Why eBay Will Never Be Great Again


There was a time when eBay (EBAY) was the cool place to shop.

When Tickle Me Elmo dolls, classic vinyl records, and Beanie Babies ran scarce at area retailers, folks would flock to the auction marketplace to see if they could outlast rival bidders to victoriously nab hot items.

This doesn't mean eBay isn't popular these days. eBay's marketplace helped sellers move $14.7 billion in gross merchandise, excluding cars, in its latest quarter. The company's PayPal juggernaut is now up to 100.3 million active registered accounts, serving as the middleman for $28.7 billion worth of net payments during the second quarter alone.

Bigger isn't necessarily better, though.

Shares of eBay are trading essentially where they were five years ago. The world has passed eBay by, and the next five years aren't likely to be much better.

eBay Was a Hotbed for Cottage Industries -- Until It Went Condo

Browsing through eBay.com used to be like strolling through an artisan garage sale. These days, it's loaded mostly with cookie-cutter merchandise.

The homogenization of eBay is a sad thing. Original arts and crafts have been replaced by the art of crafty merchants selling the same stuff from drop-shipping companies as everybody else.

Where did the magic go? The flagship site has been pulled like taffy in different directions. Escalating fees, PayPal platform requirements, and listing tweaks repelled many longtime sellers. The leveling of the dot-com playing field also wooed away popular Power Sellers.

Niche specialty sites such as Etsy for crafts attracted some of the sellers behind the more distinctive items that used to populate eBay's listings. It also has become easier to get noticed without a conglomerate marketplace. Skillful self-promoters can milk Twitter missives, Facebook fan pages, and Wordpress blogs to drum up sales. Those willing to spend on promotion can bid pennies for leads through search engine keywords.

Entrepreneurial sellers no longer needed eBay. eBay, in turn, decided that it really didn't need entrepreneurial sellers.

Auction Apathy vs. Instant Gratification

After watching Amazon.com (AMZN) deliver year after year of heartier growth than itself, eBay began to embrace many of the e-commerce giant's characteristics.

Sellers were encouraged to offer "free shipping" promotions, even if it meant sacrificing margins. The thrilling ride to the finish line could now be interrupted with "Buy it Now" prices for folks who didn't mind paying up for instant gratification.

Companies evolve, and not every change at eBay has been for the worse. However, it's telling that just 37% of eBay's marketplace volume came from the United States in its latest quarter. Acquisitions and international expansion have helped mask a company that while growing -- even domestically -- is actually dying inside.

Robbing Peter to PayPal Paul

PayPal has been the best -- if not the only -- reason to invest in eBay in recent years. Despite recent signs of life in eBay's marketplace business, PayPal remains the real driver here.

Things seem to be going well for the Web-based financial transaction facilitator, and eBay revealed in its most recent conference call that it will begin testing point-of-sale integration with a major U.S. retailer later this year. If things go well, PayPal hopes to add as many as 20 national retailers by the end of 2012.

If Visa (V), MasterCard (MA), and American Express (AXP) weren't threatened by PayPal before, they will be taking the fast-growing platform more seriously now. Credit card marketers and issuers know the juicy transaction fees and interest payments that are at stake.

If they don't do something about neutralizing PayPal, technology probably will.

If you're not already familiar with near-field communications -- or NFC -- you will be soon. More and more smartphones are coming out with NFC chips, simplifying mobile payments for goods and services. eBay is no dummy: PayPal is testing its own NFC applications. However, the flip side here is that NFC will also help traditional credit card companies catch up to PayPal when it comes to electronic transactions.

In the past, PayPal could count on users to treat idle cash in their accounts as "found money" when they hit an online checkout screen. Unfortunately, eBay killed the PayPal Money Market Fund this summer, giving accountholders one less reason to keep dormant funds there.

Where is the "Sell it Now" Button?

This may seem to be the wrong time to be writing about eBay's demise: Revenue in its latest quarter soared 25%, to $2.76 billion, though net margins narrowed.

It's also not as if eBay shares are overly expensive. The stock is trading at a reasonable 14 times this year's projected profitability. However, it's hard to see eBay's marketplace continue to be relevant once it runs out of companies to buy. PayPal will be challenged. It sold its majority stake in Skype too soon.

When's the last time you bought something cool on eBay? It was probably around the same time that you should have sold the stock and moved on.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of eBay, Google, and Visa.

