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TECHNOLOGY | Q & A

Bidding for a Change

EBay's chief is leading an audacious move toward fixed prices

July 22, 2002|DAVID COLKER | TIMES STAFF WRITER

EBay Inc., the hugely successful auction site that made bidding on everything from comic books to cars a national pastime, is about to embrace non-auction sales.

Beginning this week, sellers will be able to choose a fixed-price option that will allow them to offer items at set prices, no bidding allowed.

It's a possibly perilous step into conventionality for a company that has thrived, in no small part, because of the loyalty of its individual sellers, who are not shy about rising up in opposition to new policies they feel might endanger their businesses.

This group--which includes about 150,000 who say they make selling on EBay their full-time jobs--has been especially sensitive to the increasing number of corporate merchants on the site.

EBay Chief Executive Meg Whitman has been given much of the credit for the growth of the company, which started as AuctionWeb in an apartment in 1995.

Question: Is the fixed-price option a move away from what made EBay EBay?

Answer: We have always thought of ourselves as an online marketplace. It happens that the first format was auctions, and auctions have a lot of benefit. There is the thrill of the hunt and the competitive aspect of it. It also creates efficient market pricing because it's set by the market.

But we've had a lot of requests for a more robust, fixed-price offering because for certain occasions--whether an anniversary or a holiday--buyers want the immediacy and convenience of a fixed price. And then there is a whole segment of consumers who prefer knowing exactly how much they are going to pay.

Q: You call it an online marketplace, but in the public's mind, EBay means person-to-person auctions. It's what set you apart from a lot of e-commerce sites that are no longer around or struggling.

A: True, but today 19% of our transactions are settled in a fixed-price format through our "Buy It Now" option on auctions. (A seller can choose to set a Buy It Now price. If a buyer elects to pay it, bidding stops and the auction ends.)

Q: There was a lot of opposition to Buy It Now among your regulars when it began. And in some cases, opposition to new ventures has been so negative you had to later retract them.

A: We have discussed the fixed-price format in our Voices program that brings customers to us every quarter to get previews of new things. And we have talked about it on the site, so I think our customers know it's coming.

But it is true that you never actually know what the real reaction will be until the day something launches.

Q: What's to prevent a large company, like Disney, that has a major presence on your site from operating like a regular merchant with fixed prices and forgetting about auctions entirely?

A: I think the sellers want to maximize their volume on EBay. What I believe will happen is the sellers will decide what items are more appropriate for sale in a fixed-price format and what would be better to auction. It will probably vary by time of year. When we get into a holiday season, you may see a switch to more fixed price.

But I think the unique and rare items will always go to auctions. I would be surprised if we saw much movement away from that.

Q: You've tested the new format?

A: We already rolled it out in Europe on our sites there in March. The reaction has been very good.

Q: In Europe, EBay does not have that same absolute association with auctions.

A: True in France and Italy, not true in Germany and the U.K., where EBay has a presence that is almost consistent with the U.S. in that it has become part of the pop culture, part of the mainstream.

Q: Most of your revenue is from fees and commissions paid by sellers on the site. Now that you have a devoted base of users, do you see advertising as an increased source of revenue?

A: No. In terms of percentage as well as absolute dollars, that will likely continue to decline. Even during the heyday of e-commerce when advertising dollars were coming in, we characterized advertising as the icing on the cake. The cake is the transaction-based revenue model.

Q: In your recent conference call with analysts to discuss EBay's earnings, you early on got in the phrase "transparency of our business model" when talking about the firm. Was that in response to the current fear over accounting scandals?

A: We have used that terminology for well over a year. The reason is that from our earliest days, analysts could statistically sample the site for the number of items on sale, the average selling price and the percentage of items that sell. A lot of these analysts' models are nearly as good as our own internal model because they can, in a statistically significant way, sample the site.

This is why we call it transparent--you can largely figure out what the transaction revenue is going to be.

Q: EBay is so large now; do you fear in the current atmosphere that there might be a corner of the company where something untoward is going on?

A: Don't think so. I have been with this company 4 1/2 years, starting when there were 30 employees, so I know all the people who work in virtually all of our business units. I know the finance staff really well. This is not something that is going to happen at EBay.

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