eBay's Rate Increases Goes Unchallenged - By James Newton

Today, August 22nd is the day of the new eBay store listing increases. I am betting, that last night, you saw a heavy increase in listing traffic to get one month of listings at the old rate. eBay store owners staying up late to get all the new listings in place prior to the new rate increases, or increasing the cost of their merchandise in an attempt to absorb the rate increases. Will any stores shut down? Will we see a decrease in the store listings? Will we see prices driven up? Will buyers have smaller selections? The next 45 days will tell.

Auction format is the fuel that moves the eBay machine. Auction format is what eBay started with. Auctions, and selection are what brings the shoppers to eBay. Shoppers jump in the auction in hopes of getting merchandise at a ridiculously low price. Store owners would often take a loss on an auction item as a strategy to promote their store listings. Relying on impulse buyers to use the buy it now button. This may no longer be a profitable strategy.

Devina Mehra, a lead analyst at First Global Securities, wrote a note to clients in which she voiced support for the rate hike. "We believe eBay is moving in the right direction towards restoring its growth trajectory," she said, as reported in a Seattle Times article.

"Under the new fee structure, a $50 item sold through the store will generate $4.46 in fees for eBay, up from $3.27 before the change," wrote Ben Charny, the author of the article. "Under the old rules, store items cost 27 percent less to list than auction items . . . . As of Tuesday, however, the difference will be just 3 percent."

eBay hopes to encourage high volume sellers to go back to the auction listing format, or, at least collect the full revenue no matter how the item is listed or sold.

This move has caused one group to call for a boycott of eBay, and another group has reportedly written to Google in hopes of them getting an auction site up. There in lies the problem for sellers, no viable place to migrate to.

The timing of this move was perfect. The busiest time of year is just starting. Back to School, Halloween, Thanksgiving, and the ever profitable Christmas season is just starting. Merchants have to sell during this time of year in order to make a profit. From September to December is the make or break quarter for most merchants. If they don't make huge profits during this quarter, then they are not likely to have the finances to carry them through the remainder of the year.

The question then is, will they still be able to generate a profit? A 27% loss in profit is a big hit. Let's say I am a merchant that deals in Woman's Clothing. I want to sell a $50.00 dress on eBay. I have to purchase that dress for $25.00. That is a typical mark up of 100% . In order to offer a selection, I have to purchase each size. Small, Medium, Large, and Extra-Large, and each color, Blue Red and Green. Seven dresses so that a shopper can find the one dress in their size and color. That's $175.00 invested in hopes of doubling my money. Now I pay for store fees, picture storage fees, listing fees, promotional fees, a fee if I want a gallery picture, and when it sells, I get hit with final value fees, and Pay Pal fees. Let's say I sell 4 of the 7 dresses in a month. That's $200.00. Wow, I'm up $25.00.. No, the Store fees alone were $15.00 for the most basic store. And after all the other fees, you are very likely to be out of some cash.

At this point, as a merchant I have three choices. Get out of business, increase my prices, or find a place to sell with a lower overhead. The places to sell with lower overhead do not have the traffic (yet). So I increase my prices. If I increase my prices, then why buy my product on-line? You can find it for the same price in a retail store, and you don't have to pay for shipping. So, my sales are likely to go down anyway.

Has everyone forgotten the benefits of selling and buying on-line? Large Selection at better than retail pricing. Selling with low overhead means better profits, and reduced prices to the buyer.

One blogger wrote "I think you have it upside-down when you state:

The success of their initiatives will be measured by the actions of their sellers.

The actions of the buyers is what is driving eBay. As long as the buyers show up, the sellers will follow."

eBay got to where it is today by first attracting sellers. Buyers come for the large selection, and the impression of low prices. When they start finding out they can get it cheaper somewhere else, sellers will follow the buyers, and eBay will start scrambling to solicit sellers back.

The next 45 days will tell. If we can get MSN, Yahoo, Google, Amazon, or some other large player in the game, then auction format shopping will continue to dominate e-commerce, and eBay losses it's monopoly. If not, then the way people shop on-line will switch to specialized web sites, and auction based shopping no longer dominates e-commerce.

Jim write for and is the current owner of http://www.neutronmarketing.com a company dedicated to helping others achieve success on-line. Every thing from affordable domain registration, web site design, and hosting to e-books, promotional kits, premiums and free programs and tools to help you get the job done. Come by and register to receive many free programs, and tools to get you on the way to making money working at home.