GLG News by David Yaskulka

Implications: eBay’s deal with Buy.com represents a tectonic shift in a marketplace known for its “level playing field.”   Will the shift help? As Rany Smythe says in his blog, “If you ever wanted a preview of the "New eBay," I've got a treat for you, it will look a lot like Buy.com's eBay store.”   Since 2002, Buy.com’s eBay division has shown exemplary performance in the one specific metric eBay has chosen for measuring all sellers.   It’s fantastic that eBay is providing incentives for outstanding seller performance. That will have short and long term benefits for the marketplace.   The problem is that eBay is choosing to measure the wrong thing.

Analysis: eBay will get what it measures.  

The good news is that eBay has chosen to measure seller performance, and make dramatic, sweeping changes on the site to incent sellers to do better. Such incentives include:  

-advantages in search results (“Best Match”)  

-fee discounts  

-other benefits and seller protections through the revised PowerSeller program.

This is exactly the right direction: measure seller performance, give incentives to sellers who please buyers, and penalties to those who don’t. Perfect.  

But the devil is in the details.   The bad news is the very specific criterion eBay has chosen against which to measure seller performance.  I’ll get a bit granular to explain.  

How are sellers now being measured?  

In addition to the traditional eBay Feedback system (where buyers rate sellers “Positive,” “Neutral” or “Negative” and can enter a written comment), eBay has joined most of ecommerce in offering a Detailed Seller Ratings system – DSR for short.   The four details on which buyers rate sellers are:  

-How accurate was the item description?    
-How satisfied were you with the seller's communication?    
-How quickly did the seller ship the item?    
-How reasonable were the shipping and handling charges?     

However, sellers are measured specifically against their lowest score of these four. So if you get 5 stars in three categories, and 4 stars in one, eBay measures you as a 4 star seller.  

This rating system specifically encourages sellers to strive for consistent excellence in these four generally-accepted standards of ecommerce quality.  

What’s wrong with that system, and why is getting this right so important for eBay?  

eBay absolutely needs to improve its buyer experience. Giving sellers incentives for performance is exactly right.   But you need to let the customers rate seller performance on their own terms.

In fact, eBay buyers are more “idiosyncratic” than other ecommerce buyers. They come to eBay looking for something that’s harder to find. They are willing to make some tradeoff in order to get something that’s more important to them than plain-vanilla ecommerce excellence. They require good vanilla (call it 4 stars), but what they care about is 5 stars in something that matters to them – the sprinkles if you will.  

What sort of idiosyncratic things do eBay buyers care about?  

-exciting, low-starting price, no-reserve auctions for valuable items  

-rare, special, or hard to find items  

-items with a percentage donated to charity (through eBay Giving Works) 
 
-direct communication with a retail owner who helps throughout  

-special and idiosyncratic bonuses that some sellers provide (gifts with purchase)

-other, many and various factors.

Here’s an example:    

Seller "A" gets consistent 5.0 star DSR ratings for descriptions, communication, and shipping time, and 4.2 star ratings for shipping and handling charges (buyers are instructed that 4 stars is "reasonable" and 5 stars is "very reasonable). Instead of subsidized S&H, Seller A donates 10% of the purchase price to Habitat for Humanity, using the eBay Giving Works program. Seller A's buyers are passionate, think Seller A is the best place to shop in the world, and they have 100% positive feedback.  

Seller "B" (like perhaps Buy.com) get 4.8 star DSR ratings across the board. They are good solid commodity sellers, and their customers think they are just fine, as long as their price is best. They get 99% positive feedback, and are well liked.  

In the new world, seller A is rated 4.2. It will be strongly disadvantaged in search. Since 4.2 is deemed unacceptable, Seller A is kicked out of the PowerSeller program (4.5 DSR minimum). The reason? Seller A's passionate customers simply told eBay that their S&H is just "reasonable." But they didn’t get the chance to tell eBay they loved exactly the way Seller A was doing it.  

Seller B is a 4.8, and will be advantaged in Best Match, and receives 15% Final Value Fee discounts, and gets additional PowerSeller benefits no longer available to Seller A.  

Sadly, the Seller A’s of the world are what bring people to eBay.    

In their (appropriate) zeal to get better on four critical criteria, eBay has inadvertently marginalized factors buyers might deem critical. As eBay president Lorrie Norrington said in New Orleans, "if you cannot, or will not change business practices to provide a great customer experience, then eBay is not for you." In order to survive, Seller A is forced to change, despite providing an even better customer experience than Seller B.    

