Long eBay

eBay should keep growing along with the broader ecommerce market provided the economy remains hot & we do not have a recession. They won’t grow as fast as Amazon.com or Walmart.com, but they are still growing at about 8% YoY.

And as the big platforms source more goods from China & increase the ad loads in their search results, they are adding back friction to offset some of the friction they removed with things like 1-click ordering.

The first three results, which take up the whole screen above the fold — everything visible before you scroll — are sponsored placements that appear as search results … The competition for brands to bid on their own or others’ keywords is fierce

There are guides on how to launch products for sale on Amazon where they directly suggest bidding on other trademarks, paying Amazon $5,000 and up for access to reviews from the Vine program, etc.

People who invest  heavily to build a position in organic search get to enjoy outsized margins so long as they rank (though the result displacement by ads trend is there too). But with Amazon you’ll need to jump through all these hoops to get sales volume & then you will still have many forces working against you to cram down your margins over time.

Further, the largest central platforms are seen as competitive to merchants with all sorts of hazards

  •  private label products that clone top sellers
  • direct deals that cut out some resellers
  • a layer of ads in the interface that displace the search results & further move margin share in the direction of the central platform
  • scammers doing fake reviews & fake copyright or trademark violation reports to get competitor products delisted, & all sorts of other seedy stuff like bribery of Amazon employees in China

Here is just a taste of the fake reviews & rank manipulation stuff.

only the first four reviews were related to the mask—the hundreds of others mostly evaluated a battery charger. The merchant, labeled by Amazon as “just launched,” likely co-opted an old listing with positive reviews and changed the product’s image and description to fool Amazon’s algorithms … Some China-based Amazon employees have been paid off by sellers to pull confidential seller-account stats, search-optimization tricks and other internal information, according to people with knowledge of the practice. … To trick Amazon and boost a product’s ranking, sellers will ship an empty box with a real tracking number to accomplices in the U.S., who then leave a positive review for the product. … His listing for the product was split into three listings, one for each size he offers. Not only did that cause the product to drop in the rankings, it also meant that consumers who found the listings were frequently ordering the wrong size. … As Amazon has cracked down on fake reviews, some sellers are leaving five-star, fake-looking reviews on rival listings so they trigger Amazon’s scam-detecting algorithm and get the rival seller suspended, according to the people familiar with the practices. Another tactic is to vote rivals’ bad reviews the most helpful. Others buy the product and leave safety complaints, which typically trigger an immediate listing suspension as Amazon investigates.

And then here is the kickbacks to Amazon employees in China:

In exchange for payments ranging from about $80 to more than $2,000, brokers for Amazon employees in Shenzhen are offering internal sales metrics and reviewers’ email addresses, as well as a service to delete negative reviews and restore banned Amazon accounts, the people said.” … “The going rate for having an Amazon employee delete negative reviews is about $300 per review, according to people familiar with the practice. Brokers usually demand a five-review minimum, meaning that sellers typically must pay at least $1,500 for the service, the people said. … One Chinese Amazon seller said competition on the website had become so heated that he is tempted to use illicit tactics to gain an edge. “If I don’t do bad things, I will die,” he said of his business.

Those private label brands from Amazon are an even bigger risk than the sort of scams some nefarious competitors pull, because the private label brands can source from the same factories & even be sold at a loss, as they can be cross-subsidized from cloud computing profits AND Amazon can factor in the value of displacing their organic results with more ads to force the ad buy to claw margins away from other merchants.

 The company now has roughly 100 private label brands for sale on its huge online marketplace, of which more than five dozen have been introduced in the past year alone. … Analysts predict that nearly half of all online shopping in the United States will be conducted on Amazon’s platform in the next couple of years. That creates a massive opportunity for Amazon to more than double revenue from its in-house brands to $25 billion in the next four years, according to analysts at SunTrust Robinson Humphrey. That’s the equivalent of all of Macy’s revenue last year. … Type the word “batteries” into Amazon’s search bar and the first thing that will catch your eye is a large sponsor ad running across the top of the screen for Energizer, featuring its ubiquitous drum-playing pink bunny. But after that, the screen is filled with offerings for AmazonBasics batteries … Some of this data is also available to big brands or vendors selling on Amazon’s platform through a program called Amazon Retail Analytics Premium. But it is expensive, with vendors paying 1 percent of their wholesale cost of goods sold to Amazon or a minimum of $100,000 to get access to a database that lets them see to some, but not all, of the data Amazon has compiled. … Amazon has utilized a reviewing program called Amazon Vine for many of its private-label goods. … Of those 835 products, more than half of the first 30 reviews were from the Vine program … many analysts say it is fairly expensive to participate, saying it can cost manufacturers as much as $5,000 to obtain reviews for one product, along with the cost of giving the product away.

As bad as the above sounds, Amazon is also offering billions in loans to merchants on their platform, so you are competing against all sorts of subsidies & leverage from a competitor who doesn’t need to profit from transactions plus gets a cut of your transactions any time you actually manage to win the sale.

eBay not be as competitive as Amazon, but they are also not known to be as cut throat. Maybe they were terrible when they dominated the market, but the Avis rule (we try harder) creates a more stable ecosystem for partners than the sort of move fast & break things mindset. They’ll still have some issues intermediating transactions, but they can connect IP addresses, user accounts, etc. to flag patterns of abuse like any other large platform can.

eBay is down to new 52-week lows (and may go lower still now that I’ve bought a bit :D) but they announced they have started their transition away from Paypal today, which will eventually increase eBay’s margins as Ayden charges far lower fees.

Nowak said eBay’s move away from PayPal should improve the company’s ability to grow buyers and gross merchandise value, as well as increase earnings before interest and taxes (EBIT) by 20 percent over the next three years. It will also lead to a 52 percent increase in gross payment margin, he said.

The vast majority of eBay’s business (about 90%) is fixed price listings with large retailers selling on the platform, but every day thousands of auctions have rare, unique & vintage things not widely found elsewhere. And if the economic expansion continues collectibles will follow other financial assets up in price.

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