eBay Rankles Users with Fee Increase

Internet auction giant eBay (Nasdaq: EBAY) incurred the wrath of many of its members Tuesday by announcing that it will hike its listing fees at the end of January.

The announcement came one week after Yahoo! Auctions began charging listing fees, and in advance of eBay's fourth quarter earnings announcement, scheduled to come after the stock market closes Thursday. Analysts are expecting a profit of 7 cents for the quarter.

The fee increases, which take effect January 31st, are the company's first since December of 1996, eBay told users. The fee increases will also apply to items listed on eBay Canada in U.S. dollars.

"We recognize that price increases directly impact our sellers," eBay said. "We will continue to build a vibrant marketplace by investing heavily in technology, marketing and customer support."

Users Unhappily Staying

Users of eBay were quick to denounce the move on Web message boards, but few said they would stop using eBay, which attracts far more buyers than competitive sites such as those run by Yahoo! and Amazon.com.

However, many eBay users were already disgruntled over eBay's announcement in late December that it would step up enforcement of policies restricting its members from conducting off-site sales with each other.

In its note to users, eBay noted the need to continually improve the technology of its site, a fact driven home by a 10-hour outage the company suffered on January 3rd.

At the time, the company said it had postponed a planned upgrade until after the holidays and that additional work would be done to avoid future problems.

Increases Vary

The increases will vary depending upon the price of the item being listed, with the largest hikes -- as much as 65 percent -- being tacked onto high-end auctions.

For instance, the insertion fee for an item worth between US$10 and $25 will increase from 50 to 55 cents, while the fee for items worth $200 or more will move from $2 to $3.30. The company is also instituting a 10 cent fee for the option of holding an auction open for 10 days.

While some users may initially leave eBay for other auction sites that charge lower fees, "the overwhelming majority will continue to list through eBay," said Derek Brown, an analyst with W.R. Hambrecht & Co.

Cheers on Wall Street

Indeed, most analysts applauded the move by eBay, one of the few profitable e-commerce companies, with several saying the fees could boost revenue by 5 percent and add up to 6 cents per share in earnings during the coming year.

"This price increase is a powerful indicator of the health of eBay's franchise," Brown said.

In addition to being upbeat about the future, Brown is also bullish on eBay's current performance, saying the annual "January effect" boosting the site's traffic seems to be stronger this year than before.

"The company's performance and outlook should serve as beacons of light for technology investors in these challenging times," he added.

Changing Times

The fees are likely to change eBay, at least at first. Many users seem prepared to lower reserve prices to avoid higher fees, a move that may increase the rate of sales on the site.

Users may also think twice before listing some items, which may help to address recent complaints, primarily from other sellers, that too many items are appearing for sale.

Some users speculated that the 10-day auction fee would bring more traffic to eBay on Sundays. Sellers often list items so that auctions end on Sunday, giving the item as much weekend exposure as possible. Rather than pay the 10-day fee, many sellers said they would start auctions on Sunday instead, possibly leading to heavier traffic on that day.