eBay Auctions: Going, Going...

The thrill of the hunt is fading for buyers, and longtime auctioneers aren't happy with higher fees

by Catherine Holahan

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eBay veteran Hershenson now sells movie posters on his own site Stefan Hester

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Dave Dribin, a 34-year-old software engineer in Chicago, used to like bidding on eBay. He scouted out vintage and used goods he could scoop up cheap. But not anymore. Dribin no longer wants to waste hours tracking an auction, especially if he ends up losing out on something he wants. Instead, he just buys things retail when he shops online. "If I really want something, I'm not going to goof around [with auctions] for a small savings," he says.

Auctions were once a pillar of Internet commerce. People didn't simply shop on eBay. They hunted, fought, sweated, and triumphed. But as the business of buying and selling online has matured, the thrill of the chase has faded for shoppers like Dribin. Increasingly, people just want the convenience of buying stuff online quickly at a set price.

As consumers' interest in auctions has cooled, eBay, far and away the largest online auctioneer, has paid the price. Revenue and profit growth have slowed. Its stock has tumbled from a peak last year of more than 40 to 29. It may have been even worse, but the company's PayPal (EBAY) payments unit has been flourishing. In recent months, new Chief Executive Officer John Donahoe has moved the company toward a more traditional online retail business. Donahoe declined to comment for this story, but in an April interview he said eBay is simply trying to adjust to changing consumer tastes. "We are going to let our buyers choose," he said.

Shoppers are making their preferences plenty clear. While eBay's auction business grew at strong double-digit rates for years, growth slid to 6% in the first quarter of this year. In contrast, eBay's fixed-price business increased 22% in the first quarter.

The shift means profound changes for eBay. If current growth trends continue, this could be the first year in which the company reaps more revenue from fixed-price sales than from auctions. (In the first quarter, 58% of eBay's sales came from auctions, while 42% came from fixed-price sales.) That would make eBay less of a unique online shopping site and more of a direct competitor to Amazon.com.

Why are consumers cooling on auctions? People are busy, of course. It's also tougher to find bargains at auction these days, because anyone can find the market price for almost anything with a quick Google (GOOG) search. One development that's recently made auctions vexing for people like Dribin is a practice known as "sniping." That's when someone darts into an auction just before it closes and tops the highest bid. With no chance to counterbid, less experienced bidders lose out to snipers, often after days of following an auction. The practice has grown more common lately because of "bidding bots," automated software programs with names like "Bidnapper" and "Powersnipe," that place bids seconds before an auction ends. "Sniping is the most frustrating thing," says Dribin.

Donahoe may not be able to stop sniping. But since assuming the helm in March, he has taken steps to emphasize fixed-price items. In May, for example, eBay struck a partnership with Buy.com to sell a large swath of the online big box retailer's electronics, luggage, books, and other items for set prices. Perhaps most significant, eBay changed the fees it charges retailers who sell on its site, reducing the charges for companies that sell fixed-price goods and increasing fees for many that use auctions.

SOLD OUT

Donahoe's changes have created a new problem: They've infuriated some of eBay's longest-tenured sellers. Take Bruce Hershenson, a 55-year-old from West Plains, Mo., who sold vintage movie posters on the site for nearly a decade. When he first heard of the fee hike at a meeting with eBay management in Washington, D.C., 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.'"

Under eBay's old fee structure, Hershenson paid about $2 in fees to eBay when he sold a $40 poster at auction.