In today's AuctionBytes "Vendor Monday" column, Internet Business Skills founder Allison Hartsoe discusses the evolution of eBay from sales channel to customer acquisition tool. Each week, AuctionBytes.com runs an article submitted by a vendor or marketplace in the online-auction industry about a topic helpful to online sellers. Story submissions are welcome by emailing the editor.
Is eBay a sales channel or a marketing channel? The difference is as a sales channel, you expect to make money. As a marketing channel, you expect to acquire customers for the best cost. Here's how eBay has changed and why your strategy should change too.
Classic eBay, or what I'll call eBay 1.0 was about creating an efficient market to liquidate goods and make money. Back in the late 1990's when the ratio of collectibles (i.e. beanie babies) to consumables (i.e. ink jet cartridges) was 80% to 20% of eBay auctions, this made sense. The collectibles industry lacked the ability to bring the Pez dispenser seller in contact with the Pez dispenser lover. Enter eBay and voila! Prices for hard to find items equalized with demand as sellers found buyers. And sellers made money.
Then in the early 2000's collectibles and consumables switched places. I'll call this eBay 1.5. Gradually, consumables become a larger part of eBay listings until it's 80% consumables and 20% collectibles. But the consumables industry doesn't operate like collectibles. Consumables require reliable suppliers with recurring products and price reductions driven by volume purchases. By manipulating factors outside of eBay, sellers still made some money.
And now we have eBay 2.0. The gap that allowed sellers to make money on eBay has steadily closed. Costs have risen in the form of eBay fees, external tools and competition. Sellers are screaming that they can't make money. Some feel they've hit a revenue ceiling. eBay has responded by purchasing 5x the volume of search terms from Google that they ran last year. They also rolled a completely new platform (Express) to attract a different type of buyer. The challenge for sellers is that no matter how many new buyers eBay brings to the platform, sellers still cannot make money if each product is purchased for the same miniscule net profit.
But eBay 2.0 is no longer a sales channel, it's a marketing channel. And that makes eBay the most cost-effective marketing channel online. Is there any other place where customers pay you to be acquired? Certainly not Google AdWords.
Let me illustrate. Let's say I spend $5000 a month at Google AdWords to attract buyers to my website. The SEO people I know would look to double their money. So if it cost me $5000 to run an ad campaign, then I want to see $10000 in sales, a 50% take rate for Google. Now let's say I spend the same $5000 in eBay fees to list my products for sale. A healthy eBay seller has a 10% take rate or $50,000 in sales. Cost effective? Yes! In eBay 2.0 your role as a seller is to use sales to acquire customers as cost-effectively as possible.
To make this strategy work, a seller must have a profitable sales channel where the newly acquired customers are sent. It could be a website, a retail presence, even a catalog. Now former eBay buyers become your customers who buy directly from you. As long as new buyers continue to find you on eBay, there's no reason to leave. Just get smarter about your strategy.
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Allison Hartsoe is the founder of Internet Business Skills (http://www.internetbusinessskills.com). Internet Business Skills is the only company providing inventory-based analytical intelligence to eBay sellers in order to reduce fees. IBS enables eBay PowerSellers to reduce their eBay listing and marketing fees by 20-50 percent while increasing their staying power as an eBay PowerSeller. Before founding Internet Business Skills, Allison worked both as the Director of Business Development for Vericept Corporation, a security start-up, and served as the Executive Director for the Colorado chapter of the Front Range Forum for Women Entrepreneurs. In 1996 in San Francisco, Allison co-founded iSyndicate, a marketplace for digital content. iSyndicate grew to 230 employees with 6 domestic offices and 3 international before being acquired by a competitor in August 2001. While at iSyndicate, Allison led the International Team where she opened iSyndicate's first European office in London, and later struck a 50/50 joint venture with media powerhouse Bertelsmann. Allison has appeared on programs such as CNN Europe, CNBC Europe, NPR's Real Computing, and spoken at Internet Content West and Internet World 2000. Outside work, Allison is equally determined; she climbed Mt. Kiliminjaro and biked across the USA.
