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Will eBay Users Buy the New Strategy Now?

Wednesday, 20 Aug 2008 | 2:20 PM ET

This has been a rough year for eBay, and now the company is trying to do something about it. Trouble is, you have to wonder whether making its business model similar to Amazon.com, which has been eating eBay's lunch this year, is the right way to go.

eBay announced new fee changes today, lowering the listing fee for the "Buy It Now" feature by a whopping 70 percent. Sellers can list an item for 30 days under the new plan, and it will cost them only 35 cents. The move is widely seen as a way eBay can encourage those sellers to use Buy It Now, with the hope that they'll engage in fixed-price selling instead of eBay's traditional auction method.

AP

While the move might make it simpler for shoppers to conduct their transactions on eBay, it's yet another change for eBay listers, along with changes to the company's fee structure, feedback and search results in recent months. Already frustrated sellers are once again subject to more changes at eBay that the company is convinced are good for the broader community at large, but some members of that community might think differently. Listings are down, and some sellers are on the wires today saying fewer of their items are selling, and those that are are selling for lower average prices. And in fact, while eBay is dramatically lowering the listing fee for Buy It Now, it's increasing the final cut of the transaction it'll take to offset the listing fee reduction. You can imagine how well that's going over with sellers.

eBay's most recent earnings report was lackluster at best, and concerning at worst. The company beat the Street for its third quarter, but failed to wow analysts with its outlook. Also, eBay's US gross merchandise volume, a key metric measuring its health and welfare, only increased 8 percent, well below the 12 percent some on the Street were anticipating. Listings at 666.9 million also came up very short. The contrast to Amazon and its earnings that came just a week later, which were impressive, soundly beating estimates, is stark. So while eBay shares drift toward a 52-week low, Amazon has shown quite a bit of stability, even though it has a ways to go to reclaim its 52-week high.

But here's the thing: analysts I'm talking to today say the new strategy may increase listings to an extent, but will unlikely improve eBay's position against Amazon. And by implementing that strategy, the company only serves to anger its seller-base even more than some already are. Cowen's Jim Friedland published a note today saying, "We think Amazon offers a more compelling selling platform and buying experience," pointing out the strengths of free-shipping options or "Fulfillment by Amazon." This is a key distinction that I've written about previously: consumers choosing to do business with a big corporate entity already an expert on the pack and ship model, matching individual sellers and the deals they're offering against new items for retail offered by Amazon; or dealing with eBay and its hodge-podge of millions of independent sellers.

I'm not saying that eBay's new fee structure is a sign of desperation. But you'd think with the systemic problems this company faces, and a sagging stock price to match, the company could come up with a more creative way to compete with Amazon, rather than trying to beat Amazon at its own game, and angering its community of sellers once again. We're only in August. Let's see how these two perform against each other come the holiday shopping season, and whether this new eBay plan actually gains some traction, and whether Listings sees a huge pop during the company's next earnings report. Meantime, Amazon's still got the Big Mo; eBay not so much.

Questions? Comments? TechCheck@cnbc.com

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