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Will The New Fixed Price Listing Policy Swamp eBay With Listings Making It Harder To Find Goods

September 12th, 2008 by Skip McGrath

The new fixed price listing policy goes into effect in a few days on September 16. What will the platform look like on September 17th.

The new Fixed Price (FP) listing policy has four major elements:

  1. Listing fees are lowered to 35-cents for most products and 15-cents for Books, Movies and Media
  2. The listing duration will be for 30-days and listings can be automatically renewed (GTC).
  3. Sellers can list an unlimited quantity of items for the same fee
  4. Final Value Fees (FVF) will rise to charge sellers more on the back end (when a sale is made)

I have been speaking with several sellers over the past few days –both large and small.  One of the concerns I am hearing is that the platform will be swamped with items resulting in items becoming harder –not easier to find. eBay did announce that as part of this they are reconfiguring Best Match search to score FP listings separate from auction-style listings.  This should help, but the truth is no one really knows.  I suspect the Media category will be the most crowded but other categories will be affected as well.

When I look at my business, I have about 40 different listings for standard products I sell all the time. So it will cost me (0.35 x 40) $14 a month to launch all of my items to the FP format.  That is pretty cheap, so why wouldn’t I do that.  If every seller does the same thing that could effectively double the listings on eBay if all sellers were to also keep listing in the auction format.  In my case, however, I will probably reduce some of my auction-style listings if the FP items start to sell.

The other factor that is in-the-wind is eBay’s policy of making special deals on lower listing fees with very large sellers like buy.com.  There are some pretty big sellers out there who have the ability to list 50,000 or more items at one time. eBay doesn’t really like to discuss this, but they have admitted that they reserve the right to make these deals. (I will have a longer article on this topic in my next newsletter).

Here is how that could work.  Let’s look at just books as an example.  The largest book distributor in the US is Ingram. They have several hundred thousand titles in stock. Ingram has a drop ship program. What if I were to go to eBay and make a deal to list 100,000 titles on eBay for 5-cents each per month. That would cost me $5000 in listing fees for 100,000 titles.  I don’t have to buy a book from Ingram until it sells. So let’s say I have a 5% conversion rate and I make an average of $5.00 per book. That means I sell 5,000 books X $5.00 each gross profit, or $25,000 gross before eBay FV fee and PayPal fees. If those fees average 15%, I am left with ($25,000 – 3,750 – $5000 cost) = $16,250 profit. I don’t need 25 employees to do this. A good programmer can write a program that will upload all the titles, photos and descriptions.

The 5% conversion rate is pretty low and so is the $5 per book margin, but I wanted to show that even with a worst case example this is a doable business that will attract large sellers and merchants. This is admittedly a highly simplified example –but I wanted to make a point, that this new policy could have unintended consequences.  If you want an example that shows how unintended consequences work think about Ethanol.  The congress and the president passed bi-partisan legislation to bring corn-based ethanol to 15% of all gas sold in the US.  If this worked it would reduce our oil-imports by that amount –a laudable goal. The problem is that putting all that corn into our gas tanks has increased food prices by 20% to 30%. Some chemical products based on corn has seen price increases as high as 50% and the cost of fertilizer to grow all that corn has doubled in the past couple of years. 

We won’t know the unintended consequences of eBay’s policy for a while –frankly it will take a while to shake out, but I predict there will be some.  Whether they are good or bad will take a while to determine.

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