The future of online auctions?

I have been reading one or two books recently, I recommend ‘The Black Swan’ by Nassim Nicholas Taleb as a ‘must read’, and they can give an interesting take on much of what is going on around the world to-day, even though they were written before the current turmoil in the world financial markets.

Although they develop part of their analysis and predictions from rather rarified subjects such as fractal mathematics ( the same mathematical theory that on the one side leads to those beautiful swirling patterns that you can zoom into indefinitely and still find basically the same pattern there, and the other to chaos theory, the idea that a butterfly flapping its wings in the Brazilian may eventually cause a hurricane in New York) their findings can mirror the real world almost uncannily.

So, what’s this got to do with online auctions?  Time for me to give my views and predictions. Firstly Ebay; the model is broken, not because it is basically flawed, but by interference in what should be a free market by the management. Searching  for example is manipulated by the ‘best match’ system. Why should number of sales be a factor in the algorithm for working out best match? Everyone I know who buys on Ebay is looking for the rare one-off items that they cannot find locally, and these are most likely to come from the individuals and small companies who will inevitably have a limited number of sales because of the small overall market.

Next the other sites, the ‘alts’ as I will call them. They should be pushing at an open door, but none of them have really become household names. I would like to put forward a theory as to why, but I hope that this will open a discussion rather than taken as gospel. The alts are just too insular and jealous of guarding their own turf and trying to compete against each other. The people who run sites call themselves ’site owners’ in ecommerce forums and blogs, but one of the main criticisms of Ebay is that the management regard it as ‘their’ site and they can do what they want with it. So, from now on I will regard the users of the site, the buyers and sellers, as the true owners and the people who run the site as the ’site managers’, running it on behalf of the users.

I see one of the biggest changes of attitude needed from this bottom-up rather than top-down approach is the question of links. Look on the users as communities, or as Seth Godin would call then ’Tribes’ and the current policy is turned on its head. In general if I sell on site A and Site B then I will not be allowed to link onto site B  from site A, or to site A from site B.  But, if, for example, I collect vintage postcards, then I will want to easily find out all of the cards for sale, and also to let as many people as possible know what I am selling, but the present system works against this and links should not only be allowed but encouraged. Site managers may protest about this idea, but they only think about the outgoing links and not the incoming ones. The total is greater than the sum of the parts. Think about the anger that Ebay aroused when they banned links to other websites in users’ auctions, if you want to know what users really think. Some sites are tentatively starting to work together, but I don’t think anything will come of this approach as it is not driven by the users.

I might be entirely wrong, but I think that the present ways will be unsustainable in the longer term. It is quite probable that these communities that I refer to will initially start from within social networking sites, although again, it may be from something not even dreamt up yet. Whatever happens though, I think that the users will be increasingly in control, and those who realise and work with this will flourish.

Finally, in the best traditions of bottom-up working, I welcome all contributions that can take this debate further on. I promise to keep an open mind!

Some comments on e-commerce and online auctions

 Hello all, I hadn’t realised how long it has been since I made my last entry, so my apologies and I will be posting here more frequently now. A belated but warm welcome to all those who have found this blog from the link from my comments in the financial blog ‘Seeking Alpha’ . I am based in England, so it is good to get such an authoritative source for US financial news. I trust that  from time to time I can add something to the discussion with a UK view, as I find the US ones a useful and interesting take, especially on ecommerce.

My favourite forum is pheebay.com, where you can find lively and well-informed discussion on the online auction industry, with courtesy extended to all posters. As well as the discussions, the articles, often written by ‘Sunray’ who is the owner of the site,  make worthwhile reading. A good example of this is:    http://www.pheebay.com/?make-sales-happen-on-ebay-alternative-websites-624.html  which should enable anyone, even me increase sales in a life after, or as well as, Ebay.

The Old Hall Story

Everyone who got married in England in the late 1960s or early 1970s would have have had some Old Hall Tableware amongst their wedding presents. Their stainless steel tea and coffee sets, cutlery, cake stands, etc were treasured and many have survived to this day. We have many examples, mainly still in their original boxes, and though they are still used regularly they remain in excellent condition.

Old Hall Tableware was made to the highest standards in Bloxwich, in the Black Country area of the West Midlands, however competition from imports and changing tastes effectively meant the end of the company in the 1980s. But the name still lives on. Many of their pieces were designed by Robert Welch, recognised as one of the great designers of the 20th century, and there is a flourishing collectors club, enthusiastically run by Nigel Wiggin, one of the family who owned the company. In spite of that it is reasonably priced, easy to pack and post, and the different designs are well known. This should make it an ideal subject for internet auctions and it is, but for one site only!

