Leaving the flea market behind

EBay, once worth more than Google, has fallen behind in the online auction market. It is trying to get consumers to rethink their opinions of the site with its ‘Brand New’ ad push. By Joe Fernandez

Online auction site eBay has built a dedicated following since launching over a decade ago. The site marketed itself as a bargain-hunters paradise, specialising in cut-price, second hand bargains – and made millionaires out of “everyday” entrepreneurs in the process.

Having built itself into a global billion-dollar business dominating the etailer market, it now wants to rid itself of its “flea market” image given the slew of copycat rivals and more glamorous etail alternatives. Last week eBay launched its Christmas campaign, which focuses on its “Brand New” section in an effort to remind consumers that it is not just an auction site, but also an ecommerce player (MW last week).

Analysts at Morgan Stanley say that in the past two years, eBay’s online retail market share fell from 19% to 17%, while Amazon’s share grew from 3.7% to 5.3%. The site, which has almost 86 million users globally, of which 15 million are in the UK, sees over 700 million listings posted monthly on its sites worldwide. However, the company, which also owns internet phone provider Skype and payments system PayPal, has admitted that it has struggled to complete sales in recent months and was last month forced to cut its annual revenue forecast to 4.3bn from 4.5bn.

Enderle Group principal analyst Rob Enderle says that eBay is losing its grip on internet auctions, in what is now a crowded market. “EBay was once valued at $55bn (37bn) by Nasdaq, slightly ahead of giants like Google,” he says. “Now, it is a much smaller part of esociety and the likes of Amazon have been cutting pretty heavily into eBay sales. Amazon’s growth has been phenomenal – both in terms of its shop and market offering.”

Despite the growing competition, Nielsen research still ranks eBay as the number one online shop. An eBay spokesman says: “The key to eBay’s success has been a combination of the value and wide selection our community offers to consumers through the website. As our competitors start to get their acts together, we continue to offer an extensive range online.”

According to Verdict Research, internet shopping is at an all-time high in the UK and online spending is growing at its fastest rate for six years. It is worth 14.7bn this year and is set to reach 44.9bn by 2012.

Verdict Research analyst Malcolm Pinkerton says: “The internet is widely perceived as a cheaper and easier way of finding bargains in most sectors. It will find itself extremely well-placed to capitalise on the falling consumer confidence and lower levels of disposable income currently affecting the retail market.”

Websites such as eBay are well aware of this and are looking to capitalise on this opportunity. Ebay spends almost 8m on advertising annually, according to the latest Nielsen figures.

The new campaign moves eBay away from the animated characters used to represent the buyer-seller relationship. Instead, it focuses on the website’s “Brand New” section – a part of the website which directly competes with the likes of Amazon and Play.com. Jason Goodman, managing director of Albion, the agency behind eBay’s latest campaign, says: “By explaining that the site now has thousands of brand new items, the kind of things that they’re currently trudging up and down the high street for, we hope to be able to reframe eBay as a modern retailer.”

For many, the change from a “second-hand flea market” to a reputable store offering brand new items without the hassle of waiting for an auction to end is necessary, especially in the light of recent trust issues following lawsuits filed by fashion designers. Matthias Mahr, eBay’s head of relationship marketing, acknowledges this: “We have had to challenge perceptions and become more transparent about the work we do. Trust has been a big issue for us, and we have worked hard on tackling this, particularly highlighting the PayPal buyer protection system, and will continue to do so. The new campaigns are all about eBay talking to its customers.”

Though the “Brand New” section has been running on the site for several months already, the decision to focus on it in ads is seen as the latest effort to “reinvigorate growth” by new eBay president and chief executive, John Donahoe.

It was he who instigated the new focus for eBay after being promoted from president of eBay Marketplace to replace Meg Whitman, who in January announced she was stepping down after ten years.

Some of the changes, such as increased selling fees have alienated previously loyal users, and led to negative publicity. Other negative policy changes have included disallowing cheques and money order payments in certain regions.

Independent analyst Jon Ogg says: “EBay has a lot of room to improve, and this is recognised by Donahoe who has introduced significant changes to the site. The next step is to appease consumers, especially those fearful of lawsuits filed over counterfeit goods.”

Timeline

eBay

1995 Launches in San Jos鬠California as AuctionWeb.

1997 Owned by Echo Bay Technology Group, AuctionWeb is officially re-named eBay

1999 Regional websites open in Australia and the UK. Over the years, eBay is made available in 30 countries. China is the only country to have closed its eBay website.

2002 Acquires PayPal for $1.5bn (1bn) and makes it the main online payment service for the network.

2005 Acquires internet phone service Skype for $2.5bn (1.4bn).

2008 Ordered to pay French luxury goods company LVMH Mo봠Hennessey Louis Vuitton 40m (32m) for allowing the sale of counterfeit goods.

Facts

EBay’s global classifieds business averages 84 million unique visitors each month.

The company says it sells a car every two minutes, a CD every nine seconds and a mobile phone every 21 seconds.

It has sold some unique items such as a Gulf Stream Jet for $4.9m (3.3m) and Margaret Thatcher’s handbag for 103,000.

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