A Buyers' Market at eBay

New CEO outlines spate of changes to improve buying experience and quality of sellers at online marketplace.

Caveat emptor? Not on Donahoe's watch!

Speaking at eBay's third annual e-Commerce Forum in Washington, D.C., newly minted President and CEO John Donahoe outlined a series of sweeping changes to eBay's fee structures, seller rankings and feedback mechanisms that will take effect in the coming months.

In this morning's keynote address to some 200 of eBay's top sellers, Donahoe followed up on the promise he made during last week's earnings call to move aggressively to improve the buying experience on eBay.

"Today, buyers expect a very high level of value, selection and convenience," he said. "Given these heightened expectations, eBay is in a crossroads."

"We can no longer afford to make incremental changes to meet our customers' needs," he added. "We need to redo our playbook, and we need to do it fast."

That new playbook includes pricing adjustments and several new mechanisms that tilt the marketplace in favor of honest sellers who work to improve the quality of the buying experience.

A poor shopping experience, marked by inaccurate product descriptions or excessive shipping fees or delays, deters a buyer from returning to shop at any part of eBay's site, not just from dealing with a single dishonest seller, Donahoe said.

Beginning Feb. 20, eBay will lower the insertion fees that sellers pay to list merchandise through fixed-price sales and in eBay stores. The goal is to reduce upfront risk. However, eBay will balance the revenue equation by increasing the final value fees it collects following a sale.

The new structure is designed to align fees with performance. The fees that sellers pay will be more closely tied to how much they actually sell, rather than how much inventory they display.

Final value fees will increase according to a tiered schedule, eBay said.

For sales up to $25, the fee will jump from 5.25 percent to 8.75 percent; for sales up to $1,000, the fee on the first $25 will increase to the same 8.75 percent, with the fee for the remaining balance ($25.01 to $1,000) moving up from 3.25 percent to 3.5 percent.

Those same rates will apply to sales of more than $1,000, while the final value fee for the amount exceeding $1,001.01 will hold steady at 1.5 percent.

After a five-week promotion, eBay will permanently eliminate fees basic Gallery photo-based listings, an announcement that drew cheers from the audience. In addition, eBay will introduce a tiered pricing structure for Featured Plus listings, reducing the lowest level from $19.95 to $9.95.

Donahoe said he expects upfront fees for some sellers to drop by as much as 50 percent.

As it restructures the marketplace to reward quality sellers, eBay will begin putting much more importance behind the Detailed Seller Ratings (DSR) it rolled out last year.

eBay will reward Power Sellers with consistently high DSRs by reducing the final value fees by 5 percent or 15 percent, depending on the seller's score.

Power Sellers enjoy a favorable presence in the eBay marketplace, and the designation is a tacit endorsement by the company. Starting in July, however, sellers will need to earn a minimum DSR score to retain their Power Seller status, Donahoe said.

Bill Cobb, eBay's outgoing North America president, expounded on the specifics of eBay's changes -- including adjustments coming to the search algorithm.

Beginning in March, eBay will skew the algorithm to boost exposure for sellers with the highest DSR rankings, effectively marginalizing sellers who mistreat their customers.

The Best Match criterion will become the default sorting method, and sellers with the highest DSRs for the past 30 days can expect to climb to the top of the search rankings.

"Looking ahead, DSRs are going to be playing an even more important role in eBay," Cobb said, after acknowledging that some sellers had expressed objections to the ratings system.

While eBay is amplifying the voice of its buyers, it is taking steps to limit the public feedback sellers can give.

Beginning in May, sellers will only be able to leave positive feedback about buyers. The move comes in address of the growing problem of retaliatory feedback that has been scaring many buyers away.

Cobb said that sellers leave retaliatory feedback about buyers at a rate eight times higher than the rate buyers do about sellers.

For sellers, he also outlined some seller-friendly tools eBay plans to roll out later this year. Those include increased back-end monitoring of suspect buyers, as well as a new dashboard that will provide sellers with the same information about their transactions that eBay's customer support staff sees.

Additionally, sellers will no longer need to authenticate a shipping address through PayPal, and eBay will start rewarding sellers who transact with repeat customers.

Today's address came as a call to eBay's sellers to ratchet up their standards for customer service. In the old days, when eBay first appeared, it was enough just to drive traffic to an e-commerce site, Donahoe said. That was 1995. On today's Web, buyers have options.

"As strong as we are today, the world is changing around us," he said. "Sometimes you have to be willing to throw out the playbook.

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