Tuesday, October 14, 2008

eBay versus Amazon

A report on eBay versus Amazon:

Just three years ago, eBay had 30 percent more traffic than Amazon. Today, its total of 84.5 million active users is barely ahead of the 81 million active customer accounts that Amazon reported in June.

Amazon has exceeded eBay in other measures as well. EBay's market capitalization was three times Amazon's in 2005, back when Wall Street loved the fact that it carried no inventory and generated huge profits. This year, eBay's stock has lost over half its value and, in July, Amazon's valuation surpassed eBay's for the first time.

I used to sell on eBay, and eBay's problems do not stem from Amazon. eBay's problems are all of their own making. eBay is monopolistic bureaucratic corporation that has an incompetent understanding of their own business model. Here are some quotes from the CEO of eBay which displays the arrogant general lack of understanding of who their customers are:

In a series of interviews, Donahoe acknowledged that eBay, based in San Jose, Calif., didn't adapt fast enough to shifting e-commerce winds. He now embraces a turnaround mind-set" and is refocusing its Web marketplace toward shoppers who don't want to waste time in online auctions.

"There are times when I wish we can close this store and just open a new store, but we can't," he said. "We need to make bolder, more aggressive changes to the eBay ecosystem even if they are unpopular."

eBay's business model is built completely around third party vendors selling products on eBay. In essence, eBay's customers are the people who are selling the products on eBay. The shoppers on eBay are not eBay's customers, instead they are the customers of the third party vendors. John Donahoe's quotes above makes it clear that eBay is unaware of this and treats the shoppers as if they are eBay's customers, and treats the sellers as if they are an unwanted nuisance. Through a combination of arrogance and ignorance, eBay is driving off their seller/customers in the hopes of attracting more shoppers. Well, as eBay drives off its customers, what exactly are those shoppers going to buy?

eBay should be catering to its customers (i.e, the sellers), and attempting to attract more sellers if it wants to grow its business. Now part of attracting more sellers will involve attracting more shoppers and increasing the rate of sales conversion. However, attracting more shoppers should not be done at the expense of making changes that are "unpopular" in the "eBay [seller] ecosystem".

Update: Lest anyone think I am disgruntled former eBay seller who is merely upset that eBay was trying to make it harder on the bad sellers, you are more than welcome to check out my ratings. I think that although I was not perfect, my ratings do show that I was one of the sellers that eBay should have definitely wanted to retain and not drive off.