When buyers go crazy Thursday, July 19, 2007

A key element of some of the economics theory I studied at university was rational behaviour on the part of individuals and markets. This was propped up with an assumption that everyone had the same information - perfect markets. In the real world, markets can often be driven to some temporary irrational behaviour, either through imperfect information or exuberance.

It was interesting to read a report about a study on ebay by Ulrike Malmendier, an economist at the University of California at Berkeley, which found that consumers didn’t always buy goods at the best deal.

In one example, 166 auctions were tracked offering "CashFlow 101," a board game. During the seven-month trial, the game's designer sold the box set on his website for $195. Meanwhile, eBay sellers usually offered an opening price of about $45 and set a one-click, "buy it now" price of about $125.

However, some bidders grew so enthusiastic about winning the auction that they lost sight of the "buy it now" price, sometimes offering more than $185. In 43 percent of the auctions they found that bidders ended up paying more than the 'buy it now' price.

In a different study, Tanjim Hossain, an assistant professor at the Hong Kong University of Science and Technology posted his own controlled auctions. He offered identical items eg CDs, but played with the specifics of the sale. One copy would start at $4 with free shipping. The other would open at 1 cent but charge $3.99 for shipping. Either way, the initial cost was $4.

But bidders didn't see it that way. On average, the low-cost, high-shipping auction attracted more bids, more bidders, and 25 percent more money.

The least startling revelation was that buyers seem to favour auctions with more bidders. People will always take comfort from an item appearing to be popular, as it suggests this item may represent a great deal. Likewise being the first bidder is uncomfortable since it means you have to "tip your hand" and you may find yourself bidding alone.

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Kindly pay tax on your ebay profits Tuesday, February 20, 2007

Apparently some people actually make a living buying & selling on ebay, but don't seem to regard this as taxable income!

Hence the US and UK authorities are taking a keen interest in the commerce being conducted via auction sites and are contemplating requiring these business to report customers that carry out many transactions (say 100) and to a reasonable value (say $5k) i.e. indicative of being a "trader".

"Unfair" cries ebay. It claims it isnt a broker/ middleman/ auctioneer/ auction house, but is simply a web site that operates like a shopping mall, which happens to have an auction-style feature. Moreover, they claim it would be very unfair to target them and not plain classified sites like Craigslist.

Hmmm. Call me simple minded but isn't there a fundamental difference operating here - Craigslist is an ad site where no transaction may actually result from the listing, whereas ebay is intended to be a place to transact and their fees are intrinsically linked to transaction value.

I can appreciate that there will be some additional overhead for ebay in providing the data, but most of this transactional data is already collected by ebay. Is their protest actually more to do with the fact that some customers will be deterred from using ebay if their activities were notified to the tax authorities, and hence ebay's revenues will be affected?

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Microsoft To Set Up Online Payment System Sunday, January 28, 2007

Microsoft has announced it is going to introduce an online payment system that will be cheaper than credit card transactions, making it possible for companies to charge small fees for Web-based content and services they now offer for free.

This a direct challenge both to the banking community and duopoly of Visa/Mastercard, not to mention Paypal. Undoubtedly the brand power of Microsoft could make a big impact on the market - but as I mentioned in this post, it's all about the network effect and barriers to entry.

For most merchants, I suspect there will be no hesitation in signing up provided the pricing is not too different. But for consumers, one of the key issues will be is it available to use on services like eBay. And the probable answer will be no!

Astonishing, eBay has gotten away with allowing only 3 payment processors be used on its site, one being the in-house Paypal. If Microsoft doesn't get access to this, this may be a considerable deterrent to customers. For this reason, I suspect Microsoft may take steps to press for admittance either by direct agreement or lobbying the competition authorities.

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Skype disappoints eBay Thursday, January 25, 2007

Despite rapidly growing user numbers (171m users, up 129% in 12months), eBay acknowledged "revenue has not developed as quickly as they'd hoped" in its earnings statement ($66m in Q406, up 31% on Q306).

Is this news surprising? I spend lots of time using skype for calls, video calls and IM. Yet I've never paid a cent in 3+ yrs of use.

Whilst skype anticipates only a small proportion of its users will generate revenues, it faces an unusual scenario with its current pricing structure; the more people that join skype, the less I and other skype users need to consider skype in/out paid for services. And when I do need to connect with none-skype users, I can usually find a number of online voip operators that have a promotion with free calls to my destination e.g. voipcheap.com

Would I pay a subscription for skype? Given the network benefits of lots of people being on it, I would - say £10 per quarter. But if subs came in, would there be a mass exodus, thereby destroying the hoped for revenues and creating a viscious circle in which other left because their contacts were no longer using it? I believe so.

Other brands are piling into this space, so I can't see life getting any better for skype. That said, with such a large customer base and recent prices paid for "customers" of nearly $10, it still implies a current value of over $1.5bn. Note, the 171m number reported relates to accounts in existence and not active accounts - in my experience skype never reports over 9m online at any one time.

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