eBay Marketplace Health Metrics

From a seller's perspective, the health of the eBay marketplace is the main attraction of tonight's announcement. The biggest datapoint we follow is GMV growth. As reported earlier, we saw eBay Same Store Sales at 3.8%. While we use SSS for customer benchmarking, it's not a great proxy for what a marketplace like eBay did 'all in' - they could have had a ton of new sellers in the year not covered in SSS or a ton of seller defections. Our all-in eBay number is a good bit larger than that reflecting a lot of larger brands coming onto the site and we know a lot of smaller sellers are leaving.

To put it in context, Wall St is looking at US GMV growth of around 2% and non-domestic around 10% - anything above those will be viewed very positively.

In addition to GMV growth, we also track:

Sold item growth - This was 13% in Q3, any acceleration or deceleration would be interesting.
Active user growth - This grew about 4% in Q3, again look for any increase/decrease.
Category data - eBay releases some pretty interesting category data a couple of days after the financials hit the streets. We'll dissect these and report on any interesting trends.

Mobile Update

eBay already stated that 2010 saw ~$2b in mobile GMV. With the RedLaser and Milo acquisitions and PayPal efforts it will be interesting to see what's going on here and if they remain bullish on the sector.

PayPal items of interest

We always keep an eye on the Paypal growth rates both on and off eBay as well as TPV trends. Also there's a lot of talk about Near Field Payments coming to Android and iPhone that could be an opportunity and threat to Paypal.

Finally, there's some Durbin banking legislation that I'm hearing a lot about that could reduce PayPal's ACH costs and be a positive to the bottom line. It will be interesting to learn more about that.

2011 Guidance

Q4 has been in our rear-view windows for a while now, it will be probably most important to see eBay's posture for the PayPal and Marketplace businesses heading into 2011.

Stay tuned, later tonight we'll pull out all of these highlights and anything else of interest after we listen to the call.

SeekingAlpha disclosure - I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO.

Real-World case study of a mid-tier retailer, born on eBay, spreading wings.

I got a ton of positive feedback from my quick profile of Beadaholique in the context of their awesome CyberMonday. Naturally, sellers like to learn from examples of other sellers that have achieved the next level of success for both the natural best practices that come out as well as the inspiration.

Around CyberMonday, I was looking at customers that hit sales records and was reminded of a great case study - Shoe Metro - that I thought you guys would really enjoy.

Over the years at ChannelAdvisor (we are celebrating our 10yr anniversary this year!), we have seen so many companies follow the path from 'birth on eBay' to 'We are now a top 500 internet retailer' that we've developed a roadmap to document that path and some of the best practices we have seen over the years. We call that the ChannelAdvisor Internet Retailer Lifecycle and I wanted to share that with you before we dig into the Shoe Metro story.

Introducing the ChannelAdvisor Internet Retailer Lifecycle

eBay is a great way to start an online retailer and we've seen literally over 100 companies follow this path to start on eBay and then grow to be a top retailer. Here are the eight steps:

I used to refer to eBay as 'training wheels for e-commerce' quite a bit because I thought it was not only true, but something they should be proud of. Unfortunately, the management team at the time took offense at that, so I avoided the term. I still feel it's true and whenever someone asks us how they should start selling online, eBay is always the first answer.

Once a business starts ramping on eBay (Toddler seller) and then starts to hit scale (Adolescent/Adult seller), it's a natural progression to expand to other channels. We call that point the transition of a 'seller mindset' to a 'internet retailer' and that's where the 'Young Internet Retailer' step in the lifecycle starts. Once you start down that path, then adding additional marketplaces, search and CSE are natural progressions.

We've found that sellers also like to see the rules of thumb around SKUs (listings if eBay-focused) and orders/m - that helps the aspirational seller understand what they need to be thinking about from a sourcing, warehouse, fulfillment and customer service perspective.

With that framework in place, step with me back in time to 2004.....

A new online retailer is born! 2004

David and Will were high-school buddies in San Diego and in 2004 decided to start experimenting with online sales. They opened the sellerID ebuys77 on eBay and started experimenting selling a variety of different items. The looked at books, movies and electronics and ultimately settled on shoes. They felt like the category was under represented online and being in the heart of SoCal that nobody was focused on some of the hotter brands they were seeing.

ebuys77 was reborn as shoemetro from their living room laser-focused on cracking the shoe category on eBay.

