How Internet Auctions Died, But EBay Survived

The latest Wired magazine has a fascinating piece on the decline of online auctions. It notes that even eBay, whose name was once synonymous with auctions, now only gets 31 percent of its sales through that format, even though it once looked like they were becoming a national craze: 

In a 1999 Slate piece, for instance, economist Steven Landsburg declared that he was “addicted” to eBay and wrote of spending long stretches of time monitoring auctions even though he knew this made no economic sense. Salon’s Stephanie Zacharek said that telling her friends about eBay was like introducing them to heroin … In those early years, auctions were offering people what economists call hedonic benefits—the experience of bidding on eBay had value in and of itself. The rhetoric of auctions reinforced this idea: You didn’t buy a product, you won an auction.

The article gives a lot of reasons for the decline—the auctions didn’t result in such great deals, the novelty wore off, and the advent of “snipers” (people who could bid at the last minute) took some of the fun away.

All this got me thinking about eBay in general. The article doesn’t talk that much about the problem of scammers, but to me, who once used eBay quite heavily, this was key.

To use eBay back when was to either get scammed, or have a heavy risk of it. When Tiffany started monitoring the site, it found that an overwhelming amount of the goods listed as “Tiffany” were counterfeit, which kicked off an epic legal battle between Tiffany and eBay. EBay became associated with the worst of the Internet: Scams, spams, fakes, you name it. And once buyers got turned off by this, it was hard to win them back. 

Now the company has changed quite a bit, thanks in part to competition from Amazon Marketplace, which has always kept tight reins on sellers.  The switch away from auctions, and the desire to bring in bigger names, are two different issues—but there is some connection there. Once eBay began attracting larger companies, most wanted to sell the traditional way, rather than take the gamble of an auction. Now, if you look for diamond rings, you see a prominent ad for ebay’s “Diamond Ring Designer,” which is fueled by the GemStone King, a reputable outfit with listings partly supplied by Idex. It only sells through fixed price sales.

Of course, all this hurts, and alienates, the small sellers who used to be eBay’s backbone: the jeweler who wanted a quick way to dump inventory, or the one-off seller who wanted to clear out their jewelry box. All those people are still on there, but they are no longer as prominent as they were. And given all the problems, the company really had no choice.   

EBay is still a substantial market for jewelry. It is, some think, bigger than Amazon in our sector. According to a recent report, jewelry is now the 10th biggest seller on eBay, accounting for $2.5 billion in sales annually, just behind consumer electronics (!), the category that has always outpaced ours. EBay’s jewelry sales are growing at some 9 percent a year.

Still, the site doesn’t have the buzz it once did. I rarely hear jewelers talk about it, whereas several years ago the topic was all the rage at trade shows. I think today most jewelers see eBay as competition for Blue Nile, Amazon, or Craig’s List, rather than as competition for them.

EBay is still a huge factor in the market. But perhaps there is a lesson here: A fad is one thing. But creating a good buyer experience is what counts for the long run. 

JCK News Director