I have criticised Ebay in the past, but this time they have come up trumps; searching for ‘Old Hall Robert Welch’ gave me 20 auctions plus 22 shop listings. Completed auctions over the past two weeks gave 43 sold outof 48, a selling rate of virtually 90%. None of the major alternatives had any Robert Welch designs listed, and Specialistauctions had just the one Old Hall tea set listed. Ebid and Tazbar both drew a total blank. Ebay may have its faults, but for collectors who know exactly what they are looking for it appears to still be the default choice; in spite of changes to the searching methods you are still able to find  what you want.

I wou;ld like to see them do well, butIf the alternatives wish to take on the mantle of ebay for the type of auction which it made its name on, then they have got some serious thinking to do.

Ebay – an immature company in a mature market

Ebay continues to flounder about like a beached whale, but Wall st analysts and other Ebay watchers seem to stand around trying too puzzle out why. So let me try and make sense of it, although of course this only my own take on the situation, and others may wish to add their own comments; well I hope so!

The internet auction market has grown exponentially in the last ten years, mainly as a result of Ebay’s success. But now things are starting to slow down. Most people who want to use internet auctions either as buyers or sellers now do so, the modest growth in Ebay’s active users over the last year seems to confirm this. Auctions were new and exciting but nowadays they are reverting to their traditional role of a place to trade items that are difficult to value, such as antiques and original works of art; no-one wants to get involved in a bidding war or wait days when all they want is a new memory card for their digital camera.

So Ebay is desperately looking for some way of maintaining the growth rate of previous years that investors are looking for, but is unable to achieve. Such strategies as raising fees, changing the balance of promoting fixed-price against auction listings, takeovers that make little commercial sense and under the counter deals with large companies can be seen as ways of achieving this, but it’s not working and Ebay’s share price continues to slide.

What is the answer? Could it be to go back to its roots, acknowledge that it is in a mature market , provide first-class customer service to give the steady but not spectacular growth that would make it an investment with the sort of P/E ratio that Amazon is enjoying. That would bring  a smile to the faces of both users and investors!

Ebid – an update

A few weeks ago, I wrote a few words in favour of Ebid, which I thought looked promising as an alternative to Ebay. Since then, things have progressed. The site now has over 820,000 listings; it is difficult to measure the real expansion of the site because of the way in which some large sellers manage their listings, but I would think that a steady 10% growth has taken place in the past copule of months and looks as if it will continue as the number of users regularly increases by several hundred a day.

I have listed more books and now have about 80 listed as I write. The process is easy, but, and this is a big but, to take full advantage of the site it is necessary to take out the seller+ membership, the £49.99 lifetime offer is the best value. I decided to do this as I felt that the advantages were worth about £4 per month spread over a year (the internet is changing rapidly and any further period becomes uncertain). I am impressed by the results; feel free to take a look at my shop:

http://uk.four.ebid.net/perl/main.cgi?mo=user-store&title=Leapingcat-Books

and see what you think.

I have also been buying on Ebid, again the process was hassle-free and friendly. What was best was that it was an out-of-print railway book by a small publisher, the sort of book you used to be only able to find on Ebay; Ebid is really becoming a serious alternative now with the range of items for sale. Note for sellers – the seller gave me positive feedback as soon as I had paid, it feels a lot better than the tit-for-tat sometimes found.

A warning to auction sites – Pareto is dead

Just over a century ago, the Italian economist Pareto observes that 20% of the population owned 80% of the wealth. Other economists and engineers found that this rule applied in all sorts of other situations; supermarkets got 80% of their sales from 20% of their lines, 80% of quality problems in factories were caused by 20% of the possible faults and so on.

This principle appeared to work well and it lasted for a century, but now the internet has upset the apple cart. The cost of distributing on-line music has fallen to such a level that it is now not only possible, but profitable to hold a stock of literally millions of recordings, including those that are only sold in tiny numbers, instead of the old model of concentrating on just the best sellers.

This idea has been developed into the theory of ‘Long Tail Economics’ by economist Chris Anderson (you can find out more from his blog: http://www.thelongtail.com/) The basic principle is that an analysis of sales would show a short ‘head’ of top sellers plus a long ‘tail’ of lower volume sellers and typically the tail would be 50% of the total rather than the 20% that Pareto would have suggested.

Ok, this is fine in theory, but what does it mean for the world of online auctions. Firstly they need to have a wide a range of products as possible, and not discourage any particular type of seller. You can now see why Ebay will be in trouble if it continues to discriminate in every way against small sellers and in favour of large commodity-style sellers. Not only will it drive away buyers who cannot find what they want, but they will lose a substantial slice of their income from the vast number of sales from the sellers they will lose. This theory also explains the lively discussion in the Tazbar forums by members who are unable to find what they want. Even 90,000 listings is now too small for a site to give buyers everything that they want.

