eBay's Fee Change May Flummox Buyers - TheStreet

eBay's Fee Change May Flummox Buyers

Cheaper listings could mean an over-flooded experience.
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SAN FRANCISCO --

eBay

(EBAY) - Get Report

has cut fixed-price listing fees by 70% in an effort to entice more sellers to the site -- but there's no guarantee that the move will attract buyers.

Sellers will now be charged a flat rate of 35 cents to list an item on the site for 30 days instead of seven days. They will also be allowed to list multiple quantities of the same item for a one-time listing fee of 35 cents. Listing fees in media categories such as movies, music, games and books will be lowered to 15 cents.

Previously, sellers paid between 35 cents and $4 to list an item for one week, depending on the item's listing price.

The changes take effect on Sept. 16, and the company describes it as "the most competitive pricing eBay has ever offered sellers."

"We aim to be the most competitive marketplace online, and this new, incredibly low pricing helps us achieve that goal," said Lorrie Norrington, president of eBay Marketplaces in a statement. "A 35-cent listing fee virtually eliminates the upfront cost for sellers to put more of their great inventory on eBay and creates more opportunity than ever for sellers to build successful businesses."

eBay is also jiggering the commission it charges sellers when they close a sale. Most product categories -- like computers and electronics -- will see the fee go down. However, items like books and DVDs will see an increase.

None of the changes will affect auction items on the site or items sold in eBay stores, which are separate from the company's core listings.

Shares of eBay were down 1.6% to $24.99 in recent trading.

Cantor Fitzgerald analyst Derek Brown says that up to now, eBay has operated under the assumption that charging a higher listing fee would help weed out low-quality merchants and merchandise from more reputable offerings.

But with competitors like

Amazon

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not charging such fees but still managing to gain market share, eBay's approach is becoming increasingly outdated.

"If it costs $500 to list on eBay, the implication is that only things that list for $500 are high quality," Brown says. "We've always had the view that price alone does not determine quality."

Brown, whose firm makes a market on eBay, expects the company to see a jump in the inventory available on the site because of the cheaper listing fees, which could be good for buyers who want to pick from a wider selection. But there's also a risk of buyers becoming overwhelmed by the offerings.

eBay's ability to minimize that risk will largely depend on its search algorithm, which it is constantly tweaking in order to make it easier for buyers to find exactly what they want.

"Without changes to the searching technology at all, a fee change of this sort could be disastrous by flooding the site," says Brown, who has a sell rating on eBay.

From the seller perspective, the new listings fees won't satisfy all. Ina Steiner, editor of AuctionBytes, an independent trade publication for online merchants, says the ones who stand to benefit the most are those who sell high-demand items at high volumes.

But sellers who peddle books, music and DVDs will face a higher fee from eBay on the back-end of their sales because of the company's decision to restructure commissions on certain categories. "The media category sellers are going to put out of business," Steiner says. "It's a low-margin category."

Steiner also notes a lesser publicized aspect of eBay's changes that is drawing criticism from sellers: The company's push to only use electronic payment methods for all transactions on the site starting in late October. That means no more checks and money orders, with a few exceptions.

eBay certainly stands to benefit from this policy since it owns PayPal, an electronic payment system widely used on the site. Buyers don't get charged for using the service, but sellers must pay a fee for each processed transaction.