Not everything needs to be auctioned

by Mathew on June 3, 2008 · 10 comments

Catherine Holahan has a piece in Business Week about eBay and the decline of the company’s traditional auction business — or rather, the increasing growth of its non-auction “Buy It Now” business, which she says currently generates almost half of the company’s revenue. Nick Carr (always eager to pronounce something dead) asks whether eBay was “just a fad.” Some fad: eBay has a market cap of about $40-billion and year-over-year quarterly revenue growth of about 24 per cent. But it’s certainly worth asking whether its business model is evolving toward something non-auction based.

If anything was a fad, it was probably the idea that the eBay auction model could be applied to almost anything — that online auctions could solve virtually any problem, from disposing of human organs to getting rid of all your life’s possessions after a divorce. In that sense, eBay was seen as a giant hammer, and everything started looking like a nail. But it’s been known for some time that the auction model works for some things and doesn’t work for other things. And if you think about it, one of the main downsides to the auction model — as my friend Mark Evans notes — is that it can be a gigantic pain in the ass.

The auction — whether it’s the English style (used by Sotheby’s, etc.) or the Dutch style (known as a “reverse auction” because the price starts high and comes down) — is a method that is best used for goods that are scarce and for which there is plenty of demand, such as paintings by the Group of Seven or tulip bulbs in the 17th century. Some products on eBay might fall into that category, but certainly not every single one. And the other requirement for an auction model is time — something many prospective eBay buyers don’t have a lot of.

Does the increasing interest in the Buy It Now option mean the online auction is dead? Hardly. But not everything is a nail.

  • http://leighhimel.blogspot.com leigh

    Ah this is interesting. My brother is a vintage clothing sales guy – he has lived and breathed ebay as a staple to his business. He has said that ebay's pricing policies have crushed him margins in the past couple years and he has been slowly changing his model to something more sustainable (and considering getting out all together). I wonder if the question isn't is ebay a fad, but more a question of whether ebay's monopolistic business practices are starting to cause its own demise.

  • http://www.mathewingram.com/work mathewi

    I think eBay's actions in raising prices has definitely had something
    to do with it — a friend of mine who has been making a living by
    selling records on eBay for years said pretty much the same thing.

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  • Brendan Kirk

    An additional problem with eBay is that it has become overwhelmed with knock-off products and counterfeits. As someone who buys and sells on eBay, it makes it difficult to ensure that what I'm buying will be what I'm expecting, and it reduces customer confidence, thus reducing the amount people are willing to pay for an eBay item, and reducing the number of bidders. There simply aren't enough checks and balances in place to keep the quality of the average listing up, and therefore people start to move away in favor of something more stable.

  • http://www.mathewingram.com/work mathewi

    That's a good point, Brendan. Thanks for the comment.

  • http://www.tripharbor.com/blog Stuart MacDonald

    'thewie:

    I think you, um, nailed it with the “not everything is a nail” comment, and I for one am not surprised that they are seeing huge growth in the “But it now” service. In fact, we can see similar trends in other – big – categories. For instance, Priceline has become much more successful after their near-death experience that helped drive them to offer fixed-price travel services in addition to the auction style. When I was running marketing at Expedia, we wondered whether it would be successful, especially given that PCLN had invested so much in teaching their customers that they were an auction site, as well as the the hoo-haa about their “business system patent” or whatever. Personally, I liked their odds – they could draft on their huge reach and supplier relationships to offer “good enough” pricing without the hassle of the auction.

    The flipside is that when Expedia.com in the US tried to offer auction-style pricing for flights it flat-out did not work. Now there could be lots of reasons for that, but basically Expedia customers weren't interested. Which in part led to the acquisition of Hotwire. Different problem – different solution.

    - Stuart

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  • Maggy Young

    If you want to buy something, the facility to buy it now helps a lot. You can decide & just buy it. Users can get bored & frustrated with messing around with auctions for ordinary things & leave it instead.
    Another reason why people have become disenchanted with Ebay is the common practice of sellers making false bids.

  • hello9999

    Auction isn't dead…but honestly, it's so difficult to sort through all the items on ebay. You need alot of time to browse, but it is still fun to think you are the only one that has found that special item!

  • hello9999

    Auction isn't dead…but honestly, it's so difficult to sort through all the items on ebay. You need alot of time to browse, but it is still fun to think you are the only one that has found that special item!

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