Welcome to the Jungle: The Two Sides of eBay

By Frank Fortunato | Posted January 10, 2005

You might be tempted to describe eBay as the 800-pound gorilla of the online auction world. That, however, would be an understatement. eBay is actually more like a rainforest full of gorillas with a few chimps living on its fringes.

eBay has six times more users than its closest rival, Yahoo!, and other auction alternatives do not even bear comparison. Statistics can lie, but eBay's stats pass the polygraph test by sheer numbers — numbers that keep growing at a gravity-defying pace. In January, 2004, an average of 19 million items were available for sale on eBay. Today, the number is 25 million. The site registers 2,000 to 3,000 new users daily. This is on top of the 114 million current eBay users worldwide, 90 percent of whom are buyers. In short, eBay compels small businesses to establish a presence.

Is It Too Late to Get in the eBay Game?
eBay claims that 430,000 people earn a living on the site, mostly small business owners and individuals. Some veteran eBay sellers cast a doubtful eye on this figure, citing the fact (which eBay acknowledges) that many of these sellers also maintain brick and mortar stores and separate Web sites, thus only earning a part of their income on eBay.

"eBay does not offer promotional discounts or inducements without a reason. The reason here is that the stores lag far behind the auction venue in generating income. Sellers know it and eBay knows it."

However, factoring in the many power sellers who hire full-time employees to post and maintain their hundreds of weekly auctions and enormous Stores, there are probably hundreds of thousands of people earning a living on eBay. This, along with the fact that there are virtually no entry barriers to selling on eBay, (a computer, credit card, scanner/digital camera will do it,) makes for serious competition that is growing in pace with the site's overall expansion.

While competition is stiff, it is by no means prohibitive. To survive the law of natural selection on the site, you must be fitter than the competition: This starts with a strategy to match your merchandise to the eBay marketplace.

Auctions Versus Stores
The eBay world breaks down into two hemispheres: the auction sales for which its best-known and fixed price venues that include eBay Stores and the Half.com subsidiary. eBay announced the closing of Half.com in July. However, by October, when Half.com sellers failed to move to the Stores in sufficient numbers, eBay reprieved Half.com from death row. However, besides its being a discount venue, Half.com's future remains nebulous at best.

Essentials
For more on eBay, check out ECommerce-Guide's Selling on eBay special section

In addition to eBay Stores and Half.com, there has been a fixed-price alternative within the auction format since 2000: the Buy It Now option. For a fee, sellers can post a Buy It Now alternative price on their auction sales. Once a buyer places a bid on the item the Buy It Now feature vanishes, and the bidding continues in the auction format. Conversely, if the item sells at the Buy It Now price, the auction ends and the seller must start a new auction to sell duplicate stock.

According to analysts who cover eBay, fixed price sales in the eBay Stores, Half.com and the Buy It Now auction formats account for 29 percent of "gross merchandise volume" (not to be confused with revenues generated) on eBay. But Buy It Now works best with commodities and products so common that the lowest price item is usually what sells. For anyone seeking to sell at retail, eBay Stores can be viable alternative to the site's auctions. The advantages of establishing an eBay Store include the following:

  • The individual item listing fees are considerably less expensive than the auction format, and they last longer. The basic Store fee is $10 per month plus a two-cents-per-item fee per month, and items can be listed indefinitely. Auction listing fees begin at 35 cents-per-item-per category on sales that can run for up to ten days. (However, the Store closing fees are the same as for the eBay auction format.)

  • Store sellers get a link on their auction pages leading potential buyers to their Store.

  • Stores allow cross promotion. Store sellers can show four other Store items in their auction listings that are linked to their stores. For example, you could offer higher-priced products, similar items to what sold or accessories to the sale item. All bidders and buyers see this graphic on the auction sale and Store pages.

  • Sellers can customize their Store's graphics, colors and product presentation.

  • Unlike auctions, Stores come with a search box, allowing buyers to search the seller's complete inventory — the only such individual seller search option on eBay.

  • Stores are a "fix it and forget it" venue. Auctions, particularly for sellers marketing one-of-a-kind-merchandise, are time-consuming to create and maintain.

The Downside of Establishing an eBay Store
It you are looking to run a business on eBay, an eBay Store may seem like a logical place to start. In fact, eBay offers the first month of Store listings free while proclaiming that Stores can increase a seller's sales by 25 percent — after three months. Neither the offer nor the info is good news. It's gorilla status intact, eBay does not offer promotional discounts or inducements without a reason. The reason here is that the stores lag far behind the auction venue in generating income. Sellers know it, and eBay knows it.

eBay users are auction-oriented. eBay's claim of a best-case scenario 25 percent increase in sales acknowledges that sellers will still accrue 75 percent of their sales in the auction format. (There are 25 million auction items compared to, perhaps, two-to-three million items for sale in the Stores.) More telling is the "after three months" asterisk proviso, which shows that buyers wander into Stores at a slow pace — most often only after establishing buying relationships from the seller's auctions.

Just as an independent Web site will be lost on the Web without good search engine placement, an eBay Store will remain a lonely place until the seller attracts a following of buyers he can steer into his Store. In short, auctions are the most viable starting point for entering the eBay market. Now for the hard part: How do you ensure you are getting the most from your eBay auction presence? In Part Two, we'll tackle what sells best on eBay and how to succeed in the auction jungle.

Adapted from ECommerce-Guide.com, part of Internet.com's Small Business Channel.

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