eBay fees going up at month's end

Days after posting record earnings and sales, the auctioneer says it is raising fees. Plus: A popular free feature will soon carry a price tag.

5 min read
Two days after posting record earnings and revenue, eBay said Thursday that it is raising fees and will charge for a popular free feature.

"We recognize that price increases directly impact our users, so we do not raise fees lightly or without considering the impact to our community," the company said in a note to its customers.

The company also will begin charging for its popular "Buy It Now" feature, which allows bidders to purchase an item immediately without going through the bidding process by paying a fixed price. eBay also will change the way it calculates fees on Dutch auctions, in which sellers offer multiple quantities of the same item in one auction.

The new fees will go into effect Jan. 31.

Although eBay earned $25.9 million in the fourth quarter and has some $1.7 billion in cash and investments, the company needs the additional fees to help maintain its marketplace and to keep the company on a sound financial footing, eBay spokesman Kevin Pursglove said.

He said the lack of any real competition to eBay and the company's goal of hitting $3 billion in revenue by 2005 wasn't a major factor in the decision to increase fees.

"This is being done because it's in the best interest of eBay as a company and eBay as a marketplace," Pursglove said.

A few Wall Street analysts reacted positively to the news, saying the increase could raise eBay's revenue by 10 percent or more.

"Although fee increases never sit well with those sellers who bear the brunt of charges, we believe the vibrancy of the eBay marketplace will allow the company to implement this pricing change without a significant decline in its number of auction listings," Prudential Securities analyst Mark Rowen wrote in a research note Thursday.

Transaction fees
Though eBay is not raising its general listing fees with this increase, it is raising its transaction fees, which hit all sellers whose auctions close with a winning bid.

For items that end with a winning bid of up to $25, eBay will increase its take from 5 percent of the final price to 5.25 percent. For items that end with a winning bid of up to $1,000, eBay will charge the new 5.25 percent rate on the first $25 and will increase its take on the next $975 from 2.5 percent to 2.75 percent. On items that sell for more than $1,000, eBay will charge the same way, but will increase its cut on the amount over $1,000 from 1.25 percent to 1.5 percent.

For an item that sells for $150, a seller would pay eBay a transaction fee of $4.75 under the new rate plan, compared with $4.38 under the current one. For an item that sells for $1,500, a seller would pay $31.88 under the current rate structure and $35.63 under the new one.

Buy It Now and Dutch auctions
Introduced during the 2000 holiday season, the "Buy It Now" feature was offered by sellers on 45 percent of the listings on eBay's U.S. site in December.

Although it previously offered the feature for free, eBay will now charge a 5-cent fee on most auctions that offer Buy It Now.

Sellers who offer Dutch auctions could also see their fees go up sharply. Currently, eBay charges fees on the total value of all the items sold in a Dutch auction. So, if a seller offered 10 table tennis paddles that sold for $10 each, the seller would pay fees on the $100 total.

Under the new rate plan, eBay will charge fees on each individual item sold in a Dutch auction. In other words, the seller would pay a fee for each $10 paddle.

Although the aggregate sales price of Dutch auctions is often high, the individual price of each item listed within the auction is often fairly low, meaning that because of the change, eBay will be able to collect its higher transaction fees. On the example above, the change would mean the difference between paying $3.13 in transaction fees and $5.25 in transaction fees.

Motors and reserves
eBay will also raise fees on its increasingly popular eBay Motors site. Sellers will soon pay $40 to list a vehicle on eBay Motors and $40 when they sell a vehicle through the site, up from the $25 eBay now charges for each.

The company is also increasing fees on some auctions that set a reserve price. Sellers who set a reserve can refuse to sell an item unless bidding reaches a secret, pre-set price. eBay introduced a fee on the feature in 1999, upsetting many sellers at the time.

eBay will leave unchanged its fees for auctions with reserve prices less than $200. But for auctions with reserve prices of $200 or more, the company is doubling its fee from $1 per auction to $2 per auction.

The rate hikes will also affect some sellers on eBay's international sites. eBay will apply all of the same fee increases on its U.S. site to its sites in New Zealand and Singapore. Meanwhile, sellers in Australia, Canada, Ireland, Sweden and the United Kingdom will see increases in their transaction and reserve fees.

"These increases will help us continue to build a vibrant marketplace by allowing us to invest heavily in technology, marketing and customer support, making it possible for millions of people to discover and use eBay," the company's statement to customers said.

Customers react
San Jose, Calif.-based eBay increased its listing fees last January between 5 cents and $1.30 on most items. The increase came days after Yahoo, its chief competitor, announced that it was introducing its own fees.

Yahoo's listings proceeded to plummet soon after its fees were implemented, but eBay's fee increase had little effect on its own listings.

The same could hold true this time around.

eBay power-seller Bob Miller, who lists some 4,000 stamps, postcards and other items on the site each month, figures the new charges for Buy It Now will cost him up to $200 each month. Noting that the feature helps reduce the duration of auctions, thereby reducing eBay's overhead for each auction and increasing the company's sales, Miller said he was disappointed in the new fees on the feature.

"Why should we have to pay to help them?" said Miller, who lives outside Salt Lake City.

But Miller said most of the other fees seemed reasonable and he didn't plan to complain directly to the company about them.

"I'm not upset enough to actually do anything," he said.

Donna Pelletier, a part-time eBay seller from Harrisville, R.I., said the new fees seemed fairly reasonable, but the company needs to do a better job of fixing problems that crop up on its site.

Pelletier, who auctions about 35 to 70 items a week, said while she's not totally happy with eBay, she's been selling on the site for almost five years and doesn't plan to stop now.

"There's nothing out there right now to compare to eBay," Pelletier said. "Somebody said the other day that it's like being stuck in a loveless marriage. You have to put up with some things. You can't go crying about everything that happens because it's just not going to do any good."