eBay’s New Strategy: What Was Once Old is New Again

At web giant eBay, it’s out with the new and in with the old both in terms of corporate strategy and product mix. After trying in vain to remake itself as an online "retailer" of fixed-priced items to rival the likes of Amazon.com and Walmart, eBay last week cried uncle when it announced it was returning to its roots as an auction clearinghouse for used goods and collectables (in addition to overstocked items). Why the change? The past year has not been kind on the one-time darling of the web which has seen its traffic and fortunes decline.

To compete in the fixed-price marketplace, eBay enacted a series of policies and site changes that favored power sellers at the expense of smaller sellers. As casual sellers abandoned the site, buyers have migrated elsewhere in search of the hard-to-find products upon which eBay built its business"”traffic to Craigslist has risen 40% over the past year. In contrast, eBay’s traffic was down 5.2% last month over the previous year, while Amazon’s traffic rose 18.7%.

Not only are fewer shoppers returning to the site, but average order values have stagnated at around $28 (other than the spike during the holiday season.) Since eBay’s marketplace revenues are driven by fees charged to sellers, declining traffic and flat transaction values have led eBay to raise its fees in hopes of meeting Wall Street’s expectations. As a result, eBay is squeezing the very sellers on whose backs the success of its business rests.

The more eBay has tried to be a retailer, the more its customers have gravitated to sites offering better overall shopping experiences with lower total prices, better customer service, and predictable deliveries; not to mention the avoidance of the risk of fraud. The percentage of eBay’s visitors who shopped at Amazon jumped from 41% in February 2008 to 53% last month. Over the same period, Amazon visitors’ cross-shopping of eBay has remained unchanged at 58%, suggesting eBay’s fixed-price strategy has failed to attract significant numbers of new shoppers to the site.

By focusing so much on fixed-priced items sold by large sellers, eBay has blurred the distinction between it and the litany of shopping comparison sites and tools on the web (such as shopping.com which eBay also owns). In so doing, eBay has traded away much of the brand equity that once set it apart from the rest of the online retailing universe.

With its greater emphasis on fixed-priced goods, it’s not surprising that eBay has seen a steady increase in the number of shoppers making "Buy-It-Now" purchases over the past year. In February, 11% of eBay’s visitors, or 7.8 million customers, made a Buy-it-Now purchase (up 20% from the previous year). However gains in fixed-priced activity have been eclipsed by declines in eBay’s traditional auction business. The percentage of eBay’s traffic that made a bid on an auction-style listing dropped from 13.5% in February 2008 to 12.2% last month. In total, 1.5 million fewer shoppers placed a bid on eBay last month than did last February.

eBay’s challenges are multi-faceted, and it remains to be seen whether by simply returning to its roots as an auction site it can win back buyers and sellers who have long since given up on using the site. Online retailing has evolved significantly since eBay was founded over a decade ago. Savvy consumers have learned how and where to find deals online, but value intangibles beyond price when making their purchase decisions. Consumers expect a level of service that in some respects is beyond eBay’s ability to control in its role as middleman. Given that, eBay would be better served looking beyond product strategy and focusing instead on improving the shopping experience for buyers and sellers as its constant tinkering seems to be doing more harm than good.

About Matt Pace:
As VP of Millward Brown Digital’s financial services, retail and consumer products practices, Matt is responsible for vertical growth and strategy and the delivery of digital insights and best practice marketing consulting to leading Fortune 500 advertisers. Follow Matt on Twitter @mattpace.