Two eCommerce Opposites

Washington Post looks at the two contrasting approaches taken by eBay and Amazon:

EBay raised its prices this month for the fourth year in a row, while Amazon renewed its pledge to keep cutting prices even if it means lower profits. The contrast reflects how much more power the highly profitable eBay wields than, which reported its first-ever annual profit this week. Their business models differ, too, since eBay owns no inventory and its prices are commissions charged to sellers. But their diverging strategies also suggest a difference in attitude that may bode well for Amazon and ill for eBay.

Starting next week, an item selling for $150 on eBay will cost a seller $7.15 in fees, or about 5 percent of the sales price. And that doesn’t count payment processing fees eBay collects from many sellers through PayPal, its payment subsidiary. You have to wonder how long eBay can sock it to sellers in the form of annual price increases before small sellers start fleeing to rivals such as Yahoo and Amazon.

It’s interesting to watch eBay and Amazon marching toward some middle ground in retailing after each started in opposite corners. For years, eBay was home to small merchants who sold mostly used goods at auction prices. It has since added loads of big retailers who sell new merchandise, some at fixed prices. At the same time, Amazon started as a direct seller of new books and subsequently invited other merchants to sell both used and new merchandise on its site. Amazon collects commissions on those third-party sales, just like eBay does, which yields higher profits for Amazon in part because it doesn’t have to buy those goods.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.