IBM, eBay: The Boost from Overseas

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EBay's shopping sites accounted for about 67% of revenue this quarter and still fuels much of PayPal's business, despite strong demand for PayPal from other sites. "This is a barge and they are dipping oars in the water to try to turn it around," says American Technology Research analyst Tim Boyd, who has a buy on the stock. "It is going to take a long long time to turn it around, and it is not without risk."

Earlier this year, eBay announced sweeping changes (BusinessWeek.com, 1/29/08) to its fee structure that appealed more to sellers of higher-ticket items and fixed price goods. The new fee structure reduced up-front fees up to 25% for listing items in an auction and up to 50% for listing items in stores. It also decreased percentage-based fees for higher ticket items and offered discounts to PowerSellers who receive high ratings from users. Meanwhile, many smaller merchants who sell goods priced at $100 or less saw fee increases, or those who rely heavily on auctions saw the overall amount they pay to eBay increase.

Many see the changes as a signal that eBay is moving away from the auction format and toward fixed pricing, a segment of the marketplace that has seen higher growth and appeals to many buyers who shop online for convenience as well as deals. "The price increase does hurt the auction traditionalists pretty significantly," says Scot Wingo, CEO of ChannelAdvisor, a software and services company that helps more than 6,000 businesses manage their inventory on eBay, Amazon (AMZN), Overstock.com (OSTK), and other e-commerce sites. "They are definitely trimming auction content from the site."

"Still Room for Small Sellers"

While unwilling to say that eBay is moving away from its auction roots, Donahoe did say that the company would be somewhat format agnostic when it comes to how items are sold. If buyers want fixed prices, that's what they will get. "From the beginning, eBay was about great deals and a wide selection and that is still what we stand for," said Donahoe after the earnings call. "But as search has developed, you can get a great deal in a fixed-price format."

The changes to date have received mixed reactions. Many sellers, such as those advised by Wingo, have applauded the efforts and report more shopping activity and higher returns. Others have been so upset by the fee changes and changes to the feedback system that prevent sellers from leaving negative buyer feedback that they have boycotted the site. "[Donahoe] is not interested in the small seller because they give eBay a flea market atmosphere," says Terry Norman, a longtime eBay buyer and merchant who sells audio books, instruction manuals, and other items on the site.

Donahoe admits that some of the changes may have affected some auction sellers too harshly and that the company heeds their concerns. "There is absolutely still room for small sellers on eBay," he says.

As he works to appease sellers, Donahoe will need to navigate the company through a domestic slowdown. Meantime, he and Palmisano can take satisfaction from international operations that for now leave their companies well insulated from gloom and doom in the U.S.

Holahan is a writer for BusinessWeek.com in New York .