Amazon auctions losing momentum to eBay

Amazon.com is quietly scaling back its once high-profile online auction business.

In recent months, the Seattle-based company has cut staff in its online auction department, reduced customer service dedicated to it and closed its live-auction affiliate, company and outside sources say. In addition, Amazon no longer has a manager assigned solely to auctions and has turned its focus to other e-tail businesses.

"I don't think they're putting a lot of effort into (auctions) right now, and I don't expect them to," said Jeetil Patel, a financial analyst who covers Amazon for Deutsche Bank Alex Brown. "If they're looking at areas to trim the fat, obviously this seems to be one of them," since revenue from auction sales is an "insignificant" piece of Amazon's business.

Amazon's withdrawal from the auction market is a testament to the amazingly rapid ascent and decline of the industry bellwether. Its auction site was launched to much fanfare two years ago, at the height of the Internet's commercial boom and the peak of the company's grand plans to expand its empire. Many analysts and industry observers predicted that with Amazon's marketing muscle and reputation behind it, the auction site would pose formidable competition for industry leader eBay.

Initially, Amazon's site seemed to have a lot of momentum. Unlike eBay, which at the time largely focused on small sellers, Amazon courted merchants such as Cameraworld.com and Gear.com to help jump-start its auctions. Industry analysts praised the move, projecting that revenue from business-to-consumer auctions would soon outstrip that from person-to-person auctions, eBay's bread and butter.

Less than a month after its auctions launched, Amazon bought LiveBid, which had allowed the broadcast of auctions live on the Internet, to supplement its auctions effort. And soon afterward, Amazon signed a ballyhooed 10-year deal with old-line auction house Sotheby's to create a joint site for the high-end of the market.

Amazon even caught a break from eBay. Soon after Amazon launched its auction site, eBay suffered through several multihour outages that left members fuming and threatening to take their listings to other auction sites.

But despite these advantages and positive reviews from buyers, sellers and industry analysts, Amazon's auction site never took off. Although the company says its auctions carry some 800,000 listings--which would place it second behind eBay--others estimate the total to be about half that number.

eBay's share of consumers' online auction spending rose from 57.8 percent in May 2000 to 64.3 percent in May 2001, according to Nielsen NetRatings. In contrast, Amazon's share fell from 3.2 percent to just 2 percent, placing it fifth behind eBay, uBid, Egghead and Yahoo.

Since redesigning its site last summer, sellers say the company has rarely promoted auctions as one of its featured stores. The importance of this is "extreme," said Rosalinda Baldwin, who heads up The Auction Guild, an organization that publishes a newsletter on the online auction industry.

"Unless someone knows Amazon has auctions, they won't go look for them," Baldwin said. "Amazon has totally marginalized their auctions."

Clueless customers, low prices?
The problems started early. Soon after the launch, many of Amazon's charter merchants pulled out of the venture, complaining of low prices for their goods and clueless customers who did not understand the auction format. Amazon struggled to clear the auction site of listings for illegal weapons and other controversial items. Sotheby's initially had trouble with customer service and shipping orders placed through its joint site with Amazon.

And although similar problems have hit eBay, the troubles seemed worse for Amazon because they ran against the company's reputation as an easy, family-friendly place to shop.

Last fall, Amazon and Sotheby's closed their joint site. And in February, Amazon shut down LiveBid as part of an overall corporate restructuring that included 1,300 job cuts.

Although executives say Amazon will stay in the auction business, it clearly is no longer in the company's limelight. Instead, at a recent conference with analysts and investors, Amazon touted other third-party programs, such as its deal with Toys "R" Us and its Marketplace initiative, which allows sellers to offer used or collectible books, CDs and other products on the same pages as Amazon offers its new goods.

Mike George, who now heads up Amazon Auctions as part of a larger role, said while there is less emphasis on auctions, they will remain part of Amazon's strategy. George also oversees Amazon's Marketplace, the company's zShops storefronts and its deals with Toys "R" Us and Borders. George succeeded Jeff Blackburn, who moved from head of Amazon Auctions to head of the company's digital initiative, overseeing music downloads and sales of e-books.

That was not the only personnel change. As part of its layoffs earlier this year, Amazon cut back on customer service dedicated to auctions, sellers say. Although the company still provides live customer support for its sellers--something eBay and Yahoo provide to few of their own sellers--the hours have been curtailed and no one is available on weekends, when many sellers list their auctions.

"That's the one place that Amazon really stood out," said Perry Calton, a seller from Lawton, Okla. "Amazon was providing something above and beyond what the other sites were providing."

George confirmed that the company cut jobs within its auction department but declined to give details.

"We as a company publicly let go about 1,300 people. No one escaped that," George said. "We have naturally seen a change in headcount around the company. Auctions was not unique in that regard. We are actually sized appropriately in auctions."

But the cuts prompted at least one high-profile defection among the sellers. eZiba.com, which sells handcrafted goods and is partially owned by Amazon, decided in April to begin auctioning goods on eBay after previously selling on Amazon. Although eZiba's sales on Amazon were successful, the company decided to move because "the people we worked with were no longer there," company Chief Executive Bill Miller said. "They laid off all of the people we worked with."

A smaller vision
Amazon's vision for its auction site seems to have narrowed as well. Unlike eBay, which has expanded from its core collectibles market of beanie babies and Pez dispensers into used cars and Sun Microsystems servers, Amazon is moving in the opposite direction.

"Auctions answers a certain need," George explained, but that need is limited to the selling of items that are "truly collectible or truly