Archive for the ‘Profits’ Category
EBay Boycott Fails, Profits Soar
Posted on: May 12, 2008
eBay has the last laugh at its sellers expense, throws a bit of sand in boycotters faces with earnings report
Apparently, eBay’s policy changes are having desirable effects, despite the massive public outcry the company received. While the company cut its listing fees, it more than made up for it by significantly raising its commissions on successful sales, particularly on low-priced items such as video games and CDs. The higher rates along with the elimination of negative seller feedback to the buyer created outcry among many loyal eBay sellers.
Some sellers tried to boycott eBay. Initial metrics seemed to show the boycott to be working — listings were decreasing and sales were down, by most official counts, although eBay insisted they weren’t.
However eBay soon rebounded and resumed largely business as usual, despite having lost a few loyal sellers. As DailyTech‘s Shane McGlaun wrote in a blog, sellers really had few choices — Amazon.com only allows resale of select items such as CDs or books, and Craigslist.com is avoided by many, due to its unseemly reputation as a hotbed for illegal activity. Most sellers were stuck with eBay, whether they loved it or hated it.
On Wednesday, eBay CEO John Donahoe announced a stronger than expected earnings report, with the company reporting $2.19B USD in revenue, a 24 percent increase over Q1 2007. The performance significantly beat analyst expectations. Net income also rose 22 percent to $562M USD.
Despite the boycott, listings jumped 10 percent to 647.4 million, which eBay attributes to the listing fee cuts. However, eBay did admit that its “conversion rate”, the percentage of sales ending in success, “declined only slightly”, though eBay would not reveal exact figures. The total “gross merchandise volume”, a metric measuring the value of goods sold on eBay and associated properties, experienced 10 percent growth to $16M USD
However, while eBay may have a bit of grounds to gloat over the boycotting sellers, the long-term outlook for the company is not quite as peachy. In 2008’s first quarter, eBay had 83.9 million active users, up just over one percent from last year, at 82.9 million users. The stagnant growth indicates that eBay may be reaching the market saturation point.
For a company at a market saturation point, customer satisfaction becomes increasingly important. EBay CFO Bob Swan noted, “We’ve concluded that the best way to grow our active user base is by not losing any of them.”
However, while Donahoe may not want to lose his users, his company’s policy certainly threatens to send some users packing, or at least slow growth further. Next month, the company will eliminate negative feedback from sellers to buyers, taking away a major tool which sellers could use to safeguard themselves against malicious customers. While Power Sellers will have some new protections, normal sellers will find themselves in a much more dangerous situation, at the mercy of their buyer’s reviews.
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