eBay Auctionomics

Article today on Business Week (saw it on Nick Carr's blog) re eBay auctions falling off:

Bruce Hershenson, who auctions vintage posters online, is hanging up his eBay gavel. For almost a decade, Hershenson's business epitomized the e-commerce that made eBay (EBAY) famous. He sold rare, collectible, sometimes kitschy memorabilia in online auctions that had a starting bid of 99¢. But as the business of buying and selling over the Internet has matured, the thrill and novelty of auctions have given way to the convenience of one-click purchases. Hershenson will hold his last eBay auction June 3. "The auctions are nothing like what they once were," he says. "They won't ever come back."

Auctions were once a pillar of e-commerce. People didn't simply shop on eBay. They hunted, they fought, they sweated, they won. These days, consumers are less enamored of the hassle of auctions, preferring to buy stuff quickly at a fixed price. Hershenson is emblematic of the legions of small business people who built their livelihoods on eBay but—like eBay itself—are having to rethink their whole approach to online sales.

Sad perhaps for eBay, but fascinating for armchair digital economists

I think there are 2 opposing forces going on here - the (higher) transaction cost of an auction vs the probability of achieving the (lower) cost one may get the goods for.

Firstly, I think we are getting much more experienced at judging when to use the auction and when to use the "buy now" facility. Set of drums - big saving, worth it - drumsticks or a cymbal - too much hassle.

Secondly, I think that eBay has not been managing the creeping degradation of the auction service experience for the average user - if you ever take part in an occasional auction now, you know how much cuter the others are than years ago - some are clearly using gaming software, or are just very experienced - which just makes you go away in frustration.

However, I also think this is partly a result of the auction's success - the fixed price retailer can't put too high a markup on the goods, or else people will opt for the auction. If auctioneering dies away, it would be fascinating to see if (i) the price spreads increase and then (ii) Auction traffic comes back.

And Nicks view of eBay's future - he notes:

EBay made a ton of money running auctions over the past ten years, and it may continue to be successful as the operator of an online mall. But it is not the company we imagined it to be. Its story has become a cautionary tale about the dangers of wishful thinking and fanciful extrapolation.

I think having a market the scale of eBay's was - and is - a huge source of competitive advantage. Getting the transaction economics and experience right will be critical as the mass market comes on stream.

Oh, and spending money on things like Skype - maybe they should set up a predictive market when they want to do stuff like that