Auctions on eBay: A Dying Breed

By Catherine Holahan,
Filed Under: Small Business, Online Business
As consumers opt for fixed-price purchases, what happens to the company that perfected the art of online bidding--and the scores of e-auctioneers?



Bruce Hershenson, who auctions vintage posters online, is hanging up his eBay gavel. For almost a decade, Hershenson's business epitomized the e-commerce that made eBay (EBAY) famous. He sold rare, collectible, sometimes kitschy memorabilia in online auctions that had a starting bid of 99¢. But as the business of buying and selling over the Internet has matured, the thrill and novelty of auctions have given way to the convenience of one-click purchases. Hershenson will hold his last eBay auction June 3. "The auctions are nothing like what they once were," he says. "They won't ever come back."

Auctions were once a pillar of e-commerce. People didn't simply shop on eBay. They hunted, they fought, they sweated, they won. These days, consumers are less enamored of the hassle of auctions, preferring to buy stuff quickly at a fixed price. Hershenson is emblematic of the legions of small business people who built their livelihoods on eBay but—like eBay itself—are having to rethink their whole approach to online sales.

Sales at Amazon.com, the leader in online sales of fixed-price goods, rose 37% in the first quarter of 2008. At eBay, where auctions make up 58% of the site's sales, revenue rose 14%. "If I really want something I'm not going to goof around [in auctions] for a small savings," says Dave Dribin, a 34-year-old Chicago resident who used to bid on eBay items, but now only buys retail.

E-Commerce Continues to Evolve

Executives at eBay have gotten the message. Since taking the helm in March, eBay Chief Executive John Donahoe has made it clear that fixed-priced items are key to future growth. EBay's "Buy It Now" business, where shoppers can purchase items at a set price even when the merchandise is also listed in an auction, makes up 42% of all goods sold on eBay. It's growing at an annual 22% pace, the fastest among eBay's shopping businesses. "As [Web] search has developed, you can get a great deal in a fixed-price format," Donahoe said in an Apr. 16 interview after his first earnings call as eBay's top executive. "We are going to let our buyers choose." Donahoe did not comment for this story.

More From BusinessWeek

    At the current pace, this may be the first year that eBay generates more revenue from fixed-price sales than from auctions, analysts say. "The bloom is well off the rose with regard to the online-auction thing," says Tim Boyd, an analyst with American Technology Research. "Auctions are losing a ton of share, and fixed price has been gaining pretty steadily."

    To hasten the growth, Donahoe is spearheading changes to make eBay more friendly to users who favor one-click shopping. While former CEO Meg Whitman ended her tenure amid an ad campaign that championed auctions, urging consumers to "Shop Victoriously," Donahoe has taken steps to increase fixed-price inventory. In May, eBay announced a partnership with Buy.com to sell a large swath of the retailer's inventory for set prices. "EBay has significantly de-emphasized dynamic-priced items in favor of fixed-price listings in the last six months," says Cantor Fitzgerald analyst Derek Brown.

    EBay Fees Favor Fixed Prices

    Perhaps the biggest example of eBay's new fixed-price focus is the new fee structure, announced in January. The changes gave breaks to many large vendors who sell fixed-priced goods on the site, while hiking fees for many eBay users who sell using a traditional auction structure.

    EBay executives say auctions will always have a place on the site. In the future, the company plans to alter fees so that auction sellers don't feel so pinched, though executives have not provided details. The company also intends to showcase additional features that meld auctions and fixed-price listings during and after the annual eBay Live event, to be held this year in Chicago, June 19-21. One possible new feature is a split screen that shows an auction on one side and the Buy It Now price on the other. "Auction-style listings are what keeps the site unique, but fixed price is growing much faster," says eBay spokesman Usher Lieberman.

    What happened to auctions? Not only do shoppers want convenience, they're also looking for value. And the proliferation of pricing information online has made it easier for consumers to bargain-hunt and lessened the need to risk overbidding in an auction. Hershenson recalls when a new $40 toaster could fetch $80 on eBay, thanks to a bidding frenzy. Now, a buyer can figure out the retail price with a few mouse clicks. A study earlier this year by the Pew Internet and American Life Project found that 81% of Internet users research products online before buying. "People have a lot of information at their disposal and that sets a reserve price of what they are willing to pay," says John Horrigan, an associate director at Pew. "It makes sense for eBay to set prices to appeal to that."

    Auctioneers Up in Arms

    But as eBay aligns its focus with the majority of buyers, sellers like Hershenson lose out. When he first heard of the fee hike, at a seller meeting in Washington with eBay management, Hershenson says he stood up and complained. "I said … 'I am exactly the kind of seller who built eBay and brings people to eBay on a daily basis. And it seems to me your changes are hitting me hardest,'" he says, adding that his annual fees would have jumped from $120,000 to nearly $180,000.

    Rather than pay the fee hike, Hershenson decided to move his business onto his own Web site, eMoviePoster.com. He auctions 1,000 to 1,500 items on his own site every Tuesday and Thursday. Because Hershenson's merchandise is popular among a specific set of collectors, he feels confident that his customers will follow him and says that most already have. He believes he can attract others with some well-placed ads, purchased with what he saved for not paying the higher fees on eBay.

    Not all eBay sellers have the luxury of branching out on their own or moving to a third-party site. When it comes to auctions, eBay is one of the few games in town. Even though growth is slowing in eBay's auction business, the site has nearly 90 million active users. Other auction sites such as Ubid.com have far fewer visitors. Ten-year-old Ubid had 181,000 active bidders in the first quarter, according to its quarterly report.

    EBay sellers organized a weeklong sales boycott in February protesting the changes announced in January. "Everybody is mad because they feel that this company got built on them, and when eBay felt that they no longer needed them, they tried to get rid of them," says Maggie Dressler, an eBay seller who has auctioned antique trains and toys on the site since 2001. "It is deplorable."

