Wednesday, 4 June 2008

The Strange Death of eBay

Though there are millions of websites there are names on the internet which stick out, things like Hotmail, Google, Amazon, YouTube, ITunes, Wikipedia and eBay. One day, perhaps Blogspot will become such a name, it is probably on its way there now. Of course sites come and go and I remember when no-one had heard much of Google and use Alta Vista instead, but aside for Babelfish who goes there now? Another site that I feel may be about to begin fading is eBay. This is not because of competition, there are numerous other trading sites, but as yet none has been able to rival eBay which has been in existence since 1995. However, current policies seem to lack an understanding of basic capitalism and in the end, probably slowly, but perhaps faster than I anticipate it will begin to fail.

eBay on the surface appears simple, it is effectively a glorified message board on which you list items, people either bid for them in an auction over a series of days or increasingly just purchase them direct. The big difference of course is that I can see goods not only from right across the UK but from across the world. As long as I can understand or be understood (and sometimes even if this is not the case) then I can buy. The other thing specialist items which have a potential custom base of a few people in each country are potentially exposed to all countries and so raises the chance of people find obscure things or of selling them. eBay straddles from individuals selling unwanted gifts as they would in a classified advertisement in a local paper through people who do it as a hobby like those who go to sell at car boot sales, through small businesses right up to full-scale companies who may have their own websites but find eBay a decent shop window to attract custom.

There are challenges. eBay was keen for people to use the associated system PayPal which makes transactions easier but does not come free to the sellers and moves away from payment by cheque which was common before. PayPal is also utterly useless when you have complaints about anything, any comment about responding effectively to complaints is false. They are now the same company as eBay so this is unsurprising. It also seems the world ignores the fact that millions of eBay transactions violate trade agreements and customs tariffs. They have effectively created a global free market far quicker than GATT or WTO could ever do. Another problem is that wherever there is money to be made there will be criminals. eBay has always worked on trust. If it did not you would have to enter into complex contract law that even the countries of the EU cannot agree about let alone if you start bringing in countries like the USA and China. There are people pulling scams. It is not only people advertising things they do not have to sell, buyers can pull off scams too to get refunds or goods for funds that do not clear or people using other people's credit cards or debit cards. eBay has a terrible complaints policy, it sends people to its list of questions and I have never had a direct complaint answered. They limit their liability and then anything that falls beneath that level seems insufficient to warrant an investigation. At the end of the day what can they do? Both buyers and sellers may not be who or where they say they are and without a massive eBay enforcement squad with the ability to act across international and local jurisdiction there is nothing they can do to bring people to justice. Of course there is the old Roman warning: 'buyer beware' though with the sophistication of crime it should also be 'seller beware'.

Scams on buyers are well known. The easiest is to increase profit margins by charging high postage and packing, but eBay has pressurised sellers to stop doing this. Selling defective goods or simply not sending the item are easy with little come back on the part of the buyer. There is the other side too. I have never been a seller but have encountered some things that really dent traders' profits. eBay sales are generally dependent on postal services and we know that even the best are not 100% unreliable and some, especially in Europe, are even worse than that. The seller sends off the item, the buyer does not receive it and expects a refund which the seller is compelled to give so they lose item and money. Of course the buyer may be lying and have received the item and got their money back. Another one is when they use someone else's credit card. If this is found out then the money to the seller is stopped and returned to the card's owner by eBay so they say (which is odd because the bank usually compensates cardholders who have suffered anyway) and yet the criminal has got the item, again the seller is out of pocket.

So, all of this has been going on for many years and yet eBay continues. Why now do I think it is going to begin dying? It comes down to feedback. This is lauded as the way that eBay overcame all the issues around contract law, it built a system based on reputation. After every transaction it used to be that the buyer rated the seller and the seller rated the buyer. As a buyer unless you were careless if there was more than one person selling what you wanted you would look for the one with the best rating. As a seller you would get a warning about the likely behaviour of the buyer and some buyers are moronic. Many people seem to click to purchase something they actually do not want. Others change their minds. The click through PayPal system has not helped this. Living in the UK it seems people think our currency is either US dollars or Euros when it is pounds sterling. You see sellers' pages with so many warnings and caveats about bad payers and people trying to back out that they might as well be using international shipping contracts for their business.

A few months back eBay made it so that buyers gave more complex rating on buyers for example on speed of delivery (I had one seller who took 1 month to send a compute disk from two counties away), postal and packing charges and so on. This seemed fine, making the system more sophisticated. Now however, they have banned sellers from giving negative feedback on bad buyers. This seems to have opened the floodgates for people to go on a spending spree, 'buying' things they have no intention of paying for so clogging up the sellers' supply. No-one can signal a late payer or someone who demands repayment for 'lost' items repeatedly or has unreasonable expectations (next day delivery always seems expected but at normal postal rates), allowing them to go on and screw up trade for other people. The big problem is though that if a seller gets two neutral feedbacks, not even two negative ones, then they are frozen for a month on eBay with no consideration of whether the feedback is fair or not. For big companies a month's lost trade can be coped with but for people working out of their bedroom or shed or lockup, making money off the internet as we are often advised to do, this is commercial death. If I was a seller with rivals on eBay I would get together with a friend and each of us would make a purchase from each of my rivals and then simply with two of us leaving negative feedback all the rival sellers would be knocked out, potentially within a few days.

Of course sellers have become aware of how vulnerable they are. Apparently 40,000 people in the UK make a living off trading on eBay, in the USA it is 260,000. In Australia, 17,500 people 0.003% of the working population lives off it. Many of these people may be unable to work in other jobs. Now globally it does not seem much, but it is like the UK laying off the staff of 8 of its universities if these people go out of business. There was a sellers' strike on 1st May and numerous seller protests have been recorded on YouTube. A US spokesman has said that the eBay was always a buyers' site. However, this is where they miss the basics of capitalism. There will be nothing to buy if sellers are driven off. By definition sellers who make a living out of it supply the large majority of items on eBay, month after month. A private individual may list ten things at most when clearing out their loft but an eBay 'shop' may have hundreds of items. I can understand eBay was worried about sellers scamming, but given that they do not and cannot police the system they are to blame for their prevalence not the normal traders who now can be driven out of business by being blocked every month just because a package took two days to reach a buyer or it is the shade was slightly different to what they thought or they have decided they do not like it (I have heard from eBay sellers of worn items being returned like that) and they want a refund. There are other rival sites, which at the moment are not a fraction of eBay, but if it continues with its imbalanced policy it will slowly strangle itself and eBay will be replaced by some other trading site in the near future.

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