The Wall Street Journal-20080130-EBay Aligns With Sellers in New Fee Structure

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EBay Aligns With Sellers in New Fee Structure

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EBay Inc. announced pricing and technology changes to its auction site intended to improve customer satisfaction for buyers and sellers, its first major move under incoming-Chief Executive John Donahoe.

The San Jose, Calif., Internet auctioneer said it will reduce fees that sellers on its Web site pay to post items for sale. Instead, eBay will increase the amount it collects once the item is sold, better aligning its interests with those of sellers. The company said it will also start holding sellers to higher customer-service standards by discounting fees and highlighting listings of the best merchants.

The changes mark the first major move by Mr. Donahoe, who was named last week as eBay's new president and CEO-elect. Mr. Donahoe becomes CEO on March 31, when current CEO Meg Whitman retires.He foreshadowed the pricing changes during eBay's earnings call last week. They are intended to reverse years of slowing growth on eBay's flagship auction business and improve customer service.

The fee changes have prompted some concern on Wall Street. EBay last week offered lackluster 2008 revenue forecasts that were below analysts' estimates, because the company expects to bring in less revenue after the fee changes are implemented. In 4 p.m. composite Nasdaq Stock Market trading yesterday, eBay was down 75 cents at $26.12.

Beginning Feb. 20, eBay will discount fees to list products for sale by 25% to 50%. It will also eliminate so-called gallery fees -- the fees sellers pay to post pictures with their listings -- in the U.S. to spur merchants to include more photos, which appeal to shoppers.

EBay also plans to increase the amount it collects when items sell because its merchants prefer that structure as it lowers their risk. "We will make more of our money when sellers are successful," Mr. Donahoe said in a speech yesterday. The new pricing structure resembles that of Amazon.com Inc., which also allows third-party merchants to sell on its site.

EBay also said it will give advantages to sellers who deliver high- quality customer service. Last year, eBay launched "detailed seller ratings," which give sellers feedback on how well they describe the sale item and how fast they ship it, among other things. Merchants who sell large volumes will receive discounts on the final transaction fees they pay based on those ratings. The higher their detailed seller ratings, the bigger the discount they receive when sales close. The discounts range from 5% to 15% off the final transaction fees.

EBay said it will also decrease exposure or raise visibility of sellers based on customer ratings. EBay is changing its search technology so that shoppers choosing "best match," the default search option, will see listings of highly rated sellers.

Some sellers are skeptical. John Wieber, who sells laptops on eBay and has been moving more sales to his own Web site, said eBay merely "sugarcoated a [fee] increase" since the company is raising back-end transaction fees but not eliminating listing fees. He adds that the standards eBay is setting to attain discounts based on customer service are "unattainable," particularly for high-volume sellers who have to maintain service levels even with many more customers than smaller merchants.

An eBay spokesman said sellers' reaction has been "even" and said the majority of its sellers will see fees decrease. EBay's data suggest that 60% of its merchants who sell in high volume on eBay will qualify for discounts when their sales close based on their customer service ratings today.