I’m back!

October 29, 2007

Marketplaces ChannelAdvisor By ChannelAdvisor

Dear devoted eBay strategies readers,

Many apologies for the brief hiatus.  I had a mini vacation (kid’s fall break) right before eBay’s Q3 report and then work at CA has gotten pretty intense as we button up going into the holiday selling season and we’re busily integrating the Marketworks acquisition (with much success I’m happy to add).

The two big news items here in eBayLand are:

  • eBay’s Q3 results.  I’ve digested the eBay release, listened to the call and read all of the analyst notes and I think the best summary is that eBay has become a tale of two cities.  You have the shiny new businesses (paypal/skype/rent.com/shopping.com) that seem to be doing well and although they are lower margin businesses are growing like weeds.  Then you have the ebay ‘core’ marketplace business which still (in my opinion) is not showing signs of improving.  In a way, this makes sense because all of the changes eBay is talking about won’t hit the site until 08 (hopefully early).  The trick is can eBay escape Q4 unscathed so they can get to Q1 and roll the changes.  Some other observations:
    • Seeking Alpha did a good story listing all of the analysts and their thoughts here.
    • I was concerned that GMV grew only 8-10% (reports differ based on geo, tax and FX calcs) and the active/registered user trends continue to be very concerning, but again, eBay’s changes aren’t out there and hopefully they will address these problems).  This matches the data we were seeing at CA, and towards the end of the Q3 cycle, so many analysts were bullish that I thought we were the exception and not the rule.  Turns out we were spot-on.
    • Jeetil Patel over at DB has done an in-depth analysis on Amazon’s third party business (3P for short – Jeetil even calls it Amazon’s eBay business tongue in cheek) and he has some great datapoints that I’m going to go through here in future post.  He and Derek Brown over at Cantor also have done some interesting analysis of eBay’s page views (which seem to be rapidly declining), costs to acquire customers and the active/registered user trends that definitely point to a bearish eBay core Q4.  These are definitely bearish viewpoints, but I think they are important for sellers to understand going into Q4.
    • Most of the bulls tend to talk about non eBay businesses in their bull thesis and there’s no arguing from me that Paypal is doing well and even Skype is growing nicely, although not at the rate anticipated by the earn-out, thus the pre Q3 results write-down/management change announcements.
  • The other big news item is the 33% off listing promo that eBay announced at the Q3 results.  Details are here.  This is a great move by eBay to test a shift of the mix from listing fees to FVF on their fee structure.  The timing is a little tricky because while it’s a longer-term test (runs through 11/5), it does put a seller in a tough spot.  Also GALLERY SHOULD BE FREE – but that’s a story for another post. Here’s my logic/thesis on the promo:
    • Fact: eBay’s listings and GMV are dominated by large sellers ($1m/yr+).  By our calculations they drive about 60% of the GMV on eBay now and growing.  I’m sure that flows through to listings as well.
    • Fact: large sellers have much less elasticity in their product flows.  In other words, they have already bought product for the end of the year and maybe able to influence that 5-10%, but not 25-30-50%.
    • So given those factors, if eBay runs a sale now through 11/5, many sellers are choosing not to jump into it and burn through their holiday inventory early at lower pre-holiday ASPs and instead wait for the post Tgiving kick off (FYI Black Monday is my favourite day of the year) and benefit from a healthier top-line vs. a lower bottom-line.
    • Thus, I don’t think we’re going to see a commiserate 50% jump in listings here with the promo.
    • As I talk to sellers about the promo some other interesting tidbits are coming out and I’ll report them here shortly.

Is the promo having an impact?  Well Wall Street is freaking out that listings aren’t growing very fast vs. last year, but if you look at the Medved charts, you can see that it definitely has caused a spike (click to enlarge – feed readers you’ll have to come to the site):

Medved_10_29_07

But if you look back at 06:

Y2006

You’ll see that the 07 promo is getting listings up into that 17/18m range that we had last year.  What’s interesting to think about is what if eBay didn’t do the promo,  Then most likely the 07 listings would have stayed in the sub 15/14m range and that would have really made the y/y comps from wall st. unfavorable.  You can also tell from the October 06 data that eBay did a promo at this same time around then, so I went back through the blog here (what a cornucopia (feeling the holiday spirit?!) of eBay information we’ve compounded together over the years!) and found that low and behold eBay ran a .20 core promo at this time last year. So interestingly enough for your $50 core BIN items out there, fees are higher now with the 33% discount than they were a year ago during the .20 core promo. That promo started 10/25 and would have had a 7 day impact which is why you see that late Oct spike and then drop back in 06.

Since we’re on this thread, here are more datapoints from last year to refresh your memories:

There were several UK+DE promos too, but that’s the three major USA ones that eBay will have to comp against in Q407.  The current 33% promo will EOL around 11/12 which will make that 11/8 spike hard to comp against so it’s possible you’ll see eBay doing something there to cover that.  Also the 11/21 spike (look at the chart) was pretty intense so if I were a betting man, I’d say we’ll need to see something like that in the US again around that time.  That’s an easy one for eBay as given the time of year heading into Tgiving, conversions and ASPs are near guaranteed to pop.

Finally, for you Wall Streeter’s that read the blog, I’m doing a conference call with Justin Post @ML tomorrow and we’ll dig into many of these topics as well as what’s going on over at Amazon SellerCentral heading into the holidays.  Shoot Justin a note/call if you’d like to attend.

Seller reader’s feel free to post comments around your Q3 thoughts and also what are you guys doing for the 33% off sale?!