The end of the Silicon Soukh?

Today eBay announced that it is de-emphasizing the auction part of its site, as users are - well, not using it. Says the New York Times:

The move is intended to help eBay compete more effectively with Amazon .com and other big online retailers.

The announcement, timed to increase sales during the holiday shopping season, is just one of the changes eBay has made in the last few months aimed at reducing its dependence on its auction business, which is growing more slowly than fixed-price sales.

There are various thought as to why:

“Buying online has changed,” said Scot Wingo, chief executive of the market research firm ChannelAdvisor. “Retail sites no longer make customers choose between convenience and price.”

Lower upfront fees will enable sellers to offer a bigger selection, helping eBay better compete with fixed-price retailers, Mr. Wingo said. “The current system puts eBay at a disadvantage.”

But they will still keep auctions going for some areas:

Yet even as it shifts away from the model that made it unique in the first place, the company insists the auction model is still viable, and that it intends to offer sellers and buyers a choice of formats. Auctions are often a better approach for sellers when items are in high demand, the company says, or when the seller is uncertain of an item’s value.

eBay started off as a way to shift second hand and odd goods, but has been heavily colonised by standard retailers - who find that most (ie Western) customers largely prefer the lower transaction cost of the fixed price model. However, there are questions as to how they will be distinct enough now from say Amazon.

The most interesting thing about eBay though is watching the development of the arms race between buyers and sellers, and the behavioural economics and game theory that emerges - its like a real life laboratory. Issues such as timing, splitting or grouping items, delivery options have all been gamed.

But this pales behind the signalling of trust and quality - how Akerlof's Law is enacted - using the star rating system. Akerlof's law shows that if there is low trust, average prices fall and bad goods chase out good. The latest iteration is to stop sellers automatically "black marking" a buyer who black marks them. Sellers protested the move, but from a signalling perspective, to increase trust it was critical. (In fact sellers seem to continually be upset with eBay, but they seem not to understand that sliding the game their way will reduce prices overerall)

On the auction side there has also been heavy gaming of the auction process (especially in the last few seconds), the way items are displayed for auction - now typically sold in time delayed, smaller lots - higher margin for seller, less utility for buyer. I wonder if the reduced interest in Auctions is due to decreasing utility of signalling and an allowance of too "power-user" and seller-centric gaming, putting off the majority of occasional users (quite a lot of people tell me they don't like the auctions because of that)?

(The "Silicon Soukh" was a term used in the mid 1990's for the concept of electronic markets - thus predicting an eBay before it emerged)