Where Next for eBay?

This year's annual eBay gathering eBay Live was not the usual happy-go lucky affair celebrating the rise of the individual, small time seller. The expected 10,000 attendees was rumoured to be much reduced as the auction pioneer experienced the effects of boycotts from the small sellers it built its business on.

One of the more controversial areas in the firing line is the new eBay seller transaction ratings. In a move to stop retaliatory negative feedback, eBay has introduced a new system where sellers can only leave positive feedback ratings. Lorrie Norrington, President of eBay Marketplaces said, 'Building trust is a priority for us and it should be for you too. But some of our users have developed bad habits.' It was part of a talk that received much booing.

There was much talk of small sellers quitting and moving to rivals, many talked of lobbying Google to become a credible rival. Meanwhile eBay is changing. CEO, John Donahoe, stated 'The Company wants to operate less like a car-boot sale and more like a shopping mall'. Therein lies one of the issues.

The issue of trust in using eBay is a major problem as it has long been dogged with an image of dodgy dealers, scams and fraud. I have personally been on the end of an attempted scam when having bid on a car and failed to win, I was offered a 'second chance' at my derisory offer price. Being the trusting sort and tempted by an amazing bargain I was completely sucked in by the official-looking eBay email and so ignored the fine detail that the transaction was to take place outside of eBay. I was given a phone number, email address and details to transfer the deposit of £2,000 by Western Union. Looking back, I was really dumb, but I can understand how people get sucked in by this official-looking scam. Luckily, Western Union came to the rescue and put me straight onto a special security department who informed me in the London area alone, eBay scams were running at the level of around £1.6m per week. Even that could buy enough petrol, gas and electricity for an average British family for a few weeks. Meanwhile, eBay had an email address I could send the attempted fraud to from which I got an automatic reply. I had supplied the email address and phone number and to my knowledge none of it was followed up.

How is the eBay Model Changing?

In the quest to find its nirvana, eBay is moving its model evermore away from its auction roots - the idea a seller could put a reserve on an item and over a short period buyers could bid against each other and buy at the highest bid. In the last quarter of 2007, fixed-price sales accounted for 42% of the total revenue for eBay which is now a staggering $60bn last year from 233m customers. However, despite a 22%leap in profits thanks to a superb performance by its Paypal subsidiary, the eBay core business was pretty flat and listings rose only 4%. Its business is vastly underperforming the ecommerce market where Amazon is growing at 32%.

Part of the cause in underperformance of its core business is that small sellers are not the only ones affected. Larger sellers like Emovieposter.com who have sold over $13m on eBay have estimated to continue their business under new fee changes would increase selling costs by 40%. The claim is that large discounts for the massive sellers will be offered by eBay and there will be changes in its search processes to favour them with good feedback.

eBay seems to be looking to drive toward the Amazon model. Its major issue is that Amazon does not have the weight of all those small sellers to carry and it has virtually zero fraud. What happened to the integration of the Skype acquisition - well there was no mention of that particular 'weight' around the corporation's neck.

Is This The End of The Housewife Millionaires?

So does this signal that eBay is about to ditch the generation of small time business folk who from their homes bought and sold items and made a very healthy living out of it? The stay at home entrepreneurs who used eBay initially to get a supplementary income and found that their reach was way beyond the boundaries of their home and all across the US and beyond. Will this be the end of the era when anyone could pop onto the web, participate in a short auction and find a secondhand barbecue for the Summer months at a bargain price?

Inevitably businesses have to change to maintain their momentum and deliver consistent growth and returns for shareholders but I cannot help feeling eBay has rather cynically ditched the very customers who fuelled the staggering growth of its business. I also think that it has a long, long way to go to match the simplicity, logistical expertise and image that an Amazon has in terms of trusted buying. The difference in the model is that Amazon is a true internet retailer - in charge of its own logistics, product buying, selling and payments; an end-to-end online store. eBay is a platform for traders to sell and buyers to buy, only the payment side is owned by eBay the rest is delivered by the traders and buyers amongst themselves. It still means that eBay is very dependent on the trustworthiness of those who use its platform and their logistical expertise and honesty which means the eBay brand will forever be the sum of its traders.

eBay might have done well to contemplate that as it moved toward the goal of an online shopping mall, because once you have ditched the small market traders there is no turning back should eBay fail to achieve its goals. I think it's a massive gamble.