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Ebay is a cannibalistic in the sense that they feed off of sellers who have already invested to much to simply walk away. And they try to shut out new sellers with their stringent regulations. Basically If you do not increase their bottom line they have no need for you which will probably lead to their downfall. I mean come on, they have to beat Wall Street's earnings expectations somehow.

June 16 2012 at 1:23 AM Report abuse rate up rate down Reply

Yep.....The site is full of liars and theives too. If you type in boombox or ghettoblaster, most of the sellers are not collectors. Instead, they all know each other and shill for each other, they buy a boombox just to resell it or to steal a part off of it and then demand a full or partial refund, and spread lies about other people. There are many boombox websites out there that claim to be true collectors, but do not be deceived as almost every one of them are filled with liars and con artists. These are guys in their 30s and 40s....and sometimes even older who act like teeny boppers.
To all the boombox liars out there......your folly will soon be exposed!! BANK ON IT!!

February 04 2012 at 2:48 PM Report abuse rate up rate down Reply
Floyd Pierce

i cant believe this!! me and my sister just got two i-pads for $42.77 each and a $50 amazon card for $9. the stores want to keep this a secret and they dont tell you. go here, PennyJump.com

September 01 2011 at 7:39 PM Report abuse rate up rate down Reply

There are some alternatives to ebay the problem becomes sellers taking the time to list there items on these other sites, yes many of these sites do not have the traffic but one has too start somewhere. its the old chicken and the egg theory
PostAds.com is a free auction and classified site with storefront capabilities.

August 30 2011 at 11:50 AM Report abuse +1 rate up rate down Reply

There's a group of sellers on Facebook that sell on other sites. You should check them out. Go to Facebook and search "Feebay"..

August 30 2011 at 9:30 AM Report abuse +1 rate up rate down Reply
1 reply to ladyrebel76mckee's comment

they have 429 members, it's a group not a page.

August 30 2011 at 9:31 AM Report abuse rate up rate down Reply

Great article. As CEO of a company that used to do over a million dollars a year in small ticket niche market items through ebay, we now do maybe $5000 a year. After increasing ebay fees, combined with the costs of complying with increasing ebay regulations that force small niche markets and sellers act as if they were large brick and mortar national retailers, it simply became not worth the hassle to do business on ebay. In trying to make ebay (and hence it's sellers and buyers) conform to the conventional business concepts and models that the leadership was familiar with, they lost the essence of what made ebay work. Typical of a large company out of touch with its customers.

August 29 2011 at 10:48 AM Report abuse +2 rate up rate down Reply

talk about ebay fees, i sold something on ebay last week for 290.00.ebay took 25.20 +.96 for shipping.paypal took 8.86.thats 35.02 ebay got from that sale.from the closed loop manopoly they run.which is probaly illeagal somehow.lots of years ago this practice was.ebay and paypal closed loop.fees are getting out of site.service stinksgames played with the 5 star system.which should be stopped.watch the system close.

August 29 2011 at 7:34 AM Report abuse +1 rate up rate down Reply

Ebay was a joy to be on many years ago. But, they've increased their sellers fees and paypal fees to the point where it's hard to break out even. Regardless of how much you buy, if you don't sell enough they'll put limits on your account. Even if ou've been a totally loyal and honet seller since the 90's. They forgot, who made them what they are. Now all their big sellers are from overseas! Sounds like the Walmart theme!

August 29 2011 at 3:30 AM Report abuse +2 rate up rate down Reply
Foothill Web

I began selling on eBay in 1998 and like most early sellers was thrilled with it. With success comes duplication and now eBay isn't even a shadow of its former greatness. However there are still deals to be found if you are adept at using Search, know the value of items and are willing to shop. I just purchased a pair of Ray Ban Aviator mirrored sunglasses for $20 which sell for $140 at Nordstrom's. On the other hand, you never really feel that secure (despite eBay's warranties) and when a seller says a book is in "good" condition with no other description, well you take your chances. As a seller there is too much crepe competition and as a buyer there is just too much identical junk to search through. My first stop as a buyer now is Amazon. eBay always acted towards sellers like eBay held all the cards. As a result, the quality sellers left.

August 29 2011 at 12:19 AM Report abuse +1 rate up rate down Reply

eBay/PayPal(same thing) sucks! NO CHOICES = NO REVENUE! Wake up eBay/PayPal................we are in a double dip recession and staring a depression in the eye. Give someone enough rope...............they will hang themselves. Adios. eBay.

August 28 2011 at 11:28 PM Report abuse +2 rate up rate down Reply