MORE ONLINE SELLERS DOING IT WITHOUT EBAY
MORE ONLINE SELLERS DOING IT WITHOUT EBAY
2005-06-26 at 10:26:00 am #11715Threatening eBay, More Online Sellers Go It AloneService Gripes, New Rivals And Better Technology Spur Independent Spirit
(June 05) – In 2002, John Wieber started worrying about his business, which sold refurbished computers through Internet auctioneer eBay Inc. Although he was earning $1 million a year in revenue, profits had started to slip as competitors flocked to the site. EBay also raised its fees, further cutting margins, and fraud was becoming a problem.
So Mr. Wieber revamped his Web site and began selling through other online companies, such as Amazon.com Inc. and Yahoo Inc. Last year, his sales neared $5 million, but his eBay revenue grew at a much slower pace, making up only a quarter of the total. It will likely fall still lower. Of the auction site, where he got his start, Mr. Wieber says: “Too many sellers, not enough buyers.”
EBay, with more than 147 million users world-wide, has long been regarded as the dot-com survivor that could do no wrong. Mr. Wieber’s story shows why the company may be losing some of that luster. Setting up an online store is so easy these days that sellers needn’t rely on eBay as a source of customers. Advertising is simple and inexpensive, thanks to new technology from companies such as Google Inc. And multiple competitors, including Amazon and Yahoo, are pulling once-loyal eBay sellers into their orbit.
EBay’s latest fee increases, in February, have intensified seller complaints about poor customer service and falling prices. One result: EBay sellers are helping one another declare independence. A recent conference of eBay merchants featured a workshop on “Developing your own Web site.” For the first time, after a decade of rapid expansion, traffic to eBay’s U.S. Web site declined in the first quarter, as revenue growth hit a record low. Reflecting the concerns, eBay shares have fallen 36% this year.
EBay is still growing at rates most companies would die for. Its oldest markets, which are maturing, are being supplanted by business in fast-growing countries such as the United Kingdom, Korea and China. More than 60% of new registered users in 2004 lived outside the U.S. and that expansion overseas helped boost revenue 51%.
EBay executives say sellers often dabble in other marketplaces and with their own Web sites. “It’s not an either/or,” says Michael Dearing, eBay’s senior vice president of marketing and merchandising. He says sellers typically return to eBay because it offers “extraordinary value.”
In a bid to boost growth and help sellers be more successful, eBay has spent roughly $1.5 billion in the past 18 months to acquire Web sites in areas such as online classified advertising. It has also invested heavily in customer service, an area the company concedes it didn’t pay enough attention to in the past.
EBay, based in San Jose, Calif., thrived in the 1990s as a uniquely efficient way for small merchants — from part-time hobbyists to million-dollar companies — to reach customers across the globe. Initially popular as a way to peddle second-hand goods, eBay morphed into a market for used, new and even luxury items. EBay charges sellers a small fee to list items, based on their value, and a commission when they sell.
The auction company estimates that 430,000 people in the U.S. make part or all of their living through the site. These days, many of them aren’t happy.
In 2000, Tom Hawksley began selling CDs and DVDs on eBay, leftover inventory from a chain of video stores he used to own. Last year, from his home in Windermere, Fla., he tried selling on Amazon, which levies a hefty commission but no listing fee. Mr. Hawksley found he could sell DVDs of TV shows such as “Dragnet” or “Adam 12″ for $35 on Amazon, where he can set his own price, compared with eBay, where he found consumers unwilling to pay more than $10.
Mr. Hawksley says he made more profit in four months on Amazon than in four years on eBay. Merchants and analysts, such as ComScore Networks Inc., say prices are higher on Amazon because it attracts wealthier shoppers.
Michael Paese began selling bicycle parts on eBay from his San Antonio home in 2003. Last year, sales slipped as eBay’s fees rose and, with the help of a consultant, Mr. Paese created his own Web site. He lured shoppers by contracting with Yahoo and Google to serve up small text ads to anyone searching the Web using words relating to his business. These text ads, which have revolutionized the advertising business, appear on the search engines’ results page and on third-party Web sites.
Mr. Paese says text ads are highly effective and bring in better business. “If someone goes to me on eBay, he’s not really my customer,” Mr. Paese says. “If they come on my Web site, they are.”
Mr. Wieber, the laptop seller, was once a traveling salesman for a New York-based textiles company. He discovered eBay in 1998 while shopping online for a computer. He noticed that the site sold refurbished laptops at a higher price than even computer makers’ own Web sites. To take advantage, he bought a bunch of refurbished laptops that year and listed them on eBay.
He sold as many as 30 laptops a day, typically for between $750 and $1,250. Mr. Wieber estimates each sale carried a profit of $150. His wife, a part-time teacher, helped by typing shipping labels and packing boxes.
By late 1998, Mr. Wieber says, he was making more money selling laptops than textiles. The next year, he quit his job. Selling on eBay brought a less frenzied lifestyle and freed him, for example, to attend his two daughters’ ballet classes. In 2000, he says, his eBay sales topped $420,000, earning him about $100,000 in profit.
Mr. Wieber was in the vanguard of a new type of entrepreneur, set loose by the Internet’s capacity to break down business barriers. By 2000, eBay had 22 million registered users and a growing cadre of “power sellers” who register $1,000 or more in monthly sales. As his business grew, Mr. Wieber occasionally tapped a tech-savvy neighbor, Douglas Deist, for advice and loans. Late in 2000, Mr. Deist quit his job selling software to join Mr. Wieber in a company they called Exel-i Inc., for “ex-Long Islanders,” after their childhood home in New York.
