EBay's Joy Ride: Going Once ...

The New York Times > Business > Your Money: "THE open revolt began almost instantly among eBay's sellers - a hodgepodge of hobbyists, slick entrepreneurs and quirky collectors who conduct daily virtual auctions of everything from samurai swords and refrigerator magnets to an unread copy of an 'Archie and Veronica' comic book (Volume 55). In January, eBay announced steep fee increases, which took effect two weeks ago, prompting sellers to post caustic comments on community bulletin boards both on and off the company's Web site. Petitions have been circulated, sellers have debated an eBay boycott and those unhappy with the company seem evenly split over whether 'FeeBay' or 'GreedBay' is the most apt epithet for it.

Five times in five years, the company has raised the price of doing business on its site, and each increase - whether a bump in the charge for listing an auction item or a jump in the commission the company collects on a completed sale - has provoked strident outbursts. The practiced nonchalance with which eBay executives greet even these harshest of pronouncements starts with the chief executive, Meg Whitman, possibly the most powerful woman in corporate America today. Speaking at the company headquarters here last week, she sounded almost nostalgic when talking about past protests, like the "Million Auction March," hatched in 2000 by those who were upset when eBay announced that it would be selling banner advertisements on its site.

SINCE the end of January, more than 24,000 people have added their names to an online petition protesting the new fees. A according to PowerSellersUnite.com, a site run by a fed-up former eBay seller, more than 7,000 eBay stores have shut down in the five weeks since the company announced the fee increase. EBay said it had 161,000 stores on its North American site at the end of 2004.

Ms. Whitman likes to reminisce about the early days of eBay, when skeptics dismissed the company as a niche player that would have roughly the same impact on Internet commerce as a flea market on a town's economy. EBay went public in September 1998, during the madness of the dot-com bubble, but as Ms. Whitman recalls it, as many as half the prospective investors who attended the road show preceding its stock offering declined to buy shares. Back then, Amazon.com and Yahoo, not eBay, were the darlings of those interested in becoming rich from the consumer Internet.

Now eBay reigns as one of the kings of Internet commerce. Amazon.com has twice eBay's revenue, but it operates warehouses around the world and carries inventory, while eBay basically sells nothing other than a spot in its worldwide bazaar. As a result, eBay is nearly three times more profitable than Amazon, and its market capitalization, at $56 billion, is nearly four times as great. And though Google's market cap is almost as large, eBay posted twice the profits last year.

Yahoo is eBay's competitor for the crown. Yahoo booked slightly more revenue and profit than eBay did in 2004, but eBay's market cap is 25 percent larger than Yahoo's. EBay boasts that it is "the most valuable e-commerce franchise in the world," and it may be just that.

EBay has 66 million registered users in the United States and 135 million worldwide, and its revenue has grown 70 percent a year, annualized, since going public in 1998. And the company's share price has moved accordingly, increasing 21-fold since the initial public offering. The company went public at a split-adjusted $1.97 a share and now trades at $41.75.

First there is the monthly $15.95 that eBay charges to be a host of a store on its site - compared with $9.95 a month until the most recent fee increase. Ms. Ramsey paid an additional $10 a month to show pictures of her inventory, largely children's clothes costing 99 cents to $3.99 an item.

Listing each item for sale costs only 2 cents but that's only the start, she said. The eBay search engine typically points shoppers only to auction items, not to fixed-price items sold in its stores. So Ms. Ramsey put a dozen or more items on auction each month to drive traffic to her site, and the listing fees on those, she said, ranged from 55 cents to $1.25 an item. Often, she ended up selling those items for less than cost - an advertising expense, as she saw it.

She typically racked up several more charges on a sale, beyond the commission. Virtually all her customers used an eBay payment service called PayPal that serves as a middleman between seller and shopper and charges the seller a fee, as a credit card company would. For the typical seller, that runs 2.9 percent of the total charged, including shipping and handling. Ms. Ramsey also used eBay's shipping features, which meant paying an additional 20 cents for every label printed.

Where will they go? Some sellers will do what he did, Mr. Garriss said: realize that it is much more economical to operate your own online store and to buy keywords from search companies like Google and Yahoo to point potential buyers to your site. He maintains a presence on eBay, he said, but outside the confines of eBay, where hard-to-believe deals are the coin of the realm, he can charge more for the same shoes.

Others will do as R. J. Moore did. Mr. Moore, who started doing business on eBay in 1999, was selling $2 million to $3 million in jewelry a year. But increased competition, he said, cut into profits, and last June he left eBay altogether. He now sells his jewelry at a smaller eBay rival, Bid4Assets.

PayPal is the default method of payment on the American site, and it is slowly gaining momentum as eBay struggles, country by country, to translate the service into a foreign language while seeking approval from local regulators to operate within their borders. Already, it accounts for one-quarter of eBay's revenue, which the company expects to reach roughly $4.3 billion this year.

But the company's deepest hope for PayPal, which eBay bought for $1.5 billion in 2002, is that more and more Web sites not related to eBay will adopt it as a preferred payment method. According to data provided by eBay, only about 2 percent of the Web's small- and medium-size outposts - which the company defines as sites doing less than $5 million in e-commerce a year - offer buyers the PayPal option.

EBay now operates independent auction sites in 32 countries. The company's footprint is especially wide in Europe, where it has had phenomenal annual growth rates, reaching triple digits in some countries.

That overseas success has been largely factored into the company's stock price. The battle now is over Asia. On the upside, eBay is strong in South Korea and has first-mover advantage in China. On the downside, it has conceded e-commerce in Japan to Yahoo, which is trying to parlay its strength in Hong Kong and Taiwan to pursue the nascent Chinese e-commerce market.

Earlier this year, eBay announced that its international arm would spend an additional $100 million on the Chinese market, which Ms. Whitman has declared "critical" to eBay's continued success."