Why did eBay make this mistake?  

Two reasons (one is easy to fix, the other a little tougher).  

1. eBay has chosen to focus on the four areas where it felt Amazon was taking its lunch money: item descriptions, seller communications, shipping time, shipping & handling charges.  These are clearly critical areas where eBay needs improvement. It makes a lot of sense to focus on fixing these problems.  

2. eBay already has an “overall” rating system. It’s the Feedback system devised by Pierre Omidyar himself. The problems are a) the system is partly broken (that’s what eBay is trying to fix here), and b) the eBay Community has a lot of attachment to it. So eBay kept the system, but has chosen to largely ignore it for the incentive programs. The critical error is not measuring against each customers’ “overall” rating of each seller.  

How should eBay fix it?    

Simply add a 5th Detailed Seller Rating, much like every other ecommerce rating system, that allows customers to “bottom line” the experience. For example:  

“Overall, how happy were you with this seller?”  

Then, instead of measuring sellers against the lowest-of-four-DSRs, simply measure against the consumer’s bottom line DSR. That’s what Shopzilla does. That’s what Amazon does. That’s what most ecommerce rating systems do.   Buyers who are disappointed with a seller’s item descriptions, communications, shipping time or s&h charges will denigrate the “bottom line” rating accordingly.

Buyers who give a seller just-OK marks in an area they don’t really care about can still give 5 stars to a seller that thrilled them overall.   Perhaps penalize sellers with very low scores in any measure (e.g., 3 or below).  

But given eBay’s positioning in the broader ecommerce universe – as a place to get special items, special deals, and a special shopping experience – it’s all the more important to let buyers choose which sellers are special.  

Otherwise, eBay’s special sellers will become just plain vanilla.    

Implications: Meg Whitman may be about to conclude one of the great leadership tenures in the Internet's whirlwind history, according to today’s Wall Street Journal report. Her successor must continue and improve on Meg's recent efforts to bolster safety, adjust fees, improve the shopping experience, and (perhaps most of all) focus on eBay's unique competetive advantages as an e-commerce destination.  

Analysis: Can Meg Whitman's successor -- likely eBay Auctions president John Donahoe -- make the sort of drastic changes many believe are required to bolster safety, adjust fees, improve the shopping experience, and (perhaps most of all) focus on eBay's unique competetive advantages as an e-commerce destination.   ?

I think so. But the "secret sauce" will be to grow eBay’s profile as a unique and special web destination, while leveraging that position to improve shopping.

What does that mean?

What's special about eBay: auctions, the thrill of "winning," a uniquely eclectic long-tail of product selection, and perhaps most of all, the eBay community. There's no place like eBay to find such a passionate community of participants (buyers and sellers), and unusual auctions that benefit the wider community. Auctions like lunch with Warren Buffett to benefit the Glide Foundation, and VIP tickets to the Grammy Awards to benefit MusiCares. The eBay Giving Works program can become eBay's secret weapon -- the place where e-commerce meets community like nowhere else online. Already, thousands and thousands of small and medium sized merchants are participating.

Today at Inc.com, David Schmidt, Ph.D., author of Wake Up Calls: Classic Cases of Business Ethics, published a telling column entitled, "The Moral Imagination of Entrepreneurs." He writes:

"...Previously, the most established and robust examples of programs in corporate ethics and social responsibility were developed by leading Fortune 100 corporations. ... I predict that cutting-edge work in business ethics will increasingly come from the more entrepreneurial segments of the economy, because there is an integral connection between moral imagination and the qualities of effective entrepreneurs."

eBay's life blood is the 1.2 million entrepreneurs who make their primary or secondary income from selling on eBay. Entrepreneurs like the members of the Professional eBay Sellers Alliance make up a tremendous portion of eBay's Gross Merchandise Volume.

But these entrepreneurs are trying to distinguish themselves in an increasingly complex multichannel e-commerce world. They need to follow the advice of Dr. Schmidt, and also find their way into the hearts and minds of the millions posting on social network sites such as MySpace, YouTube and FaceBook.

Increasingly, a key piece of the answer for them is to look where e-commerce meets community: eBay. With the eBay Giving Works program growing rapidly, and eBay bringing new corporate citizenship to the table (e.g., MicroPlace, a carbon-offset program, and more), there's more and more there.