Seller Years: 2004-2007

In late 2004, they finally outgrew the house (every square inch was jammed full of shoe boxes), and made the big move into a 2500 sq-ft warehouse. Little did they know, it would be the first of four warehouses they would rapidly fill and outgrow.

By selling on eBay they were able to quickly source products, see how they did, and get smarter and smarter while buying deeper and deeper. The business grew from essentially zero in 2004 to a multimillon retailer.

By 2006, their 2,500 sq-ft warehouse was busting at the seams and they had to move to more than double the space in a 8,000 sq-ft warehouse.

By the end of 2006, they were happily selling over $3m/yr on eBay. They were also learning a lot more about e-commerce and decided putting together a play to diversify.

Internet Retailer Years: 2007-2010

In 2007, they started selling on Amazon and opened their first web-site. Sales were still booming on eBay so these efforts didn't get much traction.

In 2008, they outgrew the 8,000 sq-ft warehouse and moved into a 14,000 sq-ft warehouse until they could find still bigger space.

With the on-set of the recession, they realized that diversification was a top priority, so in 2008 they really started focusing on diversification. They doubled down their efforts on Amazon and re-designed the website. They also had several of their employees start to focus on these efforts.

In 2009, they learned their lesson about outgrowing warehouses and moved to a significantly larger 36,000 sq-ft warehouse that has two levels that give them effectively 50,000 sq-ft of room.

In 2010, they did another significant upgrade to their website:

Better merchandising
More product selection
Email marketing, search marketing and CSE programs started ramping
Affiliate program started and ramped
Social - they do a ton of social marketing that helps build the brand and increase repeat customers

They also realized in this timeframe that they needed help with buying, so they hired professional buyers from offline retailers to come in and help with that. This program has been very successful.

Adult years - Shoe Metro Today - By the Numbers

There are a lot of impressive numbers that Shoe Metro has put together that I think speak for themselves.

Shoe Metro...

is growing at >35% y/y
is a $10-20m online retailer (I suspect we'll see them on the IR500 soon!)
employs 45 people with an additional 10 around the holidays
By the end of 2010, eBay was still growing, but down from 100% to 65% of their business.

On CyberMonday 2010, they sold 2,800 pairs of shoes, enough to fill a 53-foot Fedex truck (which they did, much to Fedex's delight).

David is on the left and Will is on the right. I'm the handsome one in the middle - a couple of years ago we went to a Chargers game when I was doing some customer rounds and we're surrounded by lots and lots of shoes....

Shoe Metro's lessons learned

David was kind enough to share a couple of lesson's they've learned over the years they thought everyone would benefit from:

Diversify your supplier base – less risk of a supplier drying up and more selection for consumers.
For website, you need a much larger selection than eBay or Amazon
Plan your purchasing and supply-side in anticipation of the holiday, keep the shelves stocked so you don't miss that huge opportunity.
They take a channel-specific approach (e.g. they run eBay, Amazon and their site as three different channels with with their own product selection and even sourcing).
Their philosophy is to control the consumer experience 100%, so they have been focused on doing their own fulfillment.

Conclusion

There you have the Shoe Metro story, I hope readers enjoyed the story. If you guys like this kind of thing, I can make it a monthly feature of eBay Strategies. As an entrepreneur myself, I really enjoy talking with other entrepreneurs and learning about their keys to success.

David is a reader so I'm sure he'll answer any questions you have in comments.

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor Corp. where I am CEO. ShoeMetro is a customer. I'm a Charger fan by way of Philip Rivers - NCSU Alumni - GO PACK!!!

More details on Q4 2010 SSS data and Search data

Friday, we posted the December 2010 Same Store Sales and have gotten a ton of questions about the trends. Many are concerned with the drop in SSS from November to December that we saw across all channels.

To shed a little bit more light on the holiday, while we usually only release monthly SSS, we decided to do the math on Q409 vs. Q410 SSS to help everyone see the macro trend vs. focusing on monthly movements. This table is the result:

As you can see, Amazon led the pack by 2X with 58.8% growth for Q4. Search was very strong this year with 28.9% growth. eBay came in at 3.8% and bringing up the rear we had CSE essentially flat versus last year.

