eBay long been moving away from auctions

Ebay has been moving away from its  original auction model for years as shown here in this archive piece from The Guardian.
Sit back and enjoy this bit of nostalgia written by Retail Insider editor Glynn Davis in August 2004.

It became known affectionately as the world’s online flea market after it formed in 1995 and has protected its “community feel” for its core customers of individuals and small businesses.

But times are changing, and while it was one-off collectables that built its reputation, that category, with $1.4bn of global sales, has long since played second fiddle. Other sectors, such as consumer electronics, with $2.5bn of sales; clothes and accessories, at $2.2bn; and motor cars, with $9.8bn of annual sales, represent the future.

This growth in “practical” categories has led to the emergence of two trends. First, eBay is increasingly attracting large retailers to trade in its ultra-efficient marketplace that gives them access to 114 million registered users. Second, these professional merchants want to sell new products in volume, which is driving the growth of fixed-price transactions, in contrast with eBay’s original auction model.

This fixed-price trading accounts for 27% of the total value of all goods sold – primarily from eBay’s “Buy It Now” feature, where items can be bid for but can also be purchased immediately for a fixed price.

Pure fixed price, where there is no auction alternative, is of most interest to professional retailers, and accounted for 11% of sales last year. eBay has not disclosed the percentage for the current year – possibly because it wishes to downplay its activities with big business and preserve its increasingly delicately balanced non-corporate heritage.

There is no denying eBay is on a path to breaking out of its peer-to-peer, auction-driven heartland. And the speed with which it is expanding suggests the company is heading towards the status of Wal-Mart of the online world. So reckons Jonathan Wall, marketing director of Dabs.com, a leading online electricals retailer, which recently began trading on eBay. “I’d rather have shares in eBay than Wal-Mart,” he said. eBay is currently valued at $53bn on Wall St.

Less of this on eBay
Having recently sold 100 end-of-line products and old stock and received around 60p in the pound, compared with the typical 25p from a broker, the company is looking to open an eBay “store”.

These stores enable retailers and named manufacturers to set up their own branded shops on eBay. The number of such stores has increased from 110,000 to 181,000 over the past year, proof of its growing attractiveness to traditional retailers.

While this might be anathema to community-eBay, it represents revenue opportunities for corporate-eBay. Evidence of its increasing strength in this area is that new inventory listings from stores in the second quarter of this year were up by nearly 400% on the same period last year.

Dabs.com will join operators such as Hewlett-Packard, Vodafone, Carphone Warehouse and Richer Sounds with its branded store. Although Richard Ambrose, category manager for eBay in the UK, says it is still early days, he predicts they will move substantial amounts of stock.

This tends to be a combination of new and end-of-line, out-of-season goods and, in the case of electronics, older technology. Johan Brenner, general partner at Benchmark Capital – the venture capital firm that backed eBay in its early days and made the biggest gain in the history of the VC industry, – says eBay has also enabled retailers to take used goods as part exchange for new items and sell these second-hand goods on eBay.

“In the US, Circuit City has set up its own eBay store to sell used goods as an encouragement [for people to] then buy new from its online shop. eBay therefore fosters e-commerce in general,” says Brenner.

Ambrose agrees eBay offers retailers a variety of potential benefits. “Given the size of our audience, it is an offer that is compelling. We have many retail partners and [the market] is proving very active in the UK.”

Although Comet is not one – yet – it recognises the benefit of selling over a platform such as eBay. Tim Woollias, commercial trading manager of direct channels at Comet, says: “Comet has been using auctions … for over three years to solve a traditional retail problem – clearing end-of-range and clearance items.”

Although it has no plans to sell pristine stock via auction, Woollias says the company monitors auctions. While he says Comet’s most popular channel remains its stores, he only has to look at Dixons – which is in the process of reducing its high street presence – as a warning of how the growth of online retailing and eBay continue to eat into the margins of many on the high street.