The trick for eBay will be how to promote these charitable listings, and leverage them increase shopping.  If you are selling VIP tickets to the Grammy Awards for charity, leverage that to sell other tickets, and other related items. At the same time, reward those sellers who are making the site special in this way.

That will be the secret sauce for Meg's successor.

Implications: Is eBay taking the right steps to improve buyer safety (and retention)? Is eBay sufficiently guarding the elements that differentiate its marketplace from the rest of ecommerce?

Analysis:

Bargainland, one of the top-volume sellers in the history of eBay, just shut down its eBay operations in favor of selling on its own site, and on Overstock.com. eBay has made it increasingly difficult for sellers like Bargainland to operate on its site, with both good and bad implications.


The Bargainland example is interesting for eBay and its followers for a number of reasons:

-Bargainland’s massive presence in the eBay market (over 1 million feedback received)

-its classic eBay business model of launching all auctions at $0.99 No Reserve (an increasingly-rare true auction pricing model), even for relatively expensive items

-its off-the-charts low feedback rating on eBay (i.e., 90% or lower positive feedback, which in eBay terms is terrible)

-its unabashed communication to customers that they are taking a risk when bidding: items may or may not work, and Bargainland is unlikely to help make you whole (prominent banners proclaimed “Caveat Emptor, Buyer Beware: All Items Sold AS-IS” and “Where low prices come first, and service comes second.”) – so they say: “Bid Accordingly.”

-its off-the-charts high repeat business ratio (which is exactly what eBay needs).

First, I want to make clear that my interest is not in Bargainland in particular – but rather, in the type of seller they represent: true auction, drastically low price, low reliability, low customer service sellers. Bargainland itself may well have had other problems that drove them from eBay (and I’ve spoken to people with knowledge of the situation who in fact confirmed that BL itself had problems other than the ones we’re noting here).

My take is that some of eBay’s measures may be eliminating this type of seller from the marketplace forever. And that would be sad for eBay.

What are the positive characteristics that differentiate eBay from the rest of the ecommerce world?

1. auction style listings, especially those that start at $0.99 and let the market determine the price

2. the possibility of extreme bargains -- especially for shoppers willing to take some risk, or to sacrifice some dimension or another of product quality or the shopping experience (e.g., willing to buy the electronics without the remote)

3. a very long tail (vast product selection)

4. hundreds of thousands of listing benefiting over 12,000 nonprofit groups (eBay Giving Works charity listings)

5. a relatively intimate, person-to-person shopping experience

6. a unique community (thriving discussion groups, sellers and buyers helping each other, fun/offbeat things, etc.)

7. relatively high trust and safety versus other person-to-person marketplaces, e.g., classified ads, flea markets, garage sales, etc.

Sellers like Bargainland are of significant help with 1-3 above, especially #2: extreme bargains. Operationally, this sort of seller adopts the lowest-possible-cost model. They don't test the stuff. They don't answer questions about the stuff. They don't accept
returns on the stuff. And they start their auctions -- even for stuff that might be very expensive -- at $0.99 no reserve.


And again, the best members of this sort of liquidation seller club are very up front about all of the above. They tell you it may or may not work, and they won't take it back. They say they won't help you: BID ACCORDINGLY. So as a consumer, if you see 80% positive feedback, you might assume that about 1 in 5 purchases will be a bust. Well, if I can get my item for 50% below the price I can find elsewhere, I might be willing to take that risk.

And it might be ver bad for eBay if we tell this sort of seller you need to adopt a much, much higher cost model in order to stay on the site. Those sorts of extreme bargains -- representing incredible deals, the thrill of the hunt, true no reserve auctions, and a certain roll of the dice all around -- might just be sent away from eBay forever.

Some have likened eBay shopping to gambling in its addictive qualities.  To follow the analogy, should every possible measure be taken to make the gaming industry safe? Of course. But what if the industry were regulated to require that casino visitors could never lose?

I think, as long as such liquidation sellers stay crystal clear and above board with bidders -- that buyers always know when they may be gambling -- then such sellers can be good for eBay, and represent part of eBay's core market differentiator.

You cannot get Bargainland type bargains on Amazon or other ecommerce sites (they can't support the price if they need to test, give returns, etc.). eBay is the only place. And if I'm an extreme bargain hunter with some risk tolerance (which demographically
represents most eBay buyers, to a greater or lesser degree), I just lost something special.

