.jpg "Why Is Everyone Leaving eBay")
THE STATE OF EBAY
Aside from Amazon, eBay is likely the most well-known online retailer in the entire world. They have been around for nearly 30 years and they rank as the 23rd most visited website in the US pulling in more than 600 million visits every single month.
For perspective, that’s nearly double the visits that Netflix gets. But legacy and popularity are pretty much the only things that eBay still has going for them. Behind the scenes, eBay has been facing a decline for basically this entire century.
.webp "ebay stock graph over 25 years")
In fact, the only time that eBay stock has seen a significant surge over the past 25 years was when it decided to spin off PayPal into its own business in 2015. Before that, eBay stock was mostly flat, and after that, eBay stock has been mostly flat as well aside from the pandemic boost which has completely dissipated.
.webp "Amazon stock graph over 25 years")
In contrast, here’s how Amazon’s stock graph looks over the same time period. And when we take a look at the company’s fundamentals, it’s not surprising why. eBay’s revenue today is about the same as it was back in 2010.
And things only look worse in terms of net income. As recently as last year, eBay had a negative 12-month period where they lost $1.2 billion. Since then, they have recovered back into the green, but again, the numbers really aren’t all that much better than they were back in 2010.
The one thing that eBay has going for it is that its net margins of 27% are leagues ahead of Amazon which sits at just 3.62%. However, it doesn’t seem like investors really care much about this as they are far more optimistic about Amazon’s future.
That’s why Amazon still has a PE ratio of 80 while eBay only has a PE ratio of 8. Even IBM has a PE ratio of 21 meaning that investors are almost 3 times more optimistic about IBM than eBay.
And when you consider that many analysts consider eBay to be all but dead, their lackluster valuation isn’t all that surprising, but it does leave the question of what in the world happened to eBay?
UNHAPPY SELLERS
When you scour the web for concerns regarding eBay, one of the biggest concerns seems to be that sales are falling off a cliff. And this sentiment has especially picked up over the past 6 months. There’s a bunch of prevalent theories floating around.
For example, student loan payments restarted recently meaning that a lot of people now have less disposable income. Inflation and high interest rates have also been eating into people’s savings. Some sellers even speculate that the sales drought may have been caused by an eBay algorithm change in April.
On the surface, it seems that a lot of these explanations make sense but the evidence doesn’t exactly back up these theories. For example, Amazon and Walmart are still posting record revenue numbers. And eBay themselves are posting relatively flat revenue.
Not to mention, concerns about falling sales seem to be a constant theme throughout history. In basically any given year, you can go onto Reddit and find a bunch of sellers claiming that sales are worse than ever. With that being said though, that doesn’t necessarily mean that they’re wrong.
The reality is that selling on eBay is harder than ever not because of macroeconomic reasons but competition. Back in 2009, eBay only had a total of 2.1 million annual active sellers. Today, eBay has a total of 18.3 million annual active sellers or 9 times more.
It’s a similar case with Amazon but there’s one crucial difference. Amazon’s revenue has grown 22X since 2009. eBay’s revenue on the other hand has only increased 15%. And a lot of that can be explained by consistently increasing fees.
.webp "gross merchandise volume of eBay")
If we take a look at the gross merchandise volume going through eBay, we can see that the figure is lower today than it was back in 2013. And that’s not even accounting for inflation. Since 2009, prices have gone up by 43% meaning that flat revenue could actually be indicative of up to 30% lower unit sales.
And given that eBay’s overall transactional revenue itself is down, eBay’s overall unit sales could actually be down by as much as 40%. When you combine 40% lower unit sales with 9 times the number of sellers, it’s no wonder why sellers are always complaining about sales going down.
The reality is that it could be as much 10 to 15 times harder to get a sale today than it was back in 2009, and all of that is just on the seller side of things. The buyer side of things doesn’t look any better as eBay has been shedding users like the plague.
In fact, they didn’t even enjoy bounce during the pandemic. Their peak user count was back in 2018 when they had 175 million annual users. Today, that number stands at 129 million users or nearly 50 million less. And this is of course anecdotal but if you Google “I will never buy from eBay again”, you get dozens upon dozens of links.
That’s not how it is with Amazon or Walmart or even Craigslist. Sure, they have a few threads like that here and there but with eBay, it’s basically ubiquitous. And when you combine this anecdotal evidence with the fact that eBay is down nearly 50 million buyers, it's clear that these threads aren’t just from disgruntled customers.
Rather, it seems to be a serious problem with eBay as a whole which brings us into the question of why are customers so mad at eBay?
UNHAPPY BUYERS
Reading through the Unhappy Buyers' dozens of negative threads about eBay, it seems that by far the biggest complaint from buyers is the prevalence of scams on eBay. You know, not receiving the product, counterfeit products, damaged products, empty boxes, fake tracking numbers, and so on.