All of the metrics we watch were up nicely in December 2010 vs. 2009. Conversion rates rose strongly to 3.85% (driven by seasonality and the new ad formats) which was the prime driver and why retailers were willing to pay a $.38 CPC (up 11% from last year). AOV was comparable to last year at $93.

Amazon - Amazon came in at 35.9% y/y growth for December a strong showing, but down from November's whopping 84.8%. It's important to note that Amazon is by far the fastest growing channel and this holiday period re-enforced their leadership position.
eBay - eBay tipped to negative growth for us in December, coming in at -1.7% vs. November's 8.1% showing. Overall eBay had a decent holiday, but did not buck the 'shop early' trend as they have historically. Usually eBay has been more back end loaded because as supply chains dry up, eBay is the 'channel of last resort' for many hot items. That didn't seem to play out this year with retailer's being pretty smart with supply management and inventory levels. For example, the hot Xbox Kinect was in ample supply at most retailers.
CSE - Comparison Shopping Engines continued to struggle dipping significantly in December to -10.7% y/y shrinkage. The biggest contributor here is changes Google made that have moved a bunch of the CSE traffic into the search bucket (which is good for Google because GPS is 'free' and search obviously is not.
Search - Search showed the most resilience and came in at 22.9%, down modestly from the 29.6% November result. Google drove most of this and as mentioned in the CSE section, we are seeing strong consumer and advertiser adoption of the new feed-based ad formats.
Overall - Overall we see that e-commerce in December came in at 9%, down from November's robust 21%. For the 2010 holiday period, that gives us a 12% y/y growth rate versus 2009.

A Comparison of Different Earning Strategies on eBay

Generally there is only one earning strategy employed by eBay sellers. Buy low and sell for a profit. Sellers may be cruising yard sales on a weekend, op shops, or bargain bins in department stores, or they may have access to suppliers of wholesale goods (including dropshippers). But the strategy is still the same. This is the easiest and most direct method to make money on eBay as it involves listing an item for sale and then within days or weeks seeing a return on the investment.Sellers may be able to repeat the sales that they have achieved, as in the case of goods obtained in bulk from a wholesale supplier or dropshipper, or they may have different items to sell in each listing. There are many people making excellent money on eBay from this strategy by all accounts and so it obviously works. I do it myself. There is another strategy, hardly employed on eBay by sellers, which can also earn money for the account holder. That is using eBay as a vehicle for generating traffic to a seller’s other items, located off eBay, or for the seller to create affiliate sales of other peoples’ products. I will endeavour to explain the workings of these two strategies in more detail below.

Buy Low – Sell High
There’s definitely nothing new about this. It has been the backbone of trading since time began and essentially eBay is just an extension of any shopping mall or market place where trading goes on – the only difference is that a lot of eBay sales are conducted by auction, which is somewhat unconventional in a traditional commercial sense.There are a number of ways that eBay sellers utilise this method of selling and trading on eBay. As mentioned, the auction format is perhaps the most used, or at least the most commonly noticed method of trading on eBay. This may be used predominantly for items that are personal possessions being sold off on eBay, such as old DVDs and clothes, where the seller would be happy to accept any value for the goods seeing they have already used up their value by using them themselves.It is also used where an item is rare and this is where eBay has built its global reputation as being the place of choice for selling such items so that sellers can attract a global audience to fight over the product.Sellers often also utilise a fixed price format, or include a buy-it-now price on their listing to encourage quick sales or to set a reserve price on an item in categories in which this option is not available using the auction format. Fixed price format sales are also used for eBay store owners where the listings are generally listed for a month at a time rather than for a week or 10 days or less.There are advantages and disadvantages to owning a store for different sellers and different items, but as regards the benefits of a store for listings I’m not going to go into that here.
The costs of listing and selling items on eBay, apart from the purchase costs of the items that are being offered for sale are:
* the listing fees payable to eBay calculated as a small percentage of the listing price upfront and the sales price in arrears
* the cost of promoting your listing through use of pictures, highlighting and a premium for promoting your listing on search results or on eBay’s featured listings pages

* a percentage of the total sale amount (including postage) for buyers who use PayPal
* postage costs (although these costs are usually totally offset by the buyer)
* eBay store subscriptions and other eBay subscriptions such as Picture Manager and Selling Manager Pro Another cost that too many eBay sellers don’t take into account when they start selling stuff, particularly low value (and hence low margin) items such as books and DVDs, is the value of their time. I don’t know about you, but my time is worth money during the day at least. I also put a value on the time that I have after working to spend with my family, or having fun, resting, exercising and eating amongst other things.