Here’s what’s interesting to me. I built an eBay business that was known for its exemplary customer service and reputation. We were highlighted in a dozen books on eBay best practices and success stories. We maintained positive consumer feedback in the 99.8 to 100.0% range.

Yet, Bargainland, and lots of sellers like them, have a higher customer retention/repeat business percentage than I did. Why? We of course had to charge people for that customer service and reliability. Sellers like Bargainland simply have the best possible price, and keep people coming back again and again and again (even if they leave negative feedback 10% of the time).

People come back because you can't beat the price, and most of the time you get much more than what you pay for.

Now as for the scoundrels who mislead in ANY way, throw 'em the heck off.

The single most important metric I think analysts should track – active users vs. total users – takes a hit if we pressure extreme bargain sellers from the site.

Implications: 6.    what is next for Skype? 7.    how will eBay continue to focus on its core differentiators in the wider ecommerce marketplace (auctions, community, charity listings, long-tail selection, low barriers to entry for individuals/small biz, etc.)? 8.    how will eBay work to align its seller incentives with buyer demands?

Analysis:  

-what is next for Skype?

We’ve still heard mixed reviews from sellers about the integration of Skype into normal eBay business operations. It will be interesting to see if there will be any additional mashup opportunities around Skype, StumbleUpon, eBay and possibly Yahoo (and of course with PayPal in the mix).

-how will eBay continue to focus on its core differentiators in the wider ecommerce marketplace (auctions, community, charity listings, long-tail selection, low barriers to entry for individuals/small biz, etc.)?

Perhaps it’s telling that when Meg Whitman accepted a lifetime achievement Webby award on behalf of eBay’s 233 million users – and was like all other winners limited to a five-word acceptance speech – she exclaimed, “bidding starts at ninety-nine cents!”

While rightly seeking incremental income from the legions of small businesses it’s spawned, and from the convenience (and safety-)-conscious shoppers who happen to stop by, eBay is focusing on its core differentiators. We’ll see how Philip Justus helps focus on the elements that make the eBay site like no other: auctions starting at ninety-nine cents; a thriving community of millions of users (who actually seem to care about each other and enjoy spending time together); thousands and thousands of listings benefiting great charities; an unparalleled assortment of everything under the sun; and a still-unmatched opportunity for just about anyone to start and run their own business from their own home.

-how will eBay work to align its seller incentives with buyer demands?

Take a look at one little-known eBay policy known as the “eBay Giving Works fee credit policy” (http://pages.ebay.com/help/sell/givingworks-fee-policy.html) which has significance far beyond it renown.

In short, the policy gives sellers rebates on their fees for sales made through the eBay Giving Works program (the rebates are pro-rata based on the amount donated to charity). The significance is two-fold.

First, the policy says a lot about the community-focused values that eBay has as a company, and that play out in the loyalty shown by buyers and sellers on the site. The policy helps grow the eBay Giving Works program which (coming in part from a nonprofit fundraising background) I can tell you is one of the most important, scaleable, sustainable philanthropic programs ever conceived (FULL DISCLOSURE: after years as an advocate for the program, I was asked to do consulting for it, and continue to do so).

But there is a second, equally-significant brilliance to this little-known policy that is absolutely worth keeping an eye on: it incents sellers to do something buyers really like.

So in contrast, for example, to eBay’s policies around shipping (which still incent sellers to charge too much), this policy incents sellers to individually do something which benefits eBay and all its sellers collectively.

When buyers see that their purchase benefits a charity, it’s good not only for that seller, but for eBay as a whole. It just makes eBay look good.

Just as do free shipping, great customer service, money back guarantees, fast shipping and many other choices a seller can make. eBay would do well to provide incentives – promotional and financial -- for sellers to do these things as well.

I'll try to add a new analysis reporting on Live! soon.

-David

Implications: 1. what (if any) are the new plans for eBay Express? 2. what are the results (listings, ASP, CR) of eBay’s 2006-2007 anti-fraud measures, and what are the next steps in this ongoing fight? 3. what is the mood of eBay’s largest PowerSellers, and what are their plans for 2007-2008? 4. what (if any) are the next steps for eBay’s Yahoo partnership? 5. what are the implications of the StumbleUpon acquisition, and how will eBay (and eBayers) discuss its potential integration? 6. what is next for Skype? 7. how will eBay continue to focus on its core differentiators in the wider ecommerce marketplace? 8. how will eBay work to align its seller incentives with buyer demands? I’ll try to cover 1-5 here, and 6-8 soon.

