The Negative Effects of a Recession on eBay Inc.
The Case for Increased Revenue of eBay Inc. During a Recession:
It's only common sense that any business that profits by allowing down-on-their-luck recession victims a means of selling their unnecessary convenience items will get more business during a recession. And eBay offers - what at first glance appears to be - an economical means of getting some cash out of those X-Box games, CD's and overpriced designer clothes that consumers have been gobbling up...in many cases, instead of paying their mortgages on time. For someone who has racked up thousand of dollars in debt buying convenience and luxury items, many of them bought from eBay perhaps, selling their items on eBay seems logical and perhaps even profitable....heck, if they were willing to pay $550 for a lot of Playstation games, someone else will too, right?
Unlike other third party classified, auction and ecommerce sites (such as Amazon, eCrater etc.) eBay makes money on each and every item that you see on eBay.com. Each of those 3,000 Elvis albums on eBay right now translates into cash for eBay. Then eBay makes even more money with Final Value Fees and Paypal per-transaction and percentage fees after the items sell. This method has a been a cash generating monster for more than a decade. And with a virtually universal saturation of knowledge of this fact, eBay is bound to get some type of influx of listings from individuals during a recession.
The Case for Decreased Revenue at eBay Inc. During a Recession:
For anyone who has followed eBay or who lives inside the eBay world, the case for a slowdown of eBay.com during a recession makes a lot more sense. There are several reasons why eBay may suffer just like other areas of the economy during a recession including: poor reputation, past sell-through statistics and simply the high cost of trading on eBay. It is likely that some new sellers will flock to eBay to unload their items for cash, but it is also likely that many will end their eBay experience a bit jaded and wandering what went wrong, and probably blaming eBay.
In recent years, eBay Inc. has done very little to boost its reputation with any part of the country. Sellers are constantly upset of glitches, fraud and high fees. Buyers are unhappy with constant changes to the site and search and the mix of products - in addition to the biggie, fraud. Investors have not seen their investments in eBay materialize into anything resembling a profit, despite eBay posting numbers that show continued growth to some measure quarter after quarter.
eBay is rumored to be lowering fees this week. If it has the desired effect, the site will be flooded with listings. This will no doubt lower conversion rates for sellers. eBay management has failed gloriously at bringing and keeping new buyers active on the site. Of those 3,000 Elvis albums on eBay right now, probably around 600 will sell. During a week without a listing special, the same 3,000 listings would garner about a 40% conversion rate, but that is still only 1,200 albums sold of the 3,000 listed. Lowering the fees has long been requested by sellers, but doing so at the beginning of a recession makes little sense. It will end up lowering conversion rates and average selling prices across the site.
Professional sellers with eBay businesses are unlikely to dramatically increase their listing volume simply because of lowered fees during a recession, while eBay will be hoping that the largest gains in listings will come from new users. Powersellers will use a number of tactics to optimize their sales, but pouring tens of thousands of items from SIF to core won't be one of them. Although some large sellers who are on the verge of not making ends meet on eBay may do just that in a last-ditch effort for cash flow. For the effects of doing this, refer to Randy Smythe's Glacierbay DVD store. And eBay is unlikely to ever see the fees from a seller who goes down in flames in this manner.
New sellers are always good for eBay, but during a recession the likelihood that those new sellers will leave the site unhappy is higher...and the rate much quicker. Newbies who are greeted with low conversion rates and low ASP's are unlikely to sing praises of eBay to their friends. Some percentage of new sellers who sell because of an economic downturn will be successful and happy with their sales...don't get me wrong. But former eBay sellers can be a very vocal group. Add to the mix some anxiety about finances and too-high expectations, and eBay is likely to take an even larger hit to its reputation. The number of anti-eBay sites and articles has grown exponentially in the past few years as have videos of unhappy eBayers on YouTube. Whether these former sellers are looking for revenge or just to vent, the outcome is the same, an uphill battle for eBay and their PR team.
It's been almost two years since I predicted that within three years eBay would be a virtual shell of what it was in the early part of the decade if it didn't institute appropriate changes to pacify sellers, stop fraud and fix glitches and decreased traffic. In that time the listing volume on the site has stagnated and even decreased in some areas. eBay's reach has fallen. Fraud and fees have both increased on the site. The number of registered users has climbed (with increases each quarter) while the number of active users has flat-lined. And the price of the stock has fallen around $10 per share. ...so although eBay is not yet bankrupt, the trend over the past two years has certainly not been great...that is unless you're an employee in management getting stock options.
I think the recession accompanied by lowered fees (if the rumors turn out to be true) will benefit eBay Inc. in the short term with slightly increased revenue generated from moderately increased listing volume. In the longer term however, I feel the effects of the current problems with the company, especially low conversion rates and low ASP's during a slow economic time, will drastically reduce eBay's pool of users and increase the outcry of unhappy sellers across the web.