The Grinch pays a visit to eBay

The holiday season hasn’t brought its usual good tidings to auction-based marketplace eBay this year, reports the Wall Street Journal. Site traffic for November and December fell off 16 percent from last year; transaction revenue has slipped 28 percent to $1.44 billion; and some users have reported a decline in individual sales of up to 40 percent versus 2007. Some analysts are even predicting the San Jose, Calif. company will post its first decline in revenue since its inception at the end of the quarter.

These trends point to a problem that transcends the poor economy. So what happened? It’s likely that customers are responding negatively to changes implemented by new chief executive John Donahoe earlier this year. These changes include a move away from the auction model that distinguished the site initially. More fixed-price items are being sold than ever before — fees to list them have been lowered, and the fees for items successfully sold have gone up.

It’s arguable that eBay is having a hard time defending its territory in the auction space as more competitors come out of the woodwork. Wigix, uBid, eBid, Bonanzle and Bidtopia (among many others) have emerged in the last several years as self-styled eBay alternatives. But eBay continues to drive three times the traffic of any of these contenders, eBay Marketplaces president Lorrie Norrington tells the Journal. So it seems this isn’t the prime motivator behind the new fixed-price emphasis.

Some say the shift — in addition to alterations in the look and fell of the site — has soured loyal users, while providing no visible boost in profit. The Journal piece quotes several sellers who say the processes of posting items and navigating the site have become too complicated. The changes also bring eBay into direct competition with heavy hitters like Amazon that resell countless used items.

In rebuttal to user and industry concerns, the company says it was only trying to cater to its audience’s desire for speedier and more convenient exchanges. In doing so, it seems to have overlooked the higher premium its users place on finding the lowest prices possible. It might not be possible to roll back the modifications at this juncture, but if the site is to shore up sales in 2009, Mr. Donahoe should probably think about revamping the auction model that has given the company its edge for so long.