Analysis: Critical issues that merit monitoring include:

1. what (if any) are the new plans for eBay Express?

We’ll want to pay close attention to see if there are additional plans for integration into Yahoo. In addition, will there be any changes in seller requirements (minimum total feedback, and/or return requirements) in order to differentiate Express from the rest of eBay? And will eBay add some focus on its charity listings in order to help differentiate Express from the rest of ecommerce?

2. what are the results (listings, ASP, CR) of eBay’s 2006-2007 anti-fraud measures, and what are the next steps in this ongoing fight?

eBay took some very strong steps to reduce fraud and counterfeit items from the site. Short term, these measures certainly had a negative impact on listings and GMV. But the mid-and long-term implications are wildly positive. Sellers in impacted categories are already reporting rising Average Selling Prices and Conversion Rates for genuine goods (with less competition from fake). We’ll want to watch what additional measure eBay may take, and how it will protect good sellers from getting mistakenly caught in any nets.

3. what is the mood of eBay’s largest PowerSellers, and what are their plans for 2007-2008?

There will be a number of gatherings of eBay’s largest sellers. I’ve heard a fairly wide range of plans for the upcoming year, largely determined by business model and product category/vertical.

In recent years, eBay has shifted its “our site only” message to sellers, and is taking a more strategic approach to capitalizing on the legion of small businesses it spawns every year. With offerings such as Pro Stores and eBay Giving Works, PayPal and shopping.com, and the new affiliate program opportunities (and widgets), eBay is acknowledging the multichannel world into which small, growing businesses must emerge, and it’s taking its cut. It will be important to keep an eye on additional announcements in this direction.

4. what (if any) are the next steps for eBay’s Yahoo partnership?

Will eBay Express items appear in Yahoo Search Marketing, as was recently rumored? http://blog.auctionbytes.com/cgi-bin/blog/blog.pl?/comments/2007/6/1181273476.html

Yahoo is sponsoring a party for professional eBay sellers, and so we will keep an eye on any new developments.

5. what are the implications of the Stumble-Upon acquisition, and how will eBay (and eBayers) discuss its potential integration?

eBay is stepping ups its My World functionality, along with further emphasizing its reviews, guides, head-to-head matchup game, and other tactics to try to leverage its early competitive advantages in the world of web community. They haven’t yet been forthcoming about where StumbleUpon will fit, but it would not be unusual for eBay Live to be the place for an announcement.

Lots more to come. I'll try to annotate my questions 6-8 above as well soon...

-David Yaskulka

Implications: There are proposals to require that online auction sites turn over sales information to the IRS in the attempt to enforce tax compliance among professional sellers.

There are two different issues at hand, and the media is getting it right -- some of the time.

1) should auction site sellers pay their taxes? (easy answer: yes!)

2) should online auction sites have reporting burdens that are not shared by other ecommerce sites, or by brick and mortar venues? That's the question I'll address here.

From a marketplace perspective, no stakeholder (buyers, sellers, investors, etc.) in online auction sites -- or in any other type of business -- wants to see his or her arena burdened (while other arenas remain burden-free).

Analysis: The San Francisco Chronicle published an interesting article on February 27 entitled IRS Urged to Go After eBay Sellers: Tax experts say online auctions should report users' gross sales, by Verne Kopytoff.

Verne contacted me as a source for this article after hearing me on CBS radio the previous day. There, on the Stan and Susan Show (KCBS), I made the following points:

==>None of the Professional eBay Sellers Alliance members I’ve talked to have any problem with eBay reporting, but the issue is targeting ONE marketplace – our marketplace – to collect information that competing marketplaces don’t have to do.

==>At every eBay Live! and throughout the year online, eBay brings in professionals to help sellers comply with all tax laws.

==>same thing at Professional eBay Sellers Alliance Summits. Intuit and QuickBooks were recent event sponsors. I believe this is a segment of small business people who overall, does a better job of complying with the IRS than the wider worlds of eCommerce and offline commerce.

==>As sellers, rather than see our marketplace partner singled out for a reporting burden that competing marketplaces do NOT have

==>we’d rather see eBay take those resources and promote what’s special about eBay, like eBay Giving Works once in a lifetime experience auctions to support the Leukemia and Lymphoma Society and great bargains on whatever IT is you’re looking to find.

==>We just think that it’s hard enough to be successful in business without your marketplace being singled out as the only one required to do this level of reporting.

