What doomed the online auction?

Bidding online for everything from designer jeans to appliances was supposed to overhaul commerce as we knew it. What happened?

By Kim Peterson Jun 14, 2011 4:18PM
Online auctions were supposed to be the next big thing. At least that's what people thought in the dot-com boom, when eBay (EBAY) was full of promise.

What happened over the last decade? Now, even eBay doesn't care much for online auctions (they make up 31% of sales on the site) and the very concept of bidding for something over the computer seems to be dead, writes Wired Magazine.

EBay has gone from being an auction company with a payments business (PayPal) on the side to being a financial company with an auction business on the side. PayPal is growing like a weed, and brought in $3.4 billion in revenue last year.

EBay still runs auctions, but most of those go through the fixed-price "Buy it Now" option that eliminates the need for bidding.

"Today online auctions are a niche service, whereas a decade ago it seemed to many as if they were going to transform the way everything was bought and sold," writes Wired's James Surowiecki.

He lists a few reasons why online auctions veered off-course. I'll add a few of my own reasons as well:

--Sniping. This is where people wait until the very last second to jump in with a bid, hoping to score a win before any other buyers have a chance to respond. I have been the sniper and the snipee on eBay, and trust me, it's no fun to think you have the lock on something only to find it ripped from your hands in the final seconds.

--Prices. There aren't many bargains to be found anymore. At least not compared to the glory days when eBay felt like it was part garage sale, part swap meet.

--Less variety. Competitors like Amazon (AMZN) and Google (GOOG) have given sellers other avenues to pursue, causing some of the more unusual or rare items to slip out of eBay's realm.

--Bidding isn't as novel. Hunting for online treasures isn't really as new anymore.

--Skewed shipping prices. Some sellers bumped up their shipping costs and dropped their starting prices, handing a rude surprise to buyers who forgot to check those costs out.

--Alienated sellers. The company changed its policies for sellers too many times, upping fees and making it more difficult to sell. Many frustrated sellers threw up their hands and headed for Amazon and other rivals.

--Counterfeiting. At The Big Picture blog, Barry Ritholtz says counterfeiting helped doom the online auction. "For a time, there was a robust trade in higher priced, name brand goods," he writes. "Then the counterfeiters came along, and whether it was 1000 count Egyptian Cotton sheets or Tommy Bahama swim trunks, buying on eBay became an exercise in uncertainty."

--Paypal. Ritholtz also hates Paypal, saying he has had horrible personal experiences with the payment service. I've never had any problems with Paypal.

Don't write off eBay yet, however. The site still handles billions of dollars in auctions every year. Its momentum may be off, but eBay's legacy has inspired other online transactions, Surowiecki writes. "Sites like Groupon, LivingSocial, Gilt Groupe, and eBay’s own StubHub are all companies that, in a broad sense, are built on the concepts that made eBay so successful: the flexibility of prices, the importance of network effects, the value of empowered consumers."

8Comments
Jun 15, 2011 3:46AM
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The sniping problem could have been cured, had the desire existed back @ HQ.  Instead of closing the auction at a specific time (period!), auctions could have been ended at a specific time, or ten or fifteen minutes after the last bid had been received after the ending time had been reached.  No real auctioneer would stop the bidding while there were still significant signs of life in the bidders.  Sellers would have been better served, as would have the more mature buyers.  The only "winners" were the scalphunters -- vile forms of life for at least 150 years!  But there was no interest on the part of eBay corporate, and I think that led to a lot of people getting turned off once the novelty wore off.  eBay spent too many years thinking of itself as an entertainment site, rather than a merchandising site.

Any comments?
Jun 14, 2011 9:45PM
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There may be thousands of honest sellers but one bad seller spoils the bunch.  I had a HORRIBLE experience recently on Ebay and it will be a long time before I buy from there again.  Having been a seller and buyer for many years on there I have seen some pretty big changes especially with some sellers trumping up shipping charges.  They will even put it right in the auction listing not to email them because the shipping cost is not a mistake but the only way for them to make any money from a cheap auction. 

Unless you know what your doing on Ebay you really need to be careful.  
Jun 15, 2011 4:06PM
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What I haven't seen mentioned here includes two things about eBay sellers. First of all the buy it now vendors took over from the small guy mom and pop auctions.  Yes some people scammed and sold counterfeit on eBay but the regular guy auctioneer got slammed because eBay gave up on policing the sales. Period.  But now that regular people auctions are tamped down the vendors often sell for outrageous prices that one can even beat at major retailers.  People who do their price comparisons will winnow that out and shop where the goods cost less and the vendor has a clear solid reputation.
Jun 15, 2011 11:29AM
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Liked eBay in the early days, but have gone almost 100% to Amazon. Much better customer service(probably the best in the world), no multiple parties to deal with, and no scams. Got scammed once on eBay, and that really makes you wary from then on. eBay doesn't police scams, fakes, and too-good-to-be-true ads as it should and I became very wary of it. When that happens, much faith is lost and I don't go back nearly as much as before and then only for an occasional buy-it-now. eBay will still be there, but not as before in size, influence or quality of experience.
Jun 14, 2011 9:16PM
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Party Cheaters and shysters screw up everything for everybody.  Witness the recent real estate debacle. Witness trying to buy a foreclosed property via auction.com.  It's not an auction it's a reserve price sale with you bidding against yourself with the seller raising the price without you knowing what the reserve is. Greed and envy create bubbles everywhere including ebay. Take a look at the IPO, initial public offering, what a joke, it's an insiders game rigged against the public.
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Being a very active seller, and occasional buyer, I do not agree with this article about prices.  Right now I am selling new items for half, of what they would cost retail, and that is including the shipping charge. Ebay has made long strides in weeding out the crooked sellers. I have over 3000 positive comments, without any negatives, and there are thousands of sellers like myself. Show me a retail store, that can match that, for customer satisfaction. These kind of articles, like I am commenting on, hurt thousands of honest sellers like myself, and the person writing the article, should do a little homework before writing these articles.
Jun 15, 2011 11:40AM
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Another thing inherently bad about websites such as eBay is that some of the used stuff for sale is stolen property, just as with flea markets and craigslist, et al. Caveat emptor takes on a whole new emphasis when dealing with online used goods sales, and most of us don't want anything to do with stuff that "fell off the back of a truck" as, at the very least,  it encourages sellers to do the same crimes again and again and that ends up hurting all society a lot more than a cheap price on a pair of sneakers helps one person. 
Jun 15, 2011 10:09AM
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To Someone: The 95+ % of honest, hard-working business people will always be judged by the "bad apples". MSN trashes people's business every day. If you sell anything, they'll make you out to be the bad guy, unless you retail Microsoft products.  
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