Smoke and Mirrors

Wilting flower?

Ro considers the value of the level playing field and limited inventory and how it relates to search. Sure, Dell could buy out the top keywords, but couldn’t a smaller competitor also nail the long tail? The terms most relevant to their items? Is Dell really going to be everywhere possible? I think in any market (auction, search, whatever…) the small business tends to be more nimble and be places where the larger merchant isn’t willing to go.

A few large volume companies could effectively squeeze out competitive ad placements by keyword, based on their effectiveness to measure and manage cost and revenue generated, making it prohibitely expensive for less efficient (ala FTD) and smaller companies to engage.

But … in terms of a market system, is there any market more efficient than eBay? And efficient markets tend to drive profits to zero. This is the reason you see so many on eBay jacking up shipping, insurance, handling, giftwrapping, and whatever other charges they can use to increase their profits.

Just like keyword prices go up and can only be afforded by top sellers, average sales prices (ASPs) on eBay often trend down for the same product over time as competition increases (like any efficient market).

There are only a couple of ways to raise ASPs in an efficient market (note I’m not so much talking about collectibles here, but more mainline “practicals”):
(1) Reduce supply.
(2) Increase demand.

eBay is obviously not focusing on #1, in fact one of their key company goals is to increase supply eBay does spend a lot of money trying to increase demand, however..

As ASPs go down, so do seller profits. Who does this benefit? The person who has the best invenory supply. Who has the best inventory supply? Mostly it’s someone who tends to buy for the cheapest price. The person who tends to source inventory for the cheapest price is often the largest player because of their increased purchasing power.

Wouldn’t that lead us back to the same place? Welcome to capitalism.

Also, eBay does have limited real estate, too — it’s their search results. In “Picture Gallery” view on eBay, the first page of search results — which by far most people view only the first page — only contains 24 results.

Many high volume sellers spend their lives making sure that their products show up often on this page for a certain set of search terms (which eBay has anecdotally reported is 2/3rds of the buying process). This leads seller to post more product, on which eBay charges listing fees….

So whether or not you consider the rising price of keyword ads or the rising price of being on the first page of eBay search results to crowd out the competition, those prices are still rising.

I’m not slamming eBay here, I’m just saying that you can’t change the economics of selling. The world is the way it is.

An observer might say if you are selling product and are thinking about the world from a search lens that Google is easier to grok since you don’t have to play the game of “when is this listing ending”.

Thoughts?

This entry was posted on Wednesday, January 4th, 2006 at 6:53 pm and is filed under Commerce, Search. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.