea leaves we were delivered yesterday from eBay and see what does all this mean for sellers?

Q4 Ruminations

  • It was a good quarter and beat expectations
  • For PayPal, Skype and non-GMV (non-core) marketplace businesses it was a great quarter
  • For the GMV-based marketplace business, when you peel the old onion, like a real-onion, things were kind of smelly in there and they make you tear up.
  • If you take out foreign exchange (weak dollar), then GMV grew 8% y/y.  While this is right in-line with what we saw, there are two concerns:
    • Non-US GMV growth has come down to about 9% and is no longer a tailwind, but is neutral and in-line with the US growth.  In other words, the US ebay core flu has spread to europe (we are seeing this in DE, but not UK, so it maybe that DE is down enough to counter the other countries for all of ebay?)
    • Comscore is reporting that e-commerce grew 19% y/y in Q407.  When we take out eBay, we definitely see this trend (or greater) in Amazon, paid-search, comparison-shopping and ‘direct’ e-commerce transactions.
    • Thus, eBay is growing 11% slower than e-commerce which means they are losing share at a pretty rapid pace.
  • The active user growth trend worsened.  Check out slide 8 in the handout.  Here’s the quarterly trend for active user growth: 14%, 10%, 7%, 4%, 2%.  There are some adds (stubhub for example) and deletes (china?) in here.  My guess is true organic active user growth probably went negative in Q4.  Certainly in Q1 no matter how you slice it, it will go negative.

Management team changes

  • I think it’s overall positive that JD is now CEO.  We have new leadership, also this gives JD a chance to ‘break with the past’ (his words which I sensed had a much larger meaning – more on that in a sec) and change some things that historically were ‘meg said no to this in 2002’ kinds of issues.
  • Some of the other changes are really wait-and-see.  One concern I do have is that more will change on eBay core than ever before and there’s an entirely new management team that will preside over that.  No matter who they are, that’s going to introduce some risk. I guess the good news is that they are all pretty darn familiar with the eBay world coming from the Paypal side, but still there are different cats under the skin in eBay core than Paypal.

2008 guidance and site changes

  • I thought it was very very  AWESOME that eBay decided to not tell Wall St. about the fee changes first, but instead hold that for the seller meeting next week.  This was a between-the-lines signal from JD (to me at least and these are my words) that really said: “Wall St., we love you, but sellers are our customers and we’re going to start telling them things first, because, dang it, they are our customers and not you.”   In the last couple of years, I’ve felt (and trust me so have sellers) that eBay lost their way here and were treating the priorities as 1) wall st. 2) buyers and 3) sellers.  This seemed to at least move Wall st. to the back of the bus.  Smart Wall st’ers will understand this is the right thing to do.
  • JD did say that fee changes are coming to the US/UK/DE
  • They did talk about some kind of seller loyalty program (I’d presume a benefit to larger volume sellers)
  • The messaging (based on the testing they’ve done) is that gallery will be free/reduced, listing fees will be reduced and FVF will be increased.  Previously they said it would be take-rate neutral, but I didn’t really here that last night so maybe that has changed?  That’s a positive because in some cases you could be looking at a 15-25% FVF on the lower priced goods. Also for the first time they talked about the fee changes hitting fixed price and auction – previously they talked fp-only.
  • It sounds like even MORE feedback changes are coming (hopefully this includes fixing DSRs which are becoming a goat rodeo)
  • There was some light messaging around trust and safety.
  • One tidbit that stuck with me is both Meg+JD talked about a ‘ebay unique’ way they will mix fixed-price and auction-format items.  I’ll dig into this in a future post as it’s going to be the crux of the intersection of Fees+Finding changes, so needs to be nailed.
  • BestMatch is coming in a big way. Rajiv is talking about the ‘race to the top’, sellers already think about this but it’s ‘the race to the top for peak traffic times’.  Now sellers are going to have to optimise against a black-box vs. the clock and that’s going to be a massive change that I worry most sellers don’t ‘get’ yet.  Many sellers are going to be constrained by the eBay seller tool’s ability to do high volume posting, tied to inventory and back-end metrics.  While this is a positive for ChannelAdvisor customers, the bulk of sellers are still grinding it out on SYI, seller manager and blackthorne and that’s going to be tough in a ‘near free listing’ world.

What’s it all mean for sellers?

Negatives:

  • Q4 showed that core-eBay US’s flu is getting worse and even spreading to EU.  eBay is now growing at less than half of e-commerce.  I have to re-state the obvious here.  If eBay is your only sales channel, you need to really re-think your strategy.  Even if you are bucking the trend and growing at 20% on eBay, that is destined not to last.  It will be at least 6 months if not 12 for the changes eBay is looking at to have a material positive impact and even if you love eBay to death, you have to take a business look and realise there is risk that eBay doesn’t accelerate and stays at 8% or decreases further.  We strongly recommend you use Q1/Q208 to diversify your channels and spread some of the risk to other places.  Trust me, you’ll sleep better.
  • Active user growth is in a death spiral.  I worry eBay isn’t doing enough around trust to solve this.  Finding+fee changes help, but they have to really nail fraud/trust and hammering sellers isn’t the ‘solve’.
  • A new management team is going to be making a LOT of changes to the site.  Long-term this is great, short-term there are destined to be mistakes/hiccups/glitches
  • From what we know about fees+finding so far, selling on eBay is going to go from lots of thinking about schedules, listing items multiple times to, listing everything you have and working on understanding BestMatch and how you can optimise for it.
  • I do worry that we used to have 100% of JD’s mindshare and now he’s going to have stuff like Skype and Paypal on that plate which is bound to take the ebay core mindshare to < 100%.  Let’s hope it’s north of 75, but my gut is there’s enough going on over at skype to take on 50-80% of his time.  Paypal is something you just make sure you are feeding enough and then stay out of its way.

Positives:

  • Lower fees!!  WOOHOO! Sellers are VERY skeptical and are looking for the eBay “gotcha”, but I’m going to be glass-half-full and bet they are going to not only do the lower listing fee thing, but in some cases lower the take rate (like book/music/video), because, well they have to in order to be competitive with our friends in Seattle.
  • The bulk program sounds good. Coupons – bring em on, top buyer programs – love it, more more more more more (but fix trust/fraud too pls)
  • JD gets ebay core, understands sellers better than anyone at eBay has before and I think the ‘break with the past‘ means some things that were always taboo at eBay such as the infamous “level playing field” can now be swept under the rug to
  • Fixing finding will be good, I almost put this in wait and see, but they sounded VERY confident on the call so I’m going to go with them on this one.

Wait-and-sees:

  • Feedback changes – GULP.  Every seller knows feedback is hosed, feedback 2.0 didn’t help and now more changes are coming.  This one could go either way.
  • All of these changes are going to be really disruptive to sellers.  eBay will basically be a different site and channel in 6 months. Some sellers will embrace this and dig in and get re-engaged.  For other sellers this will be the straw that breaks their back.  They will flame out and leave the site for greener pastures. There’s a tier of sellers between casuals and top-sellers (kind of in the $2-10k/m GMV range) that are going to be the most impacted by these changes and their reaction will be interesting to watch as well (you listening that chopsueysisters/fruitcat? what do you think?)

Readers what do you think?  I know one thing for sure, next week is going to be interesting!