When valuing my time monetarily I put a higher value on the time that I spend out of work, just as I would expect to be paid extra for overtime. This time is an important part of any eBay seller’s strategy because it takes time to put up listing, pack and post products, respond to email queries and perform other administrative tasks. And this time is usually time spent after work, i.e. the most valuable time.
All up I allocate at least 30 minutes to a unique listing and 15 minutes to an item I can repeatedly re-list. That means that if I value my time at $20/hour then I wouldn’t list any unique item that doesn’t make me $10 profit or a $5 profit on items I list repeatedly.
If you can make some money selling on eBay with this strategy then there is no limit to what you can do with your business as all you have to do is multiply the number of items that you sell to increase your profits. There are even eBay sellers that employ people to do their postage and packing or other administrative tasks where they are selling more than they can handle on their own. eBay as a Traffic Generator for Other Products No doubt, affiliate marketing is a huge money maker on the internet. There are probably millions of products that can be sold as an affiliate and usually all you need is a website or some content, whether in the form of a regular newsletter or blog or articles, to get into the game. eBay is another great place to ply affiliate products, or even your own products, outside of the usual eBay sales channels of auctions and fixed price listings.
If you want to sell anything on the internet then you need some sort of product and some webspace on which to advertise and sell it. Duh. Well eBay is a free platform that you can use to do that – and I’m not just talking about your listings. Every eBay account comes with an opportunity to create an About Me page on which you can tell the world who you are and what you are about. You can include text, graphics, video and even HTML on that page and unlike the very strict policies that eBay maintains and enforces in regards to the content and links that you include on your listings eBay is much more lenient on the stuff that you have on your about me. About the only restriction is that you don’t link to other auction sites or sites with a catalogue of products for sale (ie eBay’s competition). You can link to your home page, your blog, your granny’s poker club – anything – including sites that sell certain products that you can refer people to and earn affiliate commissions. This is best done with information products in my opinion, or by inviting visitors to your about me to leave you their details through a web form so that you can send them newsletters (though which you can sell anything you want). This is a very poorly tapped opportunity on eBay.I use my about me page to invite visitors to my online business website where I have a form to capture their name and email so that I can send them info about building a home business. I’ve worked out that for ever 100 people that view my listings about 15 go to my about me page and approximately 1 goes on to check out my business homepage. Small numbers at this level, sure, but seeing as I average about 1000 listing views per day, that’s 10 people visiting my online business and they convert to leads on my website at about the rate of 2%. So I get one lead from eBay each week.

It’s still a trickle, I’ll give you that, but it’s a FREE trickle that I wouldn’t otherwise get and each year I make about $3000 this way. I’ll take $3000 for free, wouldn’t you? If you don’t have an online business then you can just promote someone else’s. Just go somewhere like Clickbank and sign up as an affiliate there. Easy money if you ask me. You can also set up a link in your eBay store header that can take your store visitors to your online business or affiliate business (though I’m not entirely sure if eBay approves of that). I haven’t found anything that directly says it’s a no-no & I haven’t asked or had my store suspended (yet). Until then I’m getting another trickle of traffic there as well. Conclusion
Correct me if I’m wrong but I think that the key to any successful business is optimising your opportunities. You only have so many and if you are not making the most of each one then you are not going to be in business very long. You should be using all that eBay offers to build your trading business and also adding additional streams of income that you can profit from where available as well.
Buying low and selling high is going to be your key weapon in your business strategy and part of this is going to be finding a good supply of items from which you can profit (though I haven’t gone into that here), but you should have an affiliate stream built in there as well – especially seeing that you don’t have to pay anything extra for the privilege and it’s so easy.