The San Francisco Chronicle article correctly captured the opinion of most professional eBay sellers, quoting me:

David Yaskulka, marketing chairman for the Professional eBay Sellers Alliance, an industry group of more than 500 big eBay sellers, said it wouldn't bother him if eBay reported sales information about its users to the IRS. In his experience, big sellers already pay their fair share.

"Every professional seller I've ever talked to pays their taxes and has no problem with anyone finding out about the level of business they're doing," Yaskulka said.

His concern is that legislation will unfairly target eBay. All sales venues, online or off, should be treated the same, he said.

Unfortunately, subsequent articles didn't get it right, including the NY Times article sited here, which makes it appear that professional sellers do not mind such targeted information sharing burdens.

My take: it's important for stakeholders to know that professional eBay sellers do not favor such selective enforcement of the marketplace(s) in which we do business.

Implications: Sellers seem to use different metrics when comparing the profitability of eBay vs. other top web destination sites on which they do business, including Google, Yahoo, Amazon and others.

eBay "2.0" fees may soon be seen more like advertising or marketing fees, rather than a direct cost of sales. In other words, businesses may continue to sell on eBay even if eBay sales are no longer profitable.

Analysis: Lifetime customer value is not very easy to measure. But many multichannel online merchants seem to consider lifetime value when they purchase advertising from Google, Yahoo or MSN, and when they spend at Shopping Comparison Engines (shopping.com, shopzilla, etc.), and not necessarily when they sell on eBay.

In contrast to Amazon (which may offer most sellers greater profit participation than eBay), eBay rules permit sellers significant brand-building and customer-retention opportunities. These opportunities beg the question of lifetime customer value. If done right, that value can be very high on eBay.

Brand-building opportunities on eBay include:

-custom storefront (with full branding opportunity), with prominent links from listings to the storefront

-custom listing design, including full branding and cross-promotion to the seller's other eBay items

-an "About Me" page that even allows links to the seller's off-eBay site, with prominent links from listings to the Me page

-custom storefront pages and categories

-the option of custom branded third party checkouts, including email opt-in.

All of these could be seen as opportunities for the seller to maximize lifetime customer value, whether on, or even off of eBay

-"cause marketing in a box" programs through eBay Giving Works.

In addition, eBay offers sellers opportunities to keep their eBay customers coming back to them specifically on eBay, including:

-favorite seller lists

-eBay seller email opt-in.

While the author quotes a 10% eBay takings rate figure, that rate could be as high as 20% for many professional commodity sellers. Nonetheless, when combined with significant lifetime customer value, this rate compares favorably with other online marketing opportunities.

Importantly, it's often a poor strategy for a seller to "force" customers away from eBay to their core web sites. The most successful sellers allow their customers to choose. If the customer most enjoys buying on eBay, then the seller can profitably continue the relationship on site.

But other customers do most of their shopping outside of eBay, perhaps being in a different shopping "mode" (transactional rather than experiential if you will). eBay, sellers and customers can all win by giving customers the opportunity to choose.

By allowing multichannel sellers all of these branding opportunities, yes, eBay may lose some customers to the sellers' own sites. But I do not believe this is the dominant effect. Rather, by allowing these opportunities, eBay is keeping sophisticated multichannel sellers on eBay despite marginal seller profitability.

Side note:

Interestingly, Google Checkout is serving to further blur previous distinctions by simultaneously reducing lifetime customer value (by "owning" the GC customer's information), while reducing the cost of Google advertising (via adword credits)

Implications: According to the article, "The most popular e-commerce site, with 7.5 million unique visitors on Black Friday, was eBay."

Among all online channels, eBay does generate the most traffic for most of the multi-channel sellers we know.

My comments will review how the holiday is lining up for most of the multi-channel sellers I've checked with. Most of all, I'll review how these marketplaces rank on the criteria that matter most to sellers.

Analysis: So far, the holiday season is kicking off very well for most online online merchants to whom we've spoken.

Most of the best online merchants we know use three primary criteria to evaluate relative investment (human and financial capital) in one online channel vs. another:

1) profit participation (of course) -- gross margin minus marketplace fees

2) sales velocity -- ability to move merchandize quickly

3) lifetime customer value -- ability to generate repeat business and grow our retail brand.

You could add a fourth criterion -- operational ease or integration with current operational systems (e.g., some eBay sellers deemphasize or eschew Amazon due to software integration issues). But for the sake of this review, let's put this one aside.

