eBay CEO: Tough seller rules here to stay

"We're absolutely confident of the direction we're going," eBay CEO tells investors after first-quarter earnings report shows solid sales but little new-user growth.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

5 ex-eBayers: Where they sell now5 ex-eBayers: Where they sell now5 ex-eBayers: Where they sell now
EBay's planned fee and feedback changes have sellers threatening an exodus. Here are five sellers who already left, and how they've rebuilt their businesses elsewhere.

(FORTUNE Small Business) -- The fee and policy changes that drove sellers to boycott eBay (EBAY, Fortune 500) in February are here to stay, eBay CEO John Donahoe made clear on a call with analysts on Wednesday following eBay's first-quarter earnings report.

EBay reported revenue of $2.19 billion for the quarter ended March 31, a 24% increase over its first-quarter revenue last year, and net income was up 22%, to $562 million. The results were safely ahead of Wall Street expectations, and an indication that seller dissatisfaction hasn't led to a mass exodus from the Web's dominant auctions site.

But beneath the hood are signs of eBay's changing business dynamics. Across all of eBay's "Marketplace" properties, which include its core site and sibling e-commerce venues such as Half.com and StubHub, the company counted 83.9 million active users throughout the past year. That's just a 1% increase over the year-ago active user count of 82.9 million - a sign that eBay is reaching market saturation. In last year's first quarter, eBay's active user count grew 10%.

EBay CFO Bob Swan acknowledged during the conference call that as the tide of new eBay users slows, keeping existing customers happy becomes critical.

"We've concluded that the best way to grow our active user base is by not losing any of them," he said.

That conclusion is shaping eBay's ongoing overhaul, which began with changes in February that reduced the cost of listing new items while increasing the final-value fees eBay levies on merchandise that sells. The revamp continues next month, when eBay will implement the most controversial change in its 13-year history: sellers will no longer be able to leave negative feedback for buyers.

News of that forthcoming change ignited a firestorm of protest from sellers, but Donahoe said he is steadfast in his belief that it's a necessary move.

"We are extremely focused on improving the buyer experience on eBay," he said during Wednesday's conference call. "This is not to say that sellers are not important to us, but our belief is and has always been that what is good for buyers is ultimately good for sellers."

EBay's fee changes took effect Feb. 20, halfway through its fiscal quarter. The change had a clear effect on listings: they jumped 10% from last year's first quarter, to 647.4 million. While eBay did not disclose its conversion rate - the percentage of listings that translate to closed sales - Swan said it "declined only slightly." Meanwhile, eBay's "gross merchandise volume," the total value of items sold through its various Marketplaces sites, continued its double-digit growth, increasing 12% from last year to $16 million.

But a12% growth rate is still more sluggish than analysts would like to see, and the weak dollar may be camouflaging a slowdown: 54% of eBay's Marketplace revenue is from international sales. Strong "cross-border trade" did help eBay's numbers, Swan said. Meanwhile, the stalling U.S. economy is starting to take its toll.

"We saw a slowing in buyers' propensity to buy toward the end of the quarter," he said.

EBay plans to step up its distribution of coupons, a move it hopes will help spark more buying by existing users. The site hopes that coupons will lure once-prolific buyers who are shopping less frequently, and motivate buyers who focus on one category of goods to shop in another.

Redemption rates have been good, and eBay plans to expand the initiative, Donahoe said.

Changes are here to stay

One message repeated throughout the call: eBay is prepared to weather negative reactions to its changes, and intends to see them through.

"As we expected, some of the announcements generated a lot of passion from our community," Donahoe said - a mild way to characterize the violent seller outcry and attempted boycott that greeted eBay's announcement of its new policies. "We stayed the course on the changes that we believe are critical for the overall health of the marketplace and the long-term success of our community of users."

After the initial tidal wave of protests that met eBay's change announcement, the company did make one concession: It further reduced listings fees for media goods like books and music. More category-specific adjustments to eBay's pricing structure will be made throughout 2008, Swan said.

But eBay does not plan to back away from its broader shift toward lower initial fees with higher back-end charges on sold goods.

Other changes that alarmed some eBay merchants - including plans for PayPal to temporarily freeze funds on some high-risk transactions, and changes to eBay's "best match" search algorithm that are likely to favor larger vendors - are proceeding as planned, eBay executives affirmed.

We may have some sellers that make some noise," Donahoe said, "but we're absolutely confident of the direction we're going."

-BRANDI STEWART contributed to this report To top of page

To write a note to the editor about this article, click here.

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More


Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.