Fees Cause Yahoo! Auctions To Drop More Than 80 Percent

A Yahoo! spokesperson told the E-Commerce Times that the company was "very pleased" with the listing fees, saying that "as expected, listings have dropped, reducing clutter on the site and increasing sell-through, ultimately providing a better quality experience for our consumers."

Despite Yahoo's optimism, however, some industry observers say the drop in the number of listings has been much greater than expected.

Rosalinda Baldwin, editor of The Auction Guild, told the E-Commerce Times that "Yahoo! said they expected a drop of 50 percent, and they have had a drop of 86 percent to date, so I would say they are putting as positive a spin on this as they can under the circumstances."

According to The Auction Guild, the majority of people who are listing now appear to be using up their account credit balances, acquired when Yahoo! paid users US$1 for every feedback point they had on another site.

"When those accounts run dry, I expect Yahoo! Auctions to grind to a halt," Baldwin said, "unless they come up with something extremely clever."

Dropping Dead

According to auction seller Rick Gagliano, whose Web-based magazine Downtown tracks auction listings, Yahoo's weekly auction listings have declined from 2.6 million the week of January 10th, when Yahoo! started charging the listing fee, to just under 460,000 last week, which represents a 82 percent decrease.

Gagliano told the E-Commerce Times on Monday that he expects the numbers to drop below 300,000 when he posts his next update on Wednesday.

Bottom Fishing

Despite the drop in listings, analysts believe the listing fee can help Yahoo's bottom line. Merrill Lynch analyst Henry Blodget predicted last month that the listing fees could contribute $30 million to $80 million of revenue to the company's books this year.

"This is just the first step in [Yahoo's] push to broaden beyond ad sales," Morningstar.com analyst George Nichols told the E-Commerce Times. "The key is to turn its enormous user base into more paying customers."

However, Nichols added: "I can't imagine any auction site ever catching eBay. So Yahoo! will have to be careful about how much it charges."

Trash or Crash?

Baldwin questioned whether Yahoo! was really doing itself a favor by pruning its auctions with the fees.

"Yahoo! said they wanted to get rid of all the 'trash' and have only good, highly saleable products on their site," Baldwin said. "Buyers, however, want to come to a site where they can find almost anything they are looking for. One person's trash is another person's treasure, so who can judge what is trash?"

However, Larry Jordan, vice president of marketing for AuctionWatch, said that if Yahoo! is successful in increasing the percentage of sales relative to listings, its fee-based strategy could work.

"If buyers are buying, sellers will come," Jordan said.

eBay Still Riding High

Although Yahoo! has seen its auction listings plummet after it started charging users, eBay has actually seen its numbers increase since it raised its fees January 31st, according to company spokesperson Kevin Pursglove.

Pursglove said that eBay had seen a surge in listings prior to January 31st and a slight dip in the first few days after the change took effect. However, he said, since then the company's auction listings have been increasing steadily.

Pursglove attributed the increase to the fact that people realized that eBay was "still a good value for the market they can reach."

Weighing in on the eBay rate increase, Gagliano said that "raising fees at a time when people were feeling the pinch from holiday bills and higher utility costs was not, in my opinion, a wise business move. Many people are truly fed up with eBay, but continue to list there because items do sell. Alternatives are being sought out."

Born Free?

Yahoo's decision to charge fees for something that was previously free is only the latest example of the relentless pursuit by dot-coms of the Holy Grail of profitability.

In recent days, online financial service Free Edgar began charging users who want e-mail alerts on more than 10 companies, while e-tailer Outpost.com began charging for overnight delivery on orders less than $100.

Likewise, free Internet service provider BlueLight.com is moving toward a fee-based system in a bid to cut costs, while free music download service Napster is doing so in response to legal pressures.

"In general, it's difficult to charge users for services they are accustomed to getting for free," Nichols said.

Looking Ahead

Nichols predicted that Yahoo! would keep its core services, including e-mail and its search engine, available for free and "try to upsell its users to premium services that are being developed in areas such as streaming media and shopping."

Nichols added, "I think Yahoo! is one of few companies that could pull it off, but it's easier said than done. They're certainly going to try."