How Does eBay Make a Profit?
Other People Are Reading
-
Introduction
-
For the first five years of existence, online auction house eBay enjoyed a virtual monopoly as the first company in what proved to be a very lucrative business. But the response from worthy adversaries Google and Amazon soon provided competition. These highly popular sites were able to provide additional value and services that lured customers away and cut deeply into eBay's business. In January 2008, eBay announced changes to it fees and policies that angered many of its loyal users, earning it the nickname "feebay" and putting into question its viability.
Listing Fees
-
One of the principle sources of eBay's revenue is the fees it charges to sellers for listing their items on the site for auction. The insertion fee, as it's called, is based on the starting price of the item and its category. For items with starting prices of less than a dollar, the fee is 10 to 15 cents, depending on their type. Fees for inserting more expensive items become more expensive rather quickly, with anything started above $500 bringing eBay $4.
Listing an item in the correct category makes it more likely to be found by potential bidders, but many sellers escape the higher fees by simply starting an item at 99 cents. Since the auction process makes it likely that more valuable items will be priced appropriately by the bidders, there's relatively little incentive to pay the higher insertion fees.
eBay also charges for upgraded listing features, such as additional pictures and higher ranking in search results. -
Final Value Fees
-
The largest chunk of eBay's revenue comes from taking a percent of the final value of each successfully auctioned item. The charge for the first $25 is 8.75 percent. eBay then collects 3.5 percent of any remaining value between $25 and $1000, and 1.5% of all the remaining value above $1000. Thus, the charge on an item selling for $25 generates $2.19 for eBay, and an item going for $1000 produces $34.12.
As eBay was compelled to explain in the wake of its customers' raw feelings in response to the fee changes in 2008, the goal is to maintain a success-oriented fee structure, where there is little cost up front to sellers, who have to pay listing fees even if an item doesn't sell. Instead, the company takes a larger share of the selling price for consummated transactions.
-
