Red Ink Diary

Christmas is a busy time on the ranch, particularly when the holidays fall mid-week. The men are entitled to time off with their families but livestock still needs to be checked every day and somebody has to deal with broken water lines and all the other stuff.

Every year I find it harder to get back into my work routine. For me this is a basic split shift. I get up and feed sheep, chickens, Mr Quigley the pig and my husband, in that order. Then the ‘hospital chores’ currently a calf, who is not strictly speaking an orphan, he has a mother, but because he had a hard birth he is ’special needs’ and gets fed by a tube. Finally I get to sit down with a cup of tea, catch up on the news, and write my blog before I go to work. In the evening the whole program runs in reverse adding in dogs who get fed and cleaned up once a day.

I ship on every postal day, orders paid by 10am PST go out the same day so picking and packing is usually next on the list. Because I sell mostly to women (and occasionally to the men who love them and want to please them) my packages need to be pretty as well as functional. I use tissue and always enclose an invoice with a hand written ‘Thank you!’.

Next comes whatever e-tail chore I choose from my weekly list. Today I am going to be changing the index page featured item on my website store cart from Christmas to Valentines, then uploading new Valentines stock to my Bonanzle booth.

I have made no grand plans for the New Year.

What I am doing business wise is working so I am not going to fix what ain’t broke, instead I will study how to improve.

I am committing to blogging a little less this year, Monday to Friday is the plan.

I am going to learn how to use Google Base on the website.

I will design and implement a customer rewards program on the website.

I will become more proactive and less reactive.

When the frozen north thaws to a tolerable level I am going to vacation in South Dakota this spring.

What are your goals for 2009?

Y’all come back,

The easiest place to start when figuring out what went wrong with eBay the venue is with what people come to eBay to do. Historically eBay was the place to buy (and sell) things you couldn’t find anywhere else. A vintage plate or cup to replace one broken from an heirloom set, antique sewing machine parts, you name it. The vast majority of these items were listed by non PowerSellers and in auction format. As time passed the ability to sell for a fixed price was added, Stores were born and the site grew.

in 2006 eBay management noted a decline in both the rate of new and active user registrations and auctions sales volume. Was the question of market saturation asked? In other words just about everyone with internet access was already registered? Someone high up decided the decline was due to buyers not having good experiences. A carefully phrased survey that obtained the answers required to back up this conclusion led to the inevitable placement of blame squarely on ‘bad sellers’ and boredom with the auction format.

Yes there were bad sellers on eBay, there are still bad sellers on eBay. In all the turmoil this past year almost nothing has been done to enable easier reporting and swift removal of scam listings. That problem still exists.

eBay has bet the farm on the boredom with auction listings theory. If any consideration was given to the thought that seasoned buyers had realized that no item is truly unique (if what you want goes over your price range another will come along sooner or later,) it was dismissed. The CEO wants the site to reflect “a more retail-like experience” and this is to be built on the already glitch ridden and notoriously unstable platform.

eBay Express, which offered a more retail-like experience, was fatally flawed from inception simply because of a basic conflict between the eBay and PayPal Terms of Service. The requirement that the seller ship to an unconfirmed address removed any pretense of seller protection and sellers, en masse, declined to participate. Rather than fixing the flaw eBay Express was allowed to wither on the vine and then killed off.

With all the preoccupation with the buyer experience, it has in fact worsened. Any professional seller knows that there is a direct ratio between obstacles placed between the buyer and his/her objective and failure to make a sale. eBay has more obstacles than the Grand National steeplechase.

There is a conflict of interest between the Marketplace e-commerce division goal of facilitating sales and the advertising unit’s goal of increasing advertising revenue on the same page. Advertising is winning.

Brandon Dupsky phrased this neatly, please go read the whole post on Brandon’s Take (bolding is mine)

Marketplace friction for both buyers and sellers are at an all-time high on the eBay marketplace while at an all-time low for Amazon transactions. In 2008 we have seen eBay add more tools of friction and we have seen Amazon focused on reducing this friction. We have a clear case of a marketplace built by merchants for merchants on Amazon while having very intelligent but non-merchants designing the eBay experience for everyone and in many cases becoming very painful for their customers the merchants.

More Fudge Please!

eBay has assiduously prepared shareholders for a dismal holiday season since weak 3Q results, 4Q-08 site traffic dropped 16% between early November and mid-December. Blaming the economy might have worked, if only Amazon had not boosted their numbers in the same period by 6%, both figures according to comScore. Bearing in mind that non spending visitors do not boost revenue we will have to wait for 4Q-08 results later this month to see how eBay did in Gross Merchandise Value year over year.

