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TheStreet Open House

Some Small Users Have Big Gripes With eBay

Last year, Phil Davies sent eBay (EBAY) about $2 million worth of business. This year, another $2 million.

Next year, it could be zero.

Davies runs TIAS.com, an online collectibles site that uses its software to help antique dealers upload goods to eBay and automate the auction process. He has worked with eBay from the beginning and considers himself a loyal user.

"Me and Pierre exchanged banner ads," he says, referring to eBay founder Pierre Omidyar. "We used to be bigger than eBay, actually. In the beginning it really was what Pierre wanted -- a community, a community that was dependent on its users."

But in the last year, he says, doing business with eBay has changed, and not for the better. Now eBay charges a fee for sellers to post items in the most convenient fashion -- a charge Davies says he won't pay. At the same time, the old method of manually uploading listings has become more complicated, owing to eBay's expanding product and feature lists. If eBay doesn't change course, TIAS may jump to a rival auction site, Davies says.

(eBay is also facing a challenge on another front -- this one in the courtroom .)

"That is a business decision each vendor has to make," says Kevin Pursglove, eBay's spokesman. "What we are out there to do is provide the tools." He says that even should outfits like TIAS.com change their relationship with eBay, their clients would still be able to sell on eBay, either directly or through another auction management company.

That said, the story of TIAS and the small collectibles dealers it represents could play a big role in determining eBay's success. Admittedly, the numbers here are puny, considering the scale of giant eBay -- the company says $5.5 billion worth of goods was sold on its site last year. But critics say growing 50% a year, as eBay has promised, could be tough if the company systematically alienates smaller dealers -- as people like Davies allege.

For Whom the Toll Bells

Davies' problems started last November, when eBay launched its licensing program. The program charges a toll when sites such as TIAS.com access eBay's site through a Web site bridge protocol known as API, or application programming interface. API is the quickest and easiest method for these middlemen to work with eBay.

Davies says he can't afford to pay the fees, and instead continues to pay engineers to manually upload listings to eBay's site. He says that has become more difficult as eBay has grown and launched more categories, in the process changing its codes more frequently.

"Eventually they are going to close the door on us," he says. "We are giving them more stuff to sell, and now I have to pay more so they can sell more stuff?"

Aggregators -- or Aggravators?
Some participants in the API Program
Company Notable Clients
AuctionHelper NFL, Bargainland Liquidation, Fleetwood Owen
Channel Advisor IBM, Ingram Micro
FairMarket eValueville, J.C. Penney
Auctionworks Home Depot, Mitsubishi Electric Automation
Source: Companies

eBay says the program was designed to make it easier for auction management companies, such as TIAS.com, to do business with eBay, while at the same time giving eBay control of who accesses its site. "When companies access eBay they can sometimes impose significant costs on the site," says Jay Monahan, general counsel for intellectual property at eBay. "I can imagine that some aren't happy with being asked to offset some of the costs."

Check This Out

Regardless of the economics of the licensing program, the row has become fodder for eBay critics. Like the recent controversy over its new Checkout feature and the elimination of links to sellers' Web sites, the dispute feeds the fears of those who claim eBay is alienating its core demographic in favor of more lucrative customers.

Larger operators have clearly welcomed the program. "We've had a pretty good API experience," says Scott Wingo, president and chief executive of Channel Advisor, which boasts IBM and Ingram Micro as its clients. "It has made our business better." Wingo's clients include more than 3,000 so-called powersellers -- which do $5,000 to $15,000 per month on eBay -- and about 40 larger clients that sell up to $2 million of goods a month on the site. He acknowledges that smaller companies like TIAS.com are in a bind.

"If we just had powersellers," he says, "we would feel the pain, too."

Another participant, FairMarket (FAIM), which partners with retailers to sell goods over the Web, says the API program has helped it attract new customers such as eValueville, which handles Bloomingdale's clothing liquidation. "That's been a big boon for us," says Lou Shipley, vice president of sales and marketing at FairMarket.

Competition?

While it is frequently remarked that eBay operates without competition, there are numerous other options for sellers, most notably Yahoo! (YHOO) Auctions, which has said it has seen a pickup in listings in recent weeks as sellers upset over Checkout fled eBay. Clearly, Yahoo!, which is developing an API program that it says it would give away for free, sees an opportunity in wooing disgruntled eBay sellers. Lately, it has lowered its listing fees.

"The new pricing structure at Yahoo! Auctions could not have come at a better time," writes David Steiner, in his online auction newsletter AuctionBytes.com. "Auction sellers have often been willing to try other sites; eBay competitors have found that the greatest challenge is the ability to attract buyers. Yahoo! is one of the only sites with brand recognition that can match eBay's."

Yahoo! and online retailer Amazon.com (AMZN), which used to have auctions and whose used items compete with eBay's fixed-price site Half.com, have frequently been mentioned as competitors to eBay, notes Pursglove. "Internally, we have never looked on those companies as direct competitors," he says, "because we have a different business model."

Davies says some of the more than 700 dealers he works with will likely try other auction sites if TIAS.com is forced to stop offering bulk uploading of listings to eBay. Of course, others may choose to deal with eBay directly or sign on with a larger auction management company that is a member of the API program; neither of those courses would hurt eBay.

The program has also come under scrutiny by the Justice Department, as part of an ongoing antitrust inquiry. In its most recent quarterly filing with the Securities and Exchange Commission, eBay disclosed that it has "provided information to the antitrust division of the Department of Justice in connection with an inquiry into our conduct with respect to 'auction aggregators' including our licensing program."

The program was developed in the midst of a lawsuit eBay filed against Bidder's Edge, an auction aggregator, in 1999, seeking to stop the company from "scraping" its site with "bots" -- so-called smart software that crawls the Web and compiles data. eBay won an injunction against the company; Bidder's Edge later paid an undisclosed fee to settle the dispute before shutting its doors.

The Pain

Even some who have chosen to pay the fees have done so reluctantly. "It was definitely a difficult decision," says an executive at an aggregator who spoke on condition of anonymity. "I agree it's expensive. Theoretically, should they be paying us? Yes, because all we are doing is helping people sell more stuff on eBay."

According to its Web site, eBay charges $3,500 a month for up to 35,000 transactions a day, and $10,000 a month for 100,000. That fee may not amount to much for companies that do big volume on the site. But to guys like Davies, that's real money.

Nigel Euling, former head of now-defunct auction management company Invenna, says stepped-up competition from Yahoo! could force eBay to bring down those prices. "I think Yahoo! is trying to gain a competitive advantage," he says, noting its plan to offer an API for free. "And that is good because it could put downward pressure on pricing."

He says his firm decided to close its doors for reasons other than the API program. But he contends the price is too high if eBay wants to keep third-party developers.

Davies agrees. "What they do is alienate my company," he says. "I can't afford to pay those fees."

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