A major downside for retailers using eBay is that it predominantly attracts the value-driven shopper. Wall says Dabs.com has invariably sold new goods for less than it could have achieved from its online store.

Early user of the eBay platform
However, Wall doesn’t want to miss out on the big opportunity eBay provides for attracting a different kind of customer to Dabs.com. The company therefore intends to link up with a few major manufacturers to offer a co-branded eBay store and divide the margin deficit.

Judith Clegg, internet entrepreneur and associate director of Egremont, a consumer consultancy, agrees that the selling of new goods might be more difficult than end-of-line products. In addition, she says eBay’s value-driven aspect lends itself particularly well to consumer electronics, which generally have a short life span. When the end approaches, retailers have no qualms about offloading stock at reduced prices.

This puts question marks over how beneficial eBay is to retailers in other categories. Tom Athron, associate director of Javelin, a retail consultancy, whose clients include John Lewis and Marks & Spencer, says: “Some brands are more concerned than others about setting up shop on eBay.”

This is why he says you can find M&S Lifestore sofas for sale on eBay, sold by clearance houses and liquidators, but you won’t find the M&S brand. “For commodity products, it’s an opportunity, which is why a Dabs.com is OK with it but an M&S is twitchy,” he says.

But as eBay continues to grow at a phenomenal rate, it will surely be sensible for retailers such as M&S to use eBay for selling direct or staying hidden and using stock liquidation companies.

However, retailers at the luxury end of the market selling overtly branded goods do regard eBay as a threat. An example is clothing, a growing part of eBay’s business. According to Ambrose, clothing and accessories is now the biggest category in the UK, with 300,000 items sold per week. A huge percentage is designer goods.

Says Clegg: “If you see Prada goods on eBay at unbelievable prices, the tabloids will have you believe they are stolen. But I believe it is legal and comes from third parties.” These tend to be grey market operators, who buy goods as excess stock from legitimate sources, and liquidation houses.

However, not everyone is so sure. Professor Joshua Bamfield, a director at the Centre for Retail Research and a specialist in retail crime, says: “People who commit burglary are younger and have been using the internet for years. They know they can get more money back for less risk. Retailers have been saying eBay is a problem.”

Bamfield says that in February, the Chief Constable of Nottinghamshire announced that police intelligence suggested “the internet, in particular eBay, is a medium for disposing of stolen property”.

Jerry Carter, head of loss prevention at House of Fraser, has also stated it’s a problem. “The days of taking [stolen goods] to the pub and selling them for £5 are over. With the internet, you can have total anonymity and sell for a lot more.”
eBay eating Tiffany’s breakfast?
There is also concern about fakes. In the US, high-end jewellery house Tiffany is suing eBay over this issue.

It seems clear eBay is having a profound impact on the way retailers sell and consumers buy, and it is not necessarily smooth. Athron says: “eBay is a clever business that is growing its mainstream categories and therefore attracting mainstream customers. It will become more and more part of the standard shopping process and it will take a chunk of business from everyone.”

But while this will be great for eBay’s bottom line, Clegg says the company must be careful to maintain its community. In time it could be forced to show the fixed-price listings from professional merchants separately, in a similar way to Google’s Adwords.

She warns: “While fixed-price selling will make eBay more accessible and convenient to those people scared by auctions, and attract a new section of the market, it may have the negative effect of appearing to just cater for professional retailers.”

So as eBay moves closer to offering more new fixed-price goods from large retailers and manufacturers, Amazon, its online rival, is increasingly expanding its eBay-style Marketplace offering. In so doing, these two internet behemoths are slowly converging, and a bruising battle for online supremacy looks likely. While eBay was reluctant to talk about this oncoming clash, others weren’t. The verdict is that the sheer quantity of categories in which eBay has a strong foothold gives it the early advantage.

Clegg agrees: “We are only just at the beginning of what’s possible for eBay. It’s the most exciting business in the world at the moment.”