Ben Schachter, UBS analyst recently noted

We continue to view eBay as in the midst of an identity crisis, in some respects. The company wants to stay true to its heritage as the destination for buying interesting/used/value goods and collectibles through auction listings; however, it also clearly wants to compete in fixed-price listings (an area where we don’t believe the company has a natural advantage) to spur growth in its core. It’s exceedingly unclear if the company can do both.

and that would appear to wrap it all up quite nicely.

Management has two choices:

• Figure own how to get back to being “just a venue again”;
• or go down with the ship.

Sellers need to be making choices too, but they need to be made unemotionally using facts and figures, not wishful thinking and fantasy.
Y’all come back,

My e-friend Kevin T is a long time reader and although I don’t always agree with him, he adds tremendous value to the discussion with his thought provoking posts. Here is his $1AU and reply to my post yesterday.

“My friends, traffic without conversion is as meaningless as listing volume without sales.”

Part of the problem is that too many sellers do not understand the eBay market. It is not a retail venue, and it’s efforts to be one, are one of the factors that is asphyxiating it.

Even in a downturn that is unprecedented in the computer age, I am still getting a decent conversion rate, and a good profit margin in spite of massively increased costs of selling on eBay over the course of this year. However those that aren’t should either leave or learn the market - most of those who I am suggesting should leave, should never have contemplated using eBay in the first place, and a few will have had their market area decimated through poorly considered policy changes and/or bad management in general.

The other side of users understanding the marketplace is that eBay has done everything possible to keep sellers ignorant and on minimum profit margins, or much, much less.

If, for example, you want to target your items at active buyers, eBay will no longer let you know where the active under-bidders on similar items are from. If you can find such information, and list on a foreign site where the bidders are not in recession or are actively seeking your goods, eBay will punish you - by restricting postage costs substantially below genuine international postage costs, and removing your rights to seller discounts Apparently 15% of US dollar fees is a different concept to 15% of British pounds fees - either way, while eBay will convert your fees from each site into your single billing currency, Richard Ambrose has pointed out that working out a discount for such sellers is just too complex .

So while sellers are punished for making informed decisions on marketing, or just not allowed to be informed, eBay, in their wisdom, has decided to “reward” sellers for reducing their selling prices, and offering free shipping or losing money on the shipping component of the transaction, and ideally combining both factors.

While this allows eBay to promote that they are leading discounters (without owning the stock they sell at discounted prices), they are conveniently overlooking that this is an unsustainable business model. Although the evidence suggests that they may soon no longer be able to ignore these facts.

This has effectively left two main types of sellers on eBay.

• (a) Those who do understand the marketplace and can still make viable sales on reasonable clearance rates (I consider myself to be in this category), and
• (b) those that are kept ignorant, follow eBay’s marketing advice, and do not have the business knowledge to appreciate that they are being led into an unsustainable business model.

In the case of the corporate power sellers, such as Buy.com, it may well be a case that due to their size they will remain ignorant of how viable the eBay portion of their sales are.

I disagree with this statement. I believe Buy.com (who do not warehouse stock but dropship) are very much aware of the additional onus to overhead of selling on eBay, particularly in Customer Service. I do not think they anticipated it before they began the project. It was probably a nasty surprise. H.

Those sellers who fall between these levels have probably been active in finding other venues or methods of selling; in the case of those solely reliant on competitive auction bidding, may have left online selling when their niche became unviable (my own plan, should eBay decline to that extent or become totally unworkable), or have adjusted to changes in the marketplace.

Therein lies an anomaly.

Some of us have indeed adjusted to the marketplace, making us guilty of “enabling the rot” as you put it, even if not always silently, but it is not as simple as just pointing out that “traffic without conversion is “meaningless”. Some of us still have meaningful conversion rates, decent competition on our goods, and a profitable bottom line, but an eclectic range of goods that are not serviced by a niche site, and a business structure that uses competitive bidding to create pricing, which I have genuinely not found on any other online site. A personal website is not suitable for this type of business structure either.

The other difficulty, although it should be discounted by the time it becomes unviable, is that it is difficult to walk away from the business reputation and structure that has underpinned almost a quarter of ones life.

In spite of my ire with everything that has been foisted upon it this year, this business does actually represent the most reliable income I have had in my whole life, and while my clearance rate has dropped in the last three or four months, from approx 73% to approx 62% (ignore this week, I have listed dross to keep some activity over the Christmas holidays and am improving quality again), I do believe that most of that drop in clearance rate is indeed the Economy, and I am still able to make a viable and mostly enjoyable living, even if the economy reduces areas of competitive bidding.

There is however a very real chance that everything that eBay has done to incompetently undermine the market will indeed feed upon itself and spurn so many specialist buyers and sellers that the niches in the market that work for me currently, will evaporate in the future.

