eBay Sellers' Boycott Jeopardizes New CEO Donahoe's Tenure

First of a Two-Part Series. In 1995 computer programmer Pierre Omidyar launched the first incarnation of the eBay marketplace, AuctionWeb. The founder's broken laser pointer was the first item sold. Asked what use he could have for such an item, the buyer replied, "I collect broken laser pointers," proving that – even online – one man's trash is another man's treasure. In the intervening years eBay has become synonymous with e-commerce, rivaled only by Craigslist and Amazon.

eBay is in the midst of a perfect storm. As John Donahoe prepares to succeed Meg Whitman as CEO, as she steps down at the end of this month, the company settled a patent dispute with MercExchange (for its Buy It Now! feature) and then provided investor guidance that its heady days of thirty percent annual growth are behind it. But these are mundane doings compared to a growing eBay seller boycott, an insurgency that could never have taken hold during the heyday of Web 1.0. On February 19, eBay sellers announced a one week boycott against the marketplace. Based on its perceived success it was extended another week. Organizers are now working to build a state-by-state infrastructure targeting an extended May 1 strike. What follows is the still-evolving object lesson about marketplaces, customer relationships, and transparency.

This past January, eBay unveiled a litany of new policies. To the relief of sellers who have a low sell-through and need to relist merchandise repeatedly, it lowered listing fees. To the pique of many more, it indicated that it was raising its Final Value Fee (its commission at sale end) from 5.25 to 8.75 percent. Small and PowerSellers alike could immediately see how this would narrow their margins.

In the interests of full disclosure, I should state my relationship to eBay at this juncture. I have been both a buyer and seller (alias: low-bidder) since 1999. Like many eBayers I am proud, even protective, of my 100% rating. For a period of close to three years I mediated online disputes for SquareTrade, the dispute resolution firm retained by eBay. At first blush these relationships might suggest bias, but I offer that my experience provides me with insight into all elements of the triad -- buyer, seller, and eBay itself. By the nature of my SquareTrade work I dealt with some hairy issues of mistrust and fraud, but overwhelmingly the conflicts were not around deception, but rather simple miscommunication.

What makes the eBay marketplace unique is the buyer and seller relationship. From wearing the hats of buyer, seller and mediator, I learned that trust is the fuel that runs eBay. That it, in turn, is facilitated by a ratings system that is based on mutual feedback. Therefore, it is unsurprising that it is a substantive change to feedback that truly drew the ire or sellers and buyers alike. Effective May, 2008 feedback will no longer be mutual -- only buyers will be able to rate and leave comments.

eBay spokesperson Usher Lieberman spoke to JackMyers Media Business Report, asserting that the need for modifying feedback "came very clearly from research we did with buyers. We've been analyzing what was getting in the way with buyers repeating business in our goal to increase the level of activity on eBay. We found that the number one reason cited that buyers have leaving eBay is unwarranted retaliatory negative feedback."

For the initiated, an explanation: Nerd that I am, I am the winner bidder of an Atari console. But my Pong-enabler is DOA. The seller and I communicate via email and he reminds me that the condition was stated "As Is." I counter that "As Is" should mean working. Since the seller has a Final Sale policy, my one outlet is to leave him negative feedback. As eBay has grown exponentially, ethically-challenged (or simply overwhelmed) sellers are not only exercising their right to "Neg" me in return, but are using the opportunity to perform character assassination so that no one will want to sell to me ever again. As these incidental examples have become more frequent, not only has the tone on eBay changed, but the ratings system has ceased to balance. Buyers are afraid to leave honest feedback, and sellers feel that they are expected to jump through fire (not merely to offer the goods, but to provide such perks as overnight, free shipping) lest they be Negged. Certainly, eBay is to be commended for addressing this Code Red (even founder Omidyar has said that an overhaul is "overdue") but their process and consequent communication is what is angering PowerSellers most.

Asked how opinions were solicited from the community, Lieberman indicates that there is a range of means, including a "Voices" forum where a sampling of a revolving 40-50 participants is taken. He elaborates, "we present them with new ideas, concepts, policy changes. That's part of our R&D effort, as well as usability testing, in-home visits where we see how folks are interacting in natural surroundings, as well as on campus." When asked if these ongoing reports are then shared with the community, he sounds puzzled. "No they aren't. It works because of confidentiality." I observe that no confidentiality need be breached for results to be shared with buyers and sellers. No response.

Lieberman admits to me, and I ask him to re-confirm his statement that "All of the changes are really aimed at improving the buyer experience." While on face this sounds thoughtful, it reveals the crux of the eBay's problem. Admittedly, it is walking a tightrope: how to reassure buyers that eBay is a welcoming environment (even though they are only a facilitator not the host) without making conditions onerous for long-term sellers? That is where its new policy fails.

As an eBay'er myself, I have relied on the feedback system. I have steered clear of sellers with questionable ratings and comments (often offering goods that are too good to be true) and have declined to sell to buyers who have been labeled "non-paying bidders." The latter tool will be lost to sellers going forward, offering no check and balance against untrustworthy buyers.

(eBay claims that it will be rolling out tools that protect sellers. PowerSellers have launched RottenBidders.com on their own.) Going forward, based on these ratings, some sellers might be entitled to performance-based discounts, while others might be subject to a twenty-one day freeze of their monies on PayPal (owned by eBay). The devil's-in-the-details issue here is that there is a disconnect between what ratings (a range of 1-5) mean. A buyer is educated that "4" is to be given for a job well done, while eBay expects sellers to achieve close to a "5" for these discounts. When I query Lieberman about the PayPal freeze, he offers that "[eBay] can pinpoint high instances of fraud, which ought to be a benefit to both buyer and seller. We offer some of the best terms for established sellers with a positive track record on eBay. They will not impacted by this at all."

What goes unaddressed is that eBay's ownership of PayPal (and the concurrent fees it charges) is an incentive to arbitrarily place transactions in escrow. And it's the ad hoc nature of policy -- and lack of transparency -- that made the conditions fertile for talk of a strike.

TOMORROW:

eBay Sellers' Boycott Forces Company to Rethink Consumer Control Model