An interesting example of the long tail in practice is Amazon, not strictly speaking an auction site, but in many ways a competitor. They sell new books themselves, but also have opened the site to third-party sellers. Everyone comptese on a level playing field, books for example are listed in order  of price. That means that it doesn’t matter whether the seller is an individual with a handful of books, a small growing company, a large established company or even Amazon itself, the criteria for listing books remain the same. Fees may less for large-scale listers, but the system is transparent. Amazon quietly go from strength to strength while ebay are floundering.

So, what is the lesson. For the smaller sites, encourage as may sellers as possible. Ebid, Tazbar and Specialistauctions are doing just this with their free listings and in some cases no FVFs in return for a paid subscrition. Whether you list one item or 10,000 it will get equal prominence, and so give the buyer a better deal too. For sellers, list, list, list and market. Market the site as well as you listings; you will attract buyers to other sellers items, but they in turn will be doing the same for you as the total rises. This is called a win -win game unlike a zero-sum game where one side gains at the expense of the other, but I think I’ll stop now, enough economics and statistics for one day!

 

Tazbar – The buyer’s tale

Although I have had a few sales on Tazbar, I have only recently made my first purchase there. I needed a new wristwatch for everyday wear, but instead of the normal suspects went to Tazbar first. I soon found what I wanted, the search was easy, bought it with their ‘buy now’ and the watch was posted the next morning and arrived the day after. I was pleased with every aspect from the actual watch, to the way feedback was given almost as soon as I had paid, little things like that do count. I will definitely make Tazbar the first place to visit whan I next want to buy something.

Ebid – the one to watch?

More and more buyers and sellers are looking to alternative online auction sites, not just because they are unhappy with the way Ebay is being run, but for the very positive reason of exploring the other venues that are out there and seeing if there are one or more that will fit their requirements. In the UK, at any rate, the biggest of these sites is ebid, and I believe that at present it is the one that could grow quite dramatically. It is difficult to say what their total auction count is as it appears that one large lister of DVDs is revising his auctions, but there about 600,000 auctions plus up to about 250,000 from this one company. More to the point for me, there are over 80,000 books listed, quite a high percentage, which should make it  a magnet for bookbuyers.

So, I have recently joined and put the first few books on. The signing up process was straightforward, but with one or two checks that reassured me that security seemed tight. The listing process also caused few problems.

Only time will tell if I have made the right decision, but sites like ebid and Tazbar, for example have the advantage that it is either free to list with fees only paid when you make a sale or you can pay a modest subscription and not even have to pay any final value fees. This means that it is now feasible to list a large number of lower priced books without fees swallowing up most of the return, as would happen with ebay. Of course it is still daft to bother with those unsaleable run of the mill books, such as last year’s discarded bestsellers, so Ebid and similar sites should see an influx of good quality reasonably priced books. I’m already looking  forward to it.

Ebay – thinking the unthinkable?

Most discussion about Ebay either accepts that its monopoly position means that it’s here to stay, or wish for its demise without spelling out how it may occur. But I can see Ebay actually failing if a credible alternative comes along. So far the usual suspects, Google, Microsoft, etc have shown no interest, they will stick to the things they do best and if they expand it will be into new fields, social networking etc that will tie in with their core businesses.

But look to the East, where the dominant force in China is Alibaba, a business auction site, and its consumer stablemate, Taobao. If they decide to move westwards, and the unrest among Ebay users can be exploited, then anything could happen. In the meantime, several existing sites, notably Ebid in the UK and OLA (US) seem to growing to that critical size where they could appear above the radar. Interesting times may lay ahead.

A new way of looking at niche auction sites

I have long thought that the best way for online auctions to develop is through niche sites for particular interests, alongside the traditional type of site that offers everything. But perhaps the auction side should be added on to a site or forum that caters for that interest, rather than standing alone.

So that I don’t show any bias I am using vintage clothing as an example, as my knowledge of it is confined to seeing what people were wearing at last year’s Goodwood Revival, but it seems to be a very popular interest. If a site were set up to provide a forum, announce news, have technical/historical features and a gallery of photos or period illustrations, then there is a ready-made community of potential buyers and sellers, and an auction linked to the site could be very successful. Obviously, the number of members would be relatively small, but could make up for that in their keener interest.

Anyway it’s food for thought, and I would be keen to hear of anything along those lines already in existence.