Top : eBay :
Greed
This is the topic that gets really nasty sometimes. Many people (at least on the chat boards) are outraged at eBay. They claim that eBay is price gouging, profiteering, charging enormous fees and so on. Many of the naysayers are of the opinion that eBay (and other sites like PayPal) should offer everything for free all the time to everybody. That sounds nice, but in this world it really wouldn't work.
Much of this, I believe, derives from the fact that many people simply do no understand how the economy works. Without going into a long political discussion, I'll simply say that money makes the world go 'round. eBay is in this business to make a profit, as are most companies. The people who own eBay and work there need to pay the rent and buy food just like everybody else, and you can't do that with good intentions. eBay makes its money by charging fees for various activities on their site, and I believe that most of their fees are fairly reasonable. If you don't think so, you are welcome to go to other auction sites.
While it is true that other auction sites are currently free, I can't see this lasting forever. The people who run them are paying a fair amount of cash to run their sites and I doubt that they will be willing to foot the bill until the end of time. Eventually, one of three things will happen. These "free" sites will have to start charging fees (and I can already hear the howls of protest from the gimmee gimmee gimmee crowd), users will be innundated with ads and forced visitation links, or the sites will simply vanish in a sea of red ink.
These sites cost a great deal of capital to support, and they only way that they could be free is if the owners have a huge pile of cash (maybe VC money) or get their money from elsewhere and happily pump millions of dollars into the system every year, simply for the joy of providing a free service. Well, that's nice, but I cannot believe that such a situation would last forever without changing.
That said, there is one fee-based practice of eBay's that I DO disapprove of. I feel that eBay is raising listing fees specifically for the purpose of offsetting the cost of failed bids.
According to Urban Legend, the number of deadbeat bidders is on the rise, and an increasing number auctions are ending without a legitimate bidder. Much of eBay's revenue comes from taking a percentage of the final valid winning bid of an auction, and if the bidder bails out, there are no fees.
The sad part is that when a bidder doesn't pay, everybody loses. Buyers look bad, Sellers lose money and lose confidence in the system and eBay loses out on its percentage cut.
It seems to me (and I may be wrong) that eBay is attempting to make up this shortfall by increasing listing fees. They get these fees for each auction even if there is no final valid winner bidder. As you can see from the
deadbeat page, my personal feeling is that eBay is risking killing the goose that lays the golden egg by doing this. I believe that the greatest potential for profit for eBay lies in maximizing the number of valid auctions instead of working around failed ones. If eBay were to pursuse bad eBayers (buyers and sellers) more vigorously, there would be fewer failed auctions, things would improve and eBay's profits would rise even higher.
Here's some statistical information. Below is a table showing eBay's revenue, expenses, profit, profit margin, earnings per share and total shares outstanding. The numbers come from this article and I assume for the moment that the article, and my math, are correct.
4Q Report
| Year |
Revenue |
Expenses |
Profit |
Profit % |
Shares |
eps |
| 2000 |
431.4 |
372.8 |
58.6 |
13.6% |
279 |
21 cents |
| 1999 |
224.7 |
206.4 |
18.3 |
8.1% |
261 |
7 cents |
As you can see, eBay's profits increased from last year, and many people see that as being unfair, mean or just plain wrong. Of course, there are those who believe that ANY profit is bad, but I am not one of them. You will notice that their costs increased as well. You can see that their profit margin increased from 8.1% to 13.6%, indicating that revenue is rising at a faster rate than their costs. I myself do not see 13.6% as profiteering or gouging, and in fact I have trouble drawing a hard and fast line at any specific number. I seem to remember from my Economic classes in college that any large company will find it nearly impossible to maintaing a profit margin over 20% in the long term if there is healthy competition. With other auction houses like Yahoo and ePier, I am very interested in how eBays profit margin will change in the years ahead. Please note, though, that even if it rises above 20% or 30%, I will still not consider that too high or in any way unfair. eBay, like any company (even Microsoft, tobacco companies and gun manufacturers) has the right to puruse profits in any way as long as they follow the laws of this country.
Overall, I see no problem with fees, and I do not believe that eBay's fees are unreasonable. The only problem I see is that they are reacting to the increasing number of bad bidders incorrectly, and they stand to lose profits by doing so. I also do not see them as profiteering or price gouging. I simply see them as a successful company, engaging in business and making a profit. Sadly, in this day and age, that in and of itself is often thought of as a bad thing.