    Many auctioneers may have no choice but to close shop, says Hershenson, adding, "Their latest changes will have the result of ending auctions as we know it on eBay."

    Holahan is a writer for BusinessWeek.com in New York.

    More on This Topic

    1. Taking Your Business Online
    2. eBay Success Tale
    3. 12 Free Online-Biz Tools
    4. Strengthen Your Online Biz


      Bookmark:

      Recent Comments

      Post Your Own  
      1 - 10 of 144
      144 comments

      navyprik 01:50:26 PM Aug 26 2008

      Report This!

      37 Years in the antique busness, 10years and 3/4 million in sales I am now going to my own web site. Ebay has never helped its sellers and now it's doing this. It is now becoming one of the hated names in the re-sale and antiques bussness. they have ruined a great busness model that they started out with. And Pay Pal is the devil's play pen. This has become THE worst run company in the US! SELL YOUR STOCK NOW !!!!!!!! May Ebay ROT Hell

      hunterd16327 01:52:12 PM Jul 02 2008

      Report This!

      Type your own comment hereboy do i have a mouth full for ebay and paypal, i could cuss them both out right now and not even think twice about it!!!taking nearly 10% of your profits for just there fee of having it on a wesite is a joke.then paypal gives no sellers protection once in a claim, no seller protection!!! ebay buyers can screw sellers all day long. i suggest craigslist , ioffer, ubid, and www.merchantinc.com or GOOGLE CHECKOUT.. which has no HATE site to it unlike paypals HUNDREDS!!! trust me if a new seller DO NOT USE EBAY OR PAYPAL!!!!

      hunterd16327 01:51:54 PM Jul 02 2008

      Report This!

      boy do i have a mouth full for ebay and paypal, i could cuss them both out right now and not even think twice about it!!!taking nearly 10% of your profits for just there fee of having it on a wesite is a joke.then paypal gives no sellers protection once in a claim, no seller protection!!! ebay buyers can screw sellers all day long. i suggest craigslist , ioffer, ubid, and www.merchantinc.com or GOOGLE CHECKOUT.. which has no HATE site to it unlike paypals HUNDREDS!!! trust me if a new seller DO NOT USE EBAY OR PAYPAL!!!!

      ricardorubio16 11:33:52 PM Jun 26 2008

      Report This!

      E-bay don't ask saler if the item is real or fake they close your account without asking you if the Items are real or Fake. I will never join E-bay again same Paypal is worse! Custmer lie to Paypal and not listen to saler or Business Give those thieves unlimted access to my checking account! Never again!

      ricardorubio16 11:06:35 PM Jun 26 2008

      Report This!

      I like to let million people know about E-bay and Paypal. Be carful They play game to you. If you are seller or Business don't join in Paypal or E-bay. I been there. When people who is a buyer they love play game with you. They call Paypal to return money back and did not sent items back to you until they have the money back first. Also Paypal don't listen to saler they only listen to buyer. The Paypal don't care about your Business and Paypal don't care about E-bay Rules. You can check E-bay.com see it said 7 days only right?? They are Lie there is no time about return items. The customer can keep the items and want money back from you. So Please be carful from E-bay and Paypal. There don't care about you are saler or Business.

      rosal68 01:39:03 PM Jun 22 2008

      Report This!

      THE BIGGER THEY ARE THE HARDER THEY FALL........

      gusandpoppyskid8 12:40:34 AM Jun 21 2008

      Report This!

      It does suck bidding on items, and you go through Hell trying to get your money back when the item isn't as described. Yeah, E-bay needs to sink into the tar pits....

      falcong1 12:12:04 AM Jun 21 2008

      Report This!

      Thats why craigslist is moving up. NO FEES NO BULL.

      onevoteforobama 08:47:31 PM Jun 20 2008

      Report This!

      John McCain says eBay is the answer for poverty and recession. During his so-called Forgotten Places tour last month, John McCain offered the people of the economically devastated regions in Martin County, Kentucky and Youngstown, Ohio a path out of financial desperation: eBay. Today, for example, McCain said, 1.3 million people in the world make a living off eBay, most of those are in the United State of America. If that sounds like something McCain’s national campaign co-chair and former eBay CEO Meg Whitman might say, it’s because she did. In March, she told Lesley Stahl on 60 Minutes, We have about - around the world, about 1.3 million people make most, if not all, of their living selling on eBay. I try to make a little bit of extra money selling on Ebay.
      Let me tell you when people are having a difficult time filling up their gas tank.
      Paying their mortgage and putting food on the table they are not buying on eBay.
      Also we eBay sellers do not have health insurance.
      Please ask

      dodacrazy 03:19:20 PM Jun 20 2008

      Report This!

      Who in their right mind would want to do business on e-bay their security is terrible and are letting to much drug business on line thumbs down on their setup of no tax sales all greed and bs

      1 - 10 of 144
      144 comments

      Add your own Comments

      Clear
      Add

      Small Business Checklists

      It can be difficult to keep up with all the details involved in running a small business. Don't lose track of the details -- use a checklist to keep yourself organized.

      1. Checklist: Starting a Business
      2. Checklist: Closing a Business
      3. Index of Small Business Checklists

        Small Business Success Stories

        1. More Than Moonlighting
        2. Reality TV Leads to Small Biz Success
        3. From Couple to Business Partners
        4. Build-A-Bear's Founder Shares Her Story

          Helpful Resources

            AOL Coaches

            Jake Steinfeld

            Business Coaches
            Starting your own business can be a daunting task. With AOL's Small Business Coaches, you can get the best advice to guide you through the process.