The Fall of Internet Auctions and New Age of eCommerce

The Fall of Internet Auctions and New Age of eCommerce

Back in 1998, my aunt bought some shares of eBay’s stock. She bought them on a whim, because she enjoyed selling the things she found at garage sales on eBay, which at the time was just three years old and one of many similar online auction websites. This whim proved to be a good instinct, because as eBay beat out its competitors to become the number one auction site on the internet, the value of these stocks exploded.

At the turn of the millennium, people were all over eBay, and online auctions were extremely popular. In 2001, the online auction site was the third most-visited site on the web, after news portals MSN and Yahoo. It’s no wonder; the site gave people a place to hawk their wares to literally the whole world and find great deals or unusual items, even as amateurs. Plus, in a world before social networks, there was some amount of thrill in monitoring auctions. It was exciting to compete with other buyers for that collectible you really wanted; it was satisfying to see buyers fighting over your piece of jewelry. It was an easy way for amateur buyers and sellers to get involved in commerce in the early days of the web.

Why the Decreased Interest in Online Auctions?

A lot has changed since 2001, however. These days, no matter how fascinating the site may be, one is not going to see online auctions in the top three sites, or even the top 15. Over the course of the next decade, eBay’s Alexa rank fell to its current position as the 25th most-visited site on the web, pushed down by sites like Google, YouTube, and social networks that didn’t even exist in 2001. Interestingly, Amazon, the largest online retailer, is currently ranked number 10 by Alexa.

The rising popularity of sites like YouTube and Facebook has succeeded in stealing our attention away from monitoring online bids, and more and more features have been introduced on eBay to tend to our growing desire for instant gratification, even at a price.

In 2002, eBay added the “buy it now” feature, which made it possible for the first time to sell at a posted price on the online auction site. Later features enabled sellers to simply list prices and entirely drop the auction-style transaction. Research from Stanford University shows that this reflects a general shift on the web towards posted prices, a shift that reflects habits off the web which we’ve had for at least a century.

This is also reflected in the way we use our mobile devices. According to the Stanford study, eBay browsing sessions from smartphones were 25% shorter and resulted in visits to half as many pages. People can and do make purchases from mobile devices, but in this situation, consumers seem to prefer the convenience of set prices as opposed to the thrill—or nuisance—of searching for the best deal.

The researchers explain that as sellers gain experience on eBay, they are more likely to tend to set prices instead of relying on auctions.

Internet Auctions Becoming Increasingly Less Profitable

Liran Einav, Chiara Farronato, Jonathan Levin and Neel Sundaresan

In fact, auctions are more likely to make a sale than posted-price items on eBay, but the higher likelihood of making the sale comes at a cost; these auctions sell for a price on average 16.5% lower than that of the posted price for the same item, according to the Stanford study. Auctions, with the increased labor involved in monitoring an item and placing bids, attract deal seekers who are also more likely to comparison shop. In addition, competition on the site has increased over the years, driving down prices.

Another frustration for sellers has been the gradually increasing fees on eBay, which are notoriously baffling. The auction site manages to slap on fees for everything from listing an item (after the first 50 in the month), to setting a minimum price to sell, to changing the design of the listing, not to mention the flat 10% fee collected upon the item’s sale. Considering the existing expectation of a low price on auction listings from buyers, the profit margin on these transactions is becoming increasingly narrow.

eCommerce on the Rise

Liran Einav, Chiara Farronato, Jonathan Levin and Neel Sundaresan

The rise of convenience shopping has led to a preference for posted prices that favors the eCommerce system. In the United States alone, the eCommerce industry drives over $200 billion in total sales, and if the current trajectory continues, it will be expanding by 15% per year. This growth creates a lot of opportunity for new businesses to be created and existing businesses to increase their sales.

In addition to the opportunity, it is getting easier and easier for individuals and small businesses to get into eCommerce. Finally, eCommerce sites are becoming affordable to create and promote, and internet retailers can build up a reputation on their own turf instead of having to rely on platforms like eBay that insist on taking a hefty cut of the profit. Cost-effective and measurable marketing options also mean that these retailers can bring their audience to them, instead of leaving it up to eBay to attract the right customers.

Internet Auctions Aren’t Dead

Although internet auctions have become less popular as a way of making purchases on the web, that doesn’t mean they’re dying out; in 2013, eBay’s transactions totaled more than $180 billion. It seems that people are spending more money online than ever before; just look at the retail insanity that was Cyber Monday 2013. The online auction provider isn’t concerned about the future, either, predicting $300 billion in total transactions for 2015.

It may be easier than ever for entrepreneurs to create their own eCommerce sites and start selling on the web, but eBay and similar sites will always play a role for amateur sellers, used or unusual items, and buyers seeking out a good deal. For sellers wishing to turn their retail venture into a full-time business, however, eCommerce has turned out to be the reigning champion.