Although he didn’t pay much attention at the time, Mr. Wieber started receiving calls and emails from customers who had seen his eBay auctions or his bare-bones Web site, which featured little more than contact information. Mr. Wieber began selling to them directly, marking his first baby steps away from eBay.
In 2001, Mr. Wieber’s direct sales more than quadrupled to $217,000, representing more than 25% of Exel-i’s revenue. It was clear that selling direct was more profitable. EBay’s fees, for listing items and for sales commissions, could be as much as $18,000 a year. Mr. Wieber moved Exel-i out of his house, where the garage was stuffed with computer-laden pallets, and into an 1,800-square-foot warehouse.
In July 2002, eBay erroneously shut down one of Mr. Wieber’s accounts. For 14 days, Exel-i had trouble listing products, completing transactions and sending email. Mr. Deist fielded angry calls from customers, the Better Business Bureau and PayPal — an electronic-payment service that was in the process of being bought by eBay — who all questioned whether his company existed.
EBay reinstated the account, but the incident soured the two men on the auction company. At the time, eBay didn’t provide telephone customer support to all sellers. Messrs. Wieber and Deist called eBay but were told to send a request for help through email. After 10 days, an eBay employee called, but didn’t apologize, recalls Mr. Deist. “They were really cavalier,” he says. The glitch propelled the pair to enhance their Web site. “You can’t depend on someone you can’t communicate with,” Mr. Deist says.
EBay officials wouldn’t comment specifically on Exel-i’s account, citing privacy restrictions. Mr. Dearing, eBay’s senior vice president, says the problem may have come from the company’s attempts to tackle fraud. “We’ve gotten better,” he says.
Earlier this year, eBay expanded telephone support for sellers. It also pledged that every email would receive a response from a real person, instead of an automated system. Bill Cobb, president of eBay North America, posted a note on eBay’s site when the change was made, admitting that the company hadn’t “invested enough” in customer service.
In August 2002, Exel-i added a “shopping cart” feature to its site, laptopbroker .com, allowing customers to place orders. A few years earlier, that would have been expensive and time-consuming. Today, much of the technology can be bought off the shelf and a support industry has sprung up to help small merchants set up payment systems. Mr. Deist set up Exel-i’s electronic back office in under two weeks, with a consultant’s help.
For 2003, Mr. Wieber’s eBay sales topped $1 million. But his concerns about the site grew as competition increased. About 10% of Exel-i’s auction items weren’t selling, something that hadn’t happened before, and the company had to swallow the cost of listing the items. Profits on laptops that did sell fell to about $70 per machine from $150 a few years before. And, like many eBay sellers, Mr. Wieber fell victim to fraud. One complicated scam, involving fake mailing addresses, cost Exel-i $1,000 a week for several months. Messrs. Wieber and Deist chafed at their inability to talk to anyone at eBay about such issues.
Mr. Wieber started testing other auction sites, although the less-than-satisfactory experience reminded him of eBay’s strength: millions of potential buyers that let merchants “keep inventory turning on eBay very, very efficiently.”
But at that pivotal moment, online advertising took off. First, Mr. Wieber spent an average of $1,000 a month to make sure his company appeared in online directories. Then he discovered the new search-based advertising system popularized by Google and copied by others. Mr. Wieber paid search engines to make ads for his company appear whenever users searched online for terms such as “IBM laptop T20.” Merchants love search-based advertising because they know their ads will be shown only to people interested in specific subjects. Mr. Wieber would sometimes spend $1,000 a week if business was good.
He also hired ChannelAdvisor, a Morrisville, N.C., e-commerce consultant, to redesign Exel-i’s site and tie it more closely to systems that manage Exel-i’s inventory and prices. ChannelAdvisor was founded to help eBay sellers but now makes much of its money helping merchants develop their own sites and sell through Amazon and Yahoo. The result, says Mr. Wieber: Sales through laptopbroker.com and another site jumped 55% last year to $245,000, compared with a 15% increase in Exel-i’s eBay sales.
Last October, at a conference of eBay sellers in Las Vegas, Mr. Wieber talked briefly with Sam Wheeler, Amazon’s director of North America sales and marketplace. Two weeks later, a colleague of Mr. Wheeler called. “I almost fell off my chair,” Mr. Wieber recalls. Aside from an occasional call pitching new services, no one from eBay had ever called to ask about his business, Mr. Wieber says.
Three Amazon employees spent two months helping the businessmen create a special numbering system that would allow them to sell on Amazon. Sales are small but are increasing roughly 50% a month. Mr. Wieber says Amazon sales are twice as profitable as eBay sales.
An eBay spokesman says the company may not have reached out to Mr. Wieber during his early years, but says it has added customer support to rectify the problem.
On Jan. 12, eBay announced higher fees for merchants who post large pictures with their listings or offer goods at a fixed price. Mr. Wieber figured the increase would cost an additional $38,000 this year. He decided to stop using those features.
In response, rival online marketplace Overstock.com Inc. lowered its listing fees and is courting eBay’s top 2,000 sellers. EBay’s fee increase was “a boon for us” says Holly MacDonald-Korth, Overstock’s vice president of auctions. Mr. Wieber is trying Overstock, although he says it isn’t as lucrative as Amazon.
In April, a Google representative called Mr. Wieber and offered free help composing text for search ads. Google is also developing its own payment-processing system that could compete with eBay’s PayPal. Mr. Wieber says he plans to increase spending on Google’s ads after further revamping his Web site.