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eCommerce - Wednesday, June 11, 2008

Won't Bid On eBay Anytime Soon

A basic rule for novice investors is to buy stock in companies that are important to your everyday life. And if nothing is important to you, buy shares in companies that are important to your friends. Unfortunately, aforementioned basic rule provides a dilemma for what to do with eBay (NASDAQ:EBAY). Fortunately, we're not alone in trying to figure this one out as eBay receives buy, sell, and hold ratings from the leading brokers.

But as the title of this post suggests, we at tech:stocker side with sell ratings as eBay has seen its peak and needs to rethink how it does business before it loses more popularity with sellers and buyers. .

Back in 2000 eBay was really hitting its stride as it had moved beyond finding the rare Afghan Whigs album (if you can find "Big Top Halloween" on eBay, buy it. Only 1000 copies issued and it is superb) to people who bought items associated with everyday living. As the site blossomed with interesting collectibles, a new breed of sellers quickly appeared and opened eBay stores that sold shoes, clothes, and other items that these sellers were able to acquire cheaper than the average consumer and sell them for a respectable profit.

Unfortunately for these eBay store operators, the company has regularly raised its fees thus cutting their profits and making more difficult for them to run their online business. At first we at tech:stocker dismissed these stories as people planted by Amazon's crack PR staff but when we kept reading that it was easier for these people to make a profit selling in a traditional store than it was on eBay, we had to take notice and start to wonder if eBay was past its prime and ready for some competition.

And we're not the only ones thinking Goliath could be slayed as recent start-up Wigix is taking shots at the auction giant from across the bay by offering a smart alternative to the auction site by offering the Nasdaq bid/ask model for everyday goods. While Wigix is several multi-million dollar marketing campaigns away from seriously challenging eBay, the auction giant did introduce its "eBay Bucks" rebate campaign a few weeks after the launch of Wigix. Coincidence? We think not.

While we're glad to see Meg Whitman not in the CEO position (if we saw one more picture of Whitman sitting in an office filled with supposed crap that she purchased on eBay, we would have believed that she was far better qualified to run the small store that people who are labeled "socially inadequate" shop), we do respect the fact that she had enough common sense to buy PayPal. Unfortunately, the acquisition of StubHub seems at best questionable and we're still trying to figure out the logic behind Skype. While we're not certain John Donahoe has the experience, or vision, to be a successful successor to Whitman, we definitely didn't see his appointment as an immediate sign that eBay would return to its glory days in the near future.

eBay used to be one of the premier places to shop online for just about anything. Unfortunately, we don't see it that way any more. With competition increasing and seller boycotts becoming more frequent, we believe eBay is moving away from being an important part of the savvy consumer shopping process and returning to being a site for avid collectors and those who are willing to spend hours online to find the elusive bargain.

At this point in time, buying a copy of "Big Top Halloween" is a better investment than shares in eBay. Our view on eBay could change in the fall and we'll revisit the stock then.