So far this season, I'm evaluating eBay vs. Amazon vs. an independent site (yourcompany.com -- marketing through Google ad words, Commission Junction affiliate marketing, Topica email campaigns, etc.). The two verticals I most closely follow break down differently. Here's how we see it now:

eBay
-best in apparel velocity
-worst in apparel profit participation
-middle to high in lifetime value (eBay Giving Works cause-related listings giving rise to this one)
-worst in jewelry velocity and profit participation (store fee increase sent this one through the floor)
-middle to high in jewelry lifetime value (again, eBay Giving Works driving this)

Amazon
-best in jewelry profit and velocity
-best in apparel profit
-medium in apparel velocity
-worst in lifetime value for both (though could rise as Amazon figures out its webstore by Amazon strategy)

Independent Site (using Google, CJ, Topica, SEO, more)
-best in lifetime customer value
-medium in everything else (even profit participation, as PPC and AM getting very expensive)

Overall, the emerging stars of the season are eBay Giving Works and Amazon overall.

Implications: From an eBay seller's perspective, a few years ago, a major anti-counterfeit initiative may have been seen as a two-edged sword.

On the one side, it is good for the marketplace to get rid of counterfeits. But on the other, do we want to plant the thought in buyers' minds that the great bargains they're finding could be fakes?

Now fast forward to Q4 2006: sellers know that buyers know there are counterfeits on eBay. Lots of them.

While risking some very short term GMV and good-guy seller operational hassle, this initiative will prove to be a great boon for the marketplace.

Analysis: It's rare for any group to lobby for greater restrictions and regulations for itself.

In the eBay world, most PowerSellers lobby for more buyer regulation to combat non-paying bidders, malicious bidding, undeserved negative feedback and the like. Small sellers lobby for constraints on large sellers. Buyers lobby for protection from seller nonperformance, feedback blackmail, and more. But no one wants constraints on their own marketplace freedoms.

But for the past two years, it's been different. Professional sellers -- the largest of the 1.3 million people making all or part of their living on eBay -- have been lobbying for restrictions and tighter regulation of sellers to combat fraud.

The overwhelming majority of professional sellers with whom I've spoken -- especially merchants of luxury or highly-counterfeited items -- are strongly supportive of eBay's new crack down.

Many professional sellers of such items -- e.g., from designers such as Louis Vuitton, Gucci, Burberry, Armani, Dior and others -- received a phone call yesterday from their Top Seller Account Managers (TSAMs) outlining the new restrictions.

One of the new requirements -- that sellers of these items become PayPal verified -- is long overdue. This should be a requirement for ALL professional sellers. If you want to sell 2 or 3 items out of your closet (as millions do on eBay), eBay shouldn't put a microscope to your finances. But if you want to sell a truckload of Gucci, or plasma TVs, eBay should know who you are.

The second component is the most subjective (and risky): seller reviews for those selling a lot of these highly-counterfeited designer names. Every professional seller I know who has already been reviewed has found it quick and painless. I think this is just a smell test for obvious counterfeit trafficking (though sellers will rightly fear mistaken suspensions for authentic items).


The other two new restrictions DO restrict good-guy sellers' ability to conduct business in what would otherwise be the optimal fashion, e.g.,:

-they can no longer sell authentic designer items to China or Hong Kong

-they can no longer list them for 1 or 3 day auctions (now a 5 day minimum).

But every legitimate professional seller I know has the same opinion: this is a great move for eBay.

Short term, eBay is going to lose some significant GMV from counterfeits listed and sold on the site. Legitimate designer goods sales between the US and these Asian nations will be stopped, and that's a shame.

But very quickly, we'll see a number of significant improvements in the marketplace based on this move:

-MOST importantly, improved buyer confidence site-wide, this translates to:

-higher Average Selling Prices (reduction of the "risk of counterfeit  discount" bidders apply)

-higher Conversion Rates (authentic bargains won't get lost in a sea of fakes)

-lower customer service costs (many report eBay customer service costs 3-5x Amazon due to buyer mistrust)

-more high quality legitimate sellers will enter the marketplace, or expand their presence on eBay to fill much of the supply void of counterfeits.

Some have argued that with conjecture around Meg Whitman's tenure coming to a close, and a rapid turnover of top management, that few will manage for the long-term strength of the marketplace. Recent moves such as this (and others) fly in the face of that argument.

This bodes very well for eBay.