Entries in eBay (3)


Raking it in with e-commerce scam-style at Swoopo

The Economic View of the New York Times today praises the "diabolically inventive" ways of Swoopo.com, a website with "unusual auction formats" and a website that is "mesmerizing". In Swoopo's popular format, the penny auction, a new item -- Playstation, Windows 7, DVD player, iPod, etc -- is put up for bid at the price of 1 cent. For 60 cents, you can bit up the price to 2 cents. And so on, until the scheduled end time. But this is where Swoopo parts ways with eBay's traditional auction model; here, the "scheduled end time" can be extended by 20 seconds by placing an additional 1 cent bid...indefinitely. They even offer a Bid Butler to help you achieve the winning strategy of placing a bet in the final 10 seconds. If you win, you might walk away with a new computer that retails for $1,200 with a bid of $76.58.

The trouble is that the site is far worse than a zero sum game. Each auction ends with one minor winner (the winning bidder), lots and lots of losers (the losing bidders), and one major winner (swoopo.com). For every winner of a $76.58 computer, there are quite a few losers who continued to chase after their sunk costs of 60 cents per 1 cent bid. Swoopo keeps all bidding fees as revenue. As Professor Thaler notes, the average revenue to Swoopo for each of its auctions is 60 times the selling price of the item. What a coup; no wonder the company has raised $10M in funding, led by August Capital, since launching in 2008.

But unlike eBay, which manages to efficiently price an item through auctions and rewarding the highest bidder (who values the item the most), Swoopo creates an entirely distorted market that preys on humans' love for games, risk, and chance and prices an item nearly arbitrarily based on the gaming of the system. It's the worst type of online market : an "entertainment shopping" destination that rips most people off while wasting lots of their time (the final "seconds" of an auction may last days) with a lottery ticket-like hope of striking it big.

It seems a bit strange to see this resurgence of the auction format, after many proclaimed it dead with the rise of Amazon and eBay's response of making  the majority of its purchases the Buy It Now format.  Keith Rabois of Slide, Paypal, and LinkedIn, argued in TechCrunch back in May that social networking sites like Facebook and YouTube killed eBay by offering pure "entertainment destinations" whereas people used to turn to eBay more for the online fun.

So a decade later, we see the entertainment/commerce combination back again, only dirtier and scammier. What progress.


What REALLY killed eBay?

Keith Rabois of Slide thinks that social networking sites killed Ebay. His premise is that eBay was visited more for its entertainment value than its e-commerce purpose.

eBay certainly is in bad shape, as we've discussed before. But why? Perhaps the thrill of competing in auctions had something to due with its popularity and now consumers are finding that excitement elsewhere, as Rabois suggests, but there is clearly something else going on.

eBay is good for two types of transactions: the rare and the cheap. You go there for things that just need to have but can't find anywhere else or to find steals on things that you easily can get elsewhere. The latter portion is what has killed the site for me. Being on the site just feels so cheap. 50% off!! signs are everywhere and I feel like I'm in a massive budget warehouse. The site is just unpleasant to peruse. Rather than the warm fuzzies of Etsy or the simple transaction of Amazon, eBay combines the worst of both to create a fake "community" where sellers are mostly "merchants" or "powersellers" rather than individuals, buyers don't even need to list their full names, and especially with the recent rule changes, sellers are treated like criminals. The whole place feels untrustworthy.

eBay is failing at becoming another Amazon. "Buy it Now" sales now compose half of all eBay transactions, but I am looking for a new camera or a bestseller book that has a clear current price, eBay is just about the last place that I would go. Sitting around in an auction is a waste of time for something that has a clear market value and even if it is "Buy It Now" the user experience on eBay is not nearly as good as it is elsewhere. On the other hand, if I am looking for a rare 60s-era Persian rug or a hard-to-find vinyl, eBay is great. The rare item that I'm looking for is likely there and I'm willing to put in the effort of the auction to get it and I'll take my chances on the seller.

CEO John Donahue is committed to transforming Ebay's business model away from auctions and towards fixed price sales of mainstream items. This is the wrong direction. Ebay used to be the best known e-commerce company, but with so many niche companies filling certain consumer demands (Zappos for shoes, Etsy for vintage jewelry, etc...), it will never regain its prominence.

Better to stick with what it does best: connecting buyers and sellers in auctions for items that are unique, rare, ultra-niche, hard-to-price or just hard-to-find. Leave the mass e-commerce to Amazon. It does it so much better.


Ebay may be down...

...but foreign e-commerce sites are up. Check out MercadoLibre in Latin America and Gmarket in Korea.

The most popular p2p trend --commerce-- is clearly going global.

 Addendum: To clarify the comment from Tim, compare Ebay's stock performance over the past 3 months, with that of MercadoLibre . The blue line is the company (Ebay on the left, MercadoLibre on the right), and the red line is the S&P 500. Ebay's fall over the past month has nearly paralleled the S&P 5000, while MercadoLibre is proving resilient.