eBay is in the midst of a multi-year marketplace turnaround, and analysts have been generally patient. However, Deutsche Bank's Jeetil Patel is concerned about the effect of eBay's most recent changes that rolled out on March 30, telling AuctionBytes, "the commentary and the feedback from eBay's customers is that business appears to be definitely much weaker than anticipated, and it seems to be more of a phenomenon that started in April."

eBay revealed its turnaround strategy one year ago at its March 2009 Analyst Day. In addition to rolling out seller initiatives and changes to fees and trust & safety, eBay explained it would use technology innovation to help it turn things around. But traffic has continued to fall - eBay received 49.6 million unique visitors in March 2010, down from 61 million in March 2007.

In addition to coupons and cash back programs eBay has sought to stimulate traffic to the site through advertising, paid-search and affiliate marketing. However, customer acquisition can be costly. "If you run the math behind it, to give away $5 or $10 coupons, which can be the equivalent of the amount of net revenues that eBay could capture on a transaction, it could be difficult." Patel explained, and stated that increasing ad rates would also put pressure on eBay's ability to acquire traffic.

Over the past several years, eBay has shifted its focus from collectibles to more "practical" products, putting the company in direct competition for online shoppers against such Internet retail powerhouses as Amazon, Best Buy and WalMart. "eBay was a very strong, powerful platform around the collectibles side of the business, built around auctions, adding liquidity and value in categories and for consumers that are looking for unique items," Patel said, explaining that eBay recognized the significant market opportunity in mainstream product. "The problem with that is, it's hard to build loyalty when eBay has no way to differentiate itself in the eyes of consumer buyers, from a product-fulfillment, pricing or quality standpoint."

In addition to declining traffic, GMV (sales) has not kept up with the growth in supply, according to Patel. In 2008, eBay introduced a new fixed-price format at a price that was attractive to sellers (FP-30), and recently it moved Store inventory to core. "Obviously when you have duplication of listings, when you go down to 3-to-5 cent listing fees, you're going to get a lot of duplication of the same inventory," he said. "It just becomes difficult for that technology to keep up with the influx of inventory that's growing on site and you may end up with a worse customer experience potentially off of it."

More bullish analysts feel the fee changes make eBay a more compelling marketplace for merchants, while offering higher selection for buyers. (See related blog post.) They say that when eBay made the same changes in Europe last year as it rolled out in the U.S. in March, it took between 1 - 2 quarters to show a positive upturn.

When drawing comparisons in the ecommerce space, eBay is most often compared to Amazon.com, which is experiencing growth in traffic, sales and third-party sellers. Nielsen traffic numbers showed traffic to Amazon.com for the month of March 2010 was over 17% higher than in March 2008, compared to eBay's 13% decline.

Amazon.com's third-party marketplace program attracts buyers with lower prices and broader inventory than if it had to source all of its inventory itself. Its Prime Shipping program builds loyalty - it keeps shoppers coming back to get free expedited shipping once they've made the initial investment in the program. And its FBA program (Fulfillment By Amazon) ensures greater "trust & safety," since Amazon.com is fulfilling the goods itself and is providing a more consistent shopping experience.

In order to increase customer loyalty on eBay, Patel believes eBay needs to create a better shopping experience. "When I go to a web site, an ecommerce service and everything is organized by product and there's reviews and content. When I go to eBay, it's still a listings metaphor, and there's uncertainty in how, as a buyer, I differentiate one listing from another, or product from another. I think those are areas that they could create a better buying experience - standardization on categorization."

The biggest difference between Amazon and eBay, however, is Amazon's inventory ownership, something Patel believes eBay must consider. "The companies that take on balance sheet risk, product fulfillment risk and pricing risk are going to be the best-suited from an ecommerce standpoint longer-term. So maybe that's the theme that they may need to morph into or migrate into."

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