eBay unveils lower fees and tighter seller standards

EBay will make what it calls "historic" changes to its marketplace business, including reducing some fees, in order to jumpstart sales.

eBay unveiled changes to its online marketplace Tuesday that the company characterizes as sweeping and historic and that are aimed at boosting sales by making the shopping experience simpler and safer.

The changes, which include lowering some fees and raising merchant standards, were announced at the company's eCommerce Forum by John Donahoe, who will succeed Meg Whitman as president and CEO in March.

The changes, which will be implemented at different points in the coming weeks and months, come at a time when eBay is struggling to boost growth of transaction volume and revenue amidst increased competition from the likes of Amazon.com, which in recent years has attracted many merchants away from eBay.

Donahoe said last week during a conference call to discuss eBay's fourth-quarter financials that the eBay marketplace business hasn't been growing as fast as he would like and that changes would be coming to make the shopping experience easier and safer.

eBay's fourth-quarter earnings and revenue exceeded Wall Street's expectations, but its outlook for this year was considered generally disappointing. For example, the conservative 2008 forecast, coupled with slowing growth in the marketplace business, led Citigroup to downgrade the stock to "hold."

While eBay's marketplace "playbook" has served it well for the past 10 years, the e-commerce game has changed significantly so the company must now try bold, new plays, Donahoe said during Tuesday's presentation, which was webcast.

Specifically, buyers have much higher expectations about online shopping than 10 years ago, so eBay must adapt and make their experience on the marketplace a better one, he told more than 200 of the company's largest merchants at the Washington, D.C. event. Likewise, eBay has to do a better job of helping its best merchants be more successful, he said.

"The Web has evolved around us, and what sellers and buyers have come to expect has evolved right along with it. Today, buyers want a very high level of value, selection and convenience. They want to shop on their own terms in a safe, easy-to-use environment. Sellers want a platform that meets the reality of doing business online today and that scales to their needs," Donahoe said.

In short, eBay finds itself at a crossroads where it can't afford to make just incremental changes if it wants to remain a leader and meet its customers' expectations, said Donahoe, president of eBay Marketplaces. "We need to redo our playbook, we need to redo it fast and we need to take bold actions," he said.

Donahoe announced that eBay will introduce an insertion fee reduction in the U.S. Feb. 20 by cutting the cost of listing items by 25 percent to 50 percent. By reducing the impact of items that don't sell, eBay hopes merchants will list more products. In turn, eBay is increasing the so-called "final value" fees it charges merchants when items are sold. The insertion fee cuts apply to auction and fixed-price items.

For example, the insertion fee for a $25 auction or fixed-priced item will drop from $1.20 to $1.00, while the final value fee will increase from 5.25 percent to 8.75 percent. A full rundown of new fees can be found here.

eBay will also do away with fees it charges U.S. merchants for its "gallery" option, in order to encourage merchants to include more photos with their listings. Fee changes will vary by country.

These two changes will reduce fees for most eBay merchants and, while eBay will see a cut in its fees revenue, it believes the moves are necessary for the overall health of the marketplace, he said. "Our goal is to reduce your risk, improve the overall buyer experience and align our success with yours," he said.

In addition, eBay will alter its search engine so that merchants with lower rates of customer satisfaction get less exposure on search results. Meanwhile, sellers with higher buyer satisfaction ratings will get better exposure in search results.

In particular, eBay wants to penalize sellers that charge excessive fees for shipping and handling, which the company has found is a major turnoff for buyers, said Bill Cobb, president of eBay North America, who spoke after Donahoe.

eBay will also require a "safe payment option," such as PayPal or a major credit card, from merchants with lower customer satisfaction and from those in product categories that generate many buyer complaints. This gives buyers more protection when transacting with these merchants, Cobb said. Moreover, eBay will also raise the requirements for qualifying as a PowerSeller and update its feedback system.

Regarding PowerSeller status, eBay will require, starting in July, that to qualify for the program a merchant have a minimum 4.5 DSR (Detailed Seller Rating) score, in addition to the existing requirements of a 98 percent positive feedback rating and a certain level of sales, Cobb said.

The DSR rating lets buyers not only leave an overall feedback rating of positive, neutral or negative, but also rate the seller specifically in four areas with a scale of one to five stars: accuracy of item description, communication, shipping time, and shipping and handling charges.

DSR ratings will be used also to determine which merchants get heightened or lowered exposure in eBay's search rankings, Cobb said. "We're linking search with seller performance," Cobb said.

Moreover, for the first time, PowerSellers will get discounts based on high DSR ratings obtained in the previous 30 days. Those with at least 4.6 on all four DSR areas get 5 percent off final value fees, and 15 percent off with ratings of least 4.8.

If these discounts were in place today, about 60 percent of PowerSellers -- about 100,000 -- would qualify for them, Cobb said.

eBay will also revamp its feedback system, in particular to curb what Cobb called "a disturbing trend" of sellers using it to retaliate against buyers by giving them low ratings. This discourages buyers from leaving honest feedback and drives many of them away from eBay.

So, starting in May, sellers will only be allowed to leave positive feedback for buyers, Cobb said. However, eBay will also add protections for sellers against inaccurate feedback from buyers, such as removing negative and neutral feedback when a buyer fails to respond to an "unpaid item" inquiry. In addition, eBay will remove all the negative and neutral feedback from buyers who are suspended.

In addition, PowerSellers will get increased protection from PayPal, which will no longer require them to ship to confirmed addresses for items sold on eBay. PayPal is also lifting its $5,000 annual seller protection coverage limit for PowerSellers and making it unlimited, Cobb said.

More details about these and other changes can be found in a blog posting Cobb made on Tuesday morning.