Is eBay Past Its Peak?

As eBay prepares to celebrate its 10th anniversary,
the Internet giant is having perhaps its roughest stretch since the company
founder launched the site as a way to help his wife trade Pez dispensers.

For several months now, eBay sellers have aired a laundry list of
complaints, from an increase in fraud to the reduced number of bidders and
lower selling prices to poor service from eBay. And on Jan. 19,
eBay announced it had failed
to meet analyst expectations
for the fourth quarter of 2004. The stock
fell 19 percent.

Although no one has been foolish enough to suggest the company, which has
grown gross merchandise volume from $5.2 billion in 2000 to $34.2 billion in
2004, is headed for Chapter 11, customer service and pricing issues might be driving users into the arms of
other auction sites.

“I know that I’m not using it as much as I used to,” Marshall E. said.
Marshall, a registered eBay member since 1999 who feared the company
would suspend his eBay privileges if his last name was used, claims a “chasm”
is building between loyal users and the San Jose-based company.

“I’ve had a lot of problems with the way they are doing business, but I
never get any response from them,” he said.

The chasm appears to have widened in January, when the company raised its
fees for the fifth time in as many years. The price hikes kicked off a
flurry of complaints that has led to a near revolt. Message boards on the
site and across the Internet quickly filled with disgruntled users who felt
they were paying more and getting less. Some longtime eBay enthusiasts even
began shopping around for another auction site.

There’s also pushback from operators of eBay stores. There
are an estimated quarter million store fronts on eBay, many of which produce
the biggest fees for the company. Any rift with them could have an
immediate effect on the bottom line.

These store operators are charged a monthly fee $15.95, raised last month
from $9.95. In addition, as of Feb. 18, store owners pay eBay an 8 percent
commission on each sale, up from 5.25 percent.

Michelle A., who also asked her last name not be used, has been selling
on eBay since 1998 and more recently opened a store-front on the site.

“It has become hard to keep up,” Michelle said. “It is not so much that I have
to pay these increases, it is more that I don’t feel I’m getting anything
back for it.”

Michelle was one of more than 24,000 people who signed a petition
protesting the new fees that was circulated on
PowerSellersUnite.com, a site operated by former eBay sellers. PowerSellersUnite.com
claims that more than 7,000 eBay stores have shut down since the company
announced the fee hike.

Joseph T. Sinclair, the author of several books about eBay and ecommerce
including eBay the Smart Way, said although increasing fees are making
the service less attractive for individual sellers or those with only a few
items to sell, the end to its dominance in the online marketplace is far
from certain.

“Individual sellers who do a large volume of business would have a hard
time making the same amount of money someplace else,” Sinclair wrote in an
e-mail.

EBay has an advantage over Internet retailers like Amazon.com , which
generates twice the revenue of eBay, Sinclair pointed out. Although the revenue gulf between the
two companies is vast, Amazon has traditional needs more often associated
with brick-and-mortar variety businesses. Most important, it must maintain and operate warehouses throughout the world. eBay has no
need for such space, because it doesn’t sell any tangible product.

As a result, eBay is nearly three times more profitable than Amazon.

Many analysts and experts like Sinclair argue that eBay is a maturing company
whose growth has to slow at some point, following the normal business cycle of any successful company.

Indeed, eBay’s numbers appear to have peaked. Gross merchandise volume, which is the total value of all
successfully closed listings on eBay’s trading platforms, hit a record $34.2
billion
in 2004, a 44 percent
year-over-year increase from the $23.8 billion reported in the full year
2003. In 2000 that number was $5.2 billion.

Whether the company is maturing or heading for a decline, it is
undeniable that a growing segment of its users are becoming disenchanted
with the service. A recent University of Michigan survey showed just that: EBay’s user satisfaction declined 4.7 percent in 2004.

“It is not the same, but really, where else is there to go?” Michelle
asked.

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