Auctions on eBay: A Dying Breed

by Catherine Holahan

As consumers opt for fixed-price purchases, what happens to the company that perfected the art of online bidding—and the scores of e-auctioneers?

Bruce Hershenson, who auctions vintage posters online, is hanging up his eBay gavel. For almost a decade, Hershenson's business epitomized the e-commerce that made eBay (EBAY) famous. He sold rare, collectible, sometimes kitschy memorabilia in online auctions that had a starting bid of 99¢. But as the business of buying and selling over the Internet has matured, the thrill and novelty of auctions have given way to the convenience of one-click purchases. Hershenson will hold his last eBay auction June 3. "The auctions are nothing like what they once were," he says. "They won't ever come back."

Auctions were once a pillar of e-commerce. People didn't simply shop on eBay. They hunted, they fought, they sweated, they won. These days, consumers are less enamored of the hassle of auctions, preferring to buy stuff quickly at a fixed price. Hershenson is emblematic of the legions of small business people who built their livelihoods on eBay but—like eBay itself—are having to rethink their whole approach to online sales.
Sales at Amazon.com (AMZN), the leader in online sales of fixed-price goods, rose 37% in the first quarter of 2008. At eBay, where auctions make up 58% of the site's sales, revenue rose 14%. "If I really want something I'm not going to goof around [in auctions] for a small savings," says Dave Dribin, a 34-year-old Chicago resident who used to bid on eBay items, but now only buys retail.

E-Commerce Continues to Evolve
Executives at eBay have gotten the message. Since taking the helm in March, eBay Chief Executive John Donahoe has made it clear that fixed-priced items are key to future growth. EBay's "Buy It Now" business, where shoppers can purchase items at a set price even when the merchandise is also listed in an auction, makes up 42% of all goods sold on eBay. It's growing at an annual 22% pace, the fastest among eBay's shopping businesses. "As [Web] search has developed, you can get a great deal in a fixed-price format," Donahoe said in an Apr. 16 interview after his first earnings call as eBay's top executive. "We are going to let our buyers choose." Donahoe did not comment for this story.

At the current pace, this may be the first year that eBay generates more revenue from fixed-price sales than from auctions, analysts say. "The bloom is well off the rose with regard to the online-auction thing," says Tim Boyd, an analyst with American Technology Research. "Auctions are losing a ton of share, and fixed price has been gaining pretty steadily."

To hasten the growth, Donahoe is spearheading changes to make eBay more friendly to users who favor one-click shopping. While former CEO Meg Whitman ended her tenure amid an ad campaign that championed auctions, urging consumers to "Shop Victoriously," Donahoe has taken steps to increase fixed-price inventory. In May, eBay announced a partnership with Buy.com to sell a large swath of the retailer's inventory for set prices. "EBay has significantly de-emphasized dynamic-priced items in favor of fixed-price listings in the last six months," says Cantor Fitzgerald analyst Derek Brown.

EBay Fees Favor Fixed Prices
Perhaps the biggest example of eBay's new fixed-price focus is the new fee structure, announced in January. The changes gave breaks to many large vendors who sell fixed-priced goods on the site, while hiking fees for many eBay users who sell using a traditional auction structure.
(Source: BusinessWeek.com, 1/29/08).