Pumped Up User Fees Send eBay Profits Skyward

Internet auction house eBay on Wednesday beat Wall Street estimates by delivering US$377.2 million in earnings for the first quarter of this year, a massive 52 percent leap.

Despite the strong performance, eBay shares struggled Thursday, falling around 85 cents, or 2.5 percent.

The online auction house showed relatively little growth in its total number of sales listings, and it did not significantly increase its user count. The company listed 588 million items last quarter, which is only 2 percent over the same quarter in 2006.

eBay has been working to reduce the number of overpriced items as well as purge the number of repeat items listed by sellers. To do this, the company increased seller fees to discourage repeat items and encourage lower starting bids, which resulted in additional revenue.

PayPal and Skype

eBay properties PayPal and Skype both made solid gains for the quarter, with PayPal earning $439 million in revenue, a 31 percent increase, and Skype taking $79 million, a whopping 123 percent increase. While both businesses saw growth, they also point to potential trouble spots.

PayPal faces upstart competition from Google’s Checkout service, and while Skype is growing, it still represents a fraction of eBay’s profit.

“With Skype, eBay hoped that if they distributed Skype on eBay, it would facilitate online transactions, that users would call up vendors or sellers and that would, in turn, drive sales,” Karsten Weide, IDC program director of digital media and entertainment, told E-Commerce Times. “And it hasn’t really paid off that well. … Skype wasn’t such a natural fit for eBay.”

While PayPal is a more natural fit, Weide added that even it wasn’t growing as fast eBay had hoped. He also noted that Google’s Checkout, while being a competitor, will not likely dethrone PayPal any time soon.

‘Original Social Networking Site’

In addition, while eBay CEO Meg Whitman said, “We were the original social networking site,” during Wednesday’s financial report, the company falls short of competing with Web 2.0 social networking sites like MySpace or FaceBook. That, however, might point to opportunities.

“Social networking is a good fit for eBay, and they don’t have that yet,” Weide said. “A natural fit for eBay is to have a social network where customers can exchange product information, find out which products are good, get tips and tricks, learn about vendors on eBay, their return policies, how trustworthy they are and all of that.”

eBay features user ratings and comments; however, they tend to appear cursory rather than truly informative.

“In general, for eBay in the consumer-to-consumer space — and for Amazon.com in the business-to-consumer space — there’s not really a serious challenger in sight,” Weide said. “eBay doesn’t have to be afraid, but that said, in the digital marketplace, things can change quickly and totally turn upside-down. So eBay must remain on its guard.”