At that point I must walk away from this marketplace, and re-establish other business avenues, including running live auctions myself, and selling higher volume through other live auctions in my part of the world.

Kind Regards, Kevin

Meg Whitman stepped smartly off the leaky boat without getting her feet wet. Her departure at the end of March 08 was cleverly timed, eBay has experienced slowing growth rates since 2006.

In 2007 she reputedly earned $10M, a decrease from her 2006 $11.9M pay package.  Back in 2001 as eBay emerged unscathed from the rubble of the dotcom bust and recession Meg said  “eBay is to some extent recession-proof.” This is no longer true of the new and improved “more retail-like” eBay, that gets to participate in the looming retail bloodbath.

In 2008 Meg will have been paid $600,000 for her services as special adviser to her handpicked replacement CEO John Donahoe. Has he asked for advice, or, more importantly, taken any? The real question might be; would the advice he received from Meg have changed or helped anything? I don’t believe so.

In 2008 John Donohoe will have been paid $8,252,276.00 as remuneration for steering the quondam supreme online sales venue from a stock market high of $34.67 through a low of $10.91 to today’s price of $13.60 as I write. It would be reasonable to assume that stock prices have been supported by the three successive $2 billion stock repurchase programs authorized by the Board in 2006, 2007 and 2008 ($6B total). This year eBay Inc has seen their bottom line shrink from $1.1B to $348.3M despite an increase in revenues from $6.0B to $7.7B.

Meg Whitman has people skills, she is, I am told, genuine and likable. John Donohoe is better known for his lack of diplomatic skills, possibly due to an inherent conceit. He is just not comfortable hobnobbing with the hoi-polloi and as a result comes across as stiff and condescending.

In the eyes of most small sellers, especially those who have struggled and failed to maintain a viable business model on the site this year, Donohoe is the root and branch of all evil incarnate.

Is this fair?

Probably not, a lot of the decline in eBay’s growth can be laid at the door of his predecessor. There comes a point in any enterprise when sustained growth is no longer possible or desirable. This is an immutable law of nature, things grow, flower, set seed and die. Combined with the maturation of the internet and increasingly corporate trajectory of a company built on non-corporate quirkiness, without true diversification decline and stagnation is inevitable and inexorable.

Donohoe has not helped himself with such vacuous utterances as “Customers don’t always know what they want” and “Tinkering with the finding experience is also tinkering with one of the core jewels of eBay” a close second on the fatuous Bayspeak scale was this gem “We had to confront some sacred cows. These are often some of the most difficult things to handle. They’re perceived as values of the company”

Who is really to blame?

In my opinion the whole corporate culture of eBay is at fault. This business, which was built on and by small sellers who embraced the ’sacred cows’ embodied in the eBay Community Values deliberately turned away from those values. Upper management changed from builder enthusiasts to ladder climbing, consultant, ‘pander to Wall Street’ professional executives who’s self worth is expressed solely in the size of their compensation package and length of job title. Concepts of loyalty and adding value during tenure are alien to this breed except from subordinates within their departmental empires.

The Corporate Fudge for the Quarter

Click to enlarge! Market Analysts pay close attention here please. Listing volume is a salient metric; it is not the only metric, it is one half of the equation only when listing produces income. Out of the five metrics displayed in the chart, listing volume is the only upward pointer. eBay sellers know that non income producing listing volume is not a sustainable business plan.

Say it with me out loud: “Listing volume without commensurate sales volume is meaningless”

eBay management has been making gloom and doom ‘its not our fault, its the economy’ statements since the end of Q3. In October “This looks like it is going to be a more typical economic cycle that impacts consumer spending,” Donohoe said. “We are not immune.”

From the 3Q report filed with the SEC:

“Factors that may affect our operating results include … general economic conditions, including the possibility of a severe recession in the U.S. and a worldwide economic slowdown; recent disruptions to the credit and financial markets in the U.S. and worldwide; and those economic conditions specific to the Internet, ecommerce and payments industries;”

We Sellers are also to blame.

We put all our eggs in one basket. We enabled the rot from above by accepting whatever fad of the week came down from above as if it was graven on tablets of stone. We chose to ignore the fact that the emperor was naked. When we were told to jump we said ‘How high?’ and tried our best. We allowed ourselves to be held hostage by our passive compliance instead of actively diversifying. Our response to each successive edict was the same, no other venue has eBay’s traffic. My friends, traffic without conversion is as meaningless as listing volume without sales.

After a year of energetic disruptive innovation, the site is a shadow of its former self. The words of the Dear Leader back in September 2007 have come to pass.

“Today our buyers tell us that we know you have unmatched selection, but we can’t always find what we want and find values as fast as we want.”

Y’all come back tomorrow and lets see if we can figure out what went wrong!