EBay Courts 'Power Sellers'

By cutting fees for big sales and boosting defenses against fraud, eBay shows it's listening to top-flight users. But what about the little guy?

by Catherine Holahan

New management at eBay (EBAY) wants to send the message that it's listening to users' complaints. It did that Jan. 29 by announcing sweeping changes to what it charges people who sell items through the e-commerce giant. But if there's a subtext to the message, it's that eBay's listening to some users more than others.

The changes clearly favor larger merchants who sell higher value goods at set prices, as opposed to merchants who use an auction arrangement. The new fee structure reduces up-front fees up to 25% for listing items in an auction, but up to 50% on store items, which have fixed sale prices. Meanwhile, smaller merchants who sell goods priced at $100 or less will see fee increases. New fees on the final sale of an item decrease as the item price increases. EBay is also offering Power Sellers, the name eBay gives its highest rated, most prolific sellers, a discount of up to 15% on the final value fee.

Big-Ticket Items Get Big Breaks

Even the way eBay announced the changes shows the company is courting bigger merchants. EBay executives invited 200 of the company's top sellers to a Washington, D.C., hotel to reveal details of the new fee structure, which had long been forecast in the company's earnings calls (BusinessWeek, 1/23/07). "The sellers with higher average selling prices and fixed prices are getting the most advantage from the fee changes," says Scot Wingo, chief executive officer of merchant software providerChannelAdvisor, and one of those invited to the D.C. event. "The ones that start with one-penny auctions are getting the worse end."

It's no surprise that eBay is appealing to big sellers of fixed-price items. The online auctioneer has faced increasing competition for these sellers from the likes of Amazon.com (AMZN) and others. And it is their premium merchandise, offered for a clear "buy-it-now" price, that often draws the Web's convenience-conscious shoppers. As these merchants have listed more of their merchandise on competing e-commerce sites and on their own pages with a helpful dollop of advertising through Google (GOOG), eBay has found shopping activity on its own sites slow (BusinessWeek.com, 1/22/07).

Analysts are concerned that fee reductions will squeeze eBay’s margins. "The uncertainty regarding the new CEO’s efforts to boost core marketplace growth rates, as well as soft guidance, keep us on the sidelines," wrote UBS analyst Ben Schachter in a Jan. 24 note to investors. For its part, eBay is hoping that increased volume of merchandise on the site will make up for any profit decrease.