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!
Tags: Amazon
May 10, 2008 at 5:27 pm
A good read and some sensible reasoning behind the worries about eBay.
May 10, 2008 at 5:49 pm
As a long time internet shopper I remember the days when you could not find everything you wanted on eBay.
We small sellers built eBay into the giant it is - we can do it again with other sites, one listing at a time.
We can do it faster this time because there are more of us in that long tail now.
May 10, 2008 at 5:51 pm
Great blog leaping cat! Never was it more important to know how to market on the internet than it is today…..especially if you are an eBay refugee. I’ve been trying to break away from eBay now for about a year since I discovered pheebay.com where I have been learning to do just that…..market myself and increase my SEO. Many refugees from eBay are like deer in the headlights when they try some of these smaller markets….they don’t seem to realize they need to do something for themselves now and for the site they are joining and get into marketing. That’s the real long and short of the cats tail. See you over on Pheebay! (http://www.pheebay.com ) Looking forward to reading more of your great blogs!
May 11, 2008 at 11:39 am
What a great article! Almost 18 months ago I, like many others, was looking for a new ‘home’ for the collectables I sell.
A promtional email from SpecialistAuctions arrived and I decided to take a look at the site. Back then it was fairly small but had some great items (I sell vintage watches) that I wanted to buy so I joined. I have never regretted that decision and have moved all of my sales over to them now. The only fee I pay is a 3% FVF but I do have to market more heavily despite huge growth on the site.
I think of my marketing activities as no more and no less than if I were running my own business and trying to attract customers to visit my shop/website etc.
The members over at SA support each other and, when you see that lots of the categories have specialists ready to give free valuations and advice, make this site really attractive.
There certainly is life beyond ebay!
May 22, 2008 at 1:22 pm
For books, DVD’s & CD’s Amazon and its market place is now my first port of call. On ebay there seems decreasing choice except for very popular titles where 20 sellers will be offering them for 99p each and maybe two or three will sell.
But much as I like sites like Tazbar & ebid I’m not sure what the long-term future holds for them. So much of what they carry is run-of-the-mill stuff. Drop-shipped items I can get at Amazon cheaper or indeed items I can get at Poundland for yes, a pound. Indeed you can get some quite interesting films there for £1, even some episodes of Friends! I think the sites that will survive are the specialised ones like Specialist Auctions though it is slightly worrying that there has been a migration there of some sellers of what can only be kindly described as cheap tat.
Another site that should not be overlooked, but usually is in the UK, is Delcampe. It’s another site for collectibles and is a group of international sites, you can chose to sell on your local one or on all. The UK bit is fairly sluggish but the group as a whole has several million items and quite an impressive sell-through. If you become a member you get regular emailed newsletters. They are quite interesting if you can put up with the mangled English (a kind of franglais).
As for ebay, I agree that driving out the small sellers could be a big mistake. The changes to the feedback rules and the ever increasing fees are becoming a huge disincentive to bother with the site. I occasionally buy stuff there (far far less than I did) but I rarely list anything as there don’t seem the buyers there at the moment. It will be interesting to see what happens.
May 24, 2008 at 4:18 am
Great post! I am one of those smaller sellers at ebay and I think I continue to get bids because I have always offered something for everyone (well, almost everyone). I hate the feeling that all Ebay’s changes are designed to ultimately exclude sellers like myself but that’s how it seems. I am researching alternatives right now. Too big for their britches as my mom used to say.