Most of these scams are covered by eBay’s money-back guarantee policy, but going through that process is usually not all that fun even if you do end up getting your money back.
So, naturally, buyers prefer to shop at other retailers where scams are much less prevalent like Amazon which brings me to the primary difference between Amazon and eBay: FBA. If you’re not familiar with FBA, it stands for Fulfilled By Amazon and it’s basically the bread and butter of the entire site.
You see, Amazon isn’t just a marketplace like eBay or Craigslist, it’s much more of a traditional retailer as they take on the entire responsibility of customer service. Everything from distributing inventory across the country, routing orders, labeling, and 2-day shipping to handling returns, covering damages, and customer service. That’s what Amazon FBA offers.
The only thing that sellers have to do on Amazon is create a listing and send inventory to Amazon and Amazon will take care of the rest. Now technically, sellers can still elect to do all of this themselves but 94% of sellers just go through Amazon FBA.
And the 6% of sellers that don’t use Amazon FBA are usually big brands who can handle it themselves. Ironically, even a lot of big brands like Samsung prefer to just go through Amazon FBA themselves.
What this all means is that you virtually never interact with the seller on Amazon, you basically only interact with Amazon. Amazon even goes as far as taking responsibility for shipping and order-related mishaps.
For example, if a customer leaves a poor review because of a lost or damaged package, not only will Amazon remove the negative review but they will reimburse both the buyer and seller because it was Amazon’s fault, not the buyer or seller's.
And that’s why the service is so consistent and reliable, especially in comparison to eBay where it truly is just a marketplace of buyers and sellers. The quality of service you receive is largely dependent on how much the given seller cares and it’s largely up to you to look out for yourself.
eBay did launch its own fulfillment service in mid-2019 but it never quite caught on like Amazon FBA did because eBay sellers often have vastly different goals. A bunch of eBay listings are just people selling one-off items that they no longer need for which a fulfillment service doesn’t really make sense.
A fulfillment service makes much more sense if you’re trying to build a full-on business around a given product that you plan on selling in large quantities. So, with that being said, I don’t think eBay’s consistency and reliability will be improving anytime soon which brings one to the root question which is: why even use eBay?
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A DYING PLATFORM
Taking a step back, the biggest problem with eBay is that they offer no real value for what they charge. They’re over here charging sellers 15% on a bunch of categories just like Amazon does but they don’t offer any of the perks that Amazon does.
They don’t have the same reliability, the reputation, or the convenience. They’re more like a flea market that truly just connects buyers and sellers which in itself isn’t a bad thing.
There’s definitely a place for this sort of market online, but if this truly is just a flea market that doesn’t come with any of the protections that Amazon does on the buyer side or on the seller side, why even bother with eBay?
eBay is essentially charging Amazon or Walmart level fees while offering Craigslist or Facebook marketplace level of service. If this was a new business, eBay wouldn’t even stand a chance, but since they’re established and have brand recognition, a lot of people still shop on eBay from time to time until they get burned after which they never return.
The people who want more reliability and convenience just switch to buying and selling on Amazon while the people who don’t care to have a deadweight middle party like eBay just switch to Craigslist.
The only unique reason to come to eBay at this point is their auctions which themselves have a bunch of shortfalls like people placing bids that they have no intention of following through with. And I think all of these relative shortfalls can be explained by the fundamentally different business models of Amazon, eBay, and Craigslist.
Jeff Bezos has always believed that other people’s margin is his opportunity. This is how he built up Amazon and it's still how it runs today. That’s why Amazon can offer so much value for the prices they charge.
They simply just don’t make money. Remember how we talked about Amazon’s margins being 3.62%? Well, that’s with AWS propping up their retail numbers. Without AWS, Amazon’s operating margin is closer to 1.8% and it’s often negative actually.
The reality is that Amazon doesn’t care all that much about making money from its retail operation. Their retail business is more about market control, brand awareness, and influence. Their real money maker is AWS. Meanwhile, Craigslist doesn’t really care at all to maximize profits.
They’re almost run like a non-profit with very modest profits and they have no plans of changing. So, eBay is basically competing against two zero-margin businesses and they’re getting squeezed from both sides.
And the more time that passes, the more apparent eBay’s 27% margin becomes in comparison to the competition. The worst part is that there is no obvious solution. They don’t have an AWS that they can rely on for profits.
Actually, technically, they did use to have all of PayPal but that’s no longer the case. And I think it’s safe to assume that eBay also does not want to become a quasi-nonprofit like Craigslist. So, they’re kind of stuck between a rock and a hard place.
The only way they can really move forward is by sacrificing profits and becoming more competitive but that’s not something they really want to do. So instead, they’ve basically just decided to enjoy the traffic and profits while they last which should still be for quite some time.
When things become unsustainable, well, they’ll deal with it then. And that right there is the sad state of eBay. They’ve been reduced from being one of the most dominant online retailers to resorting to milking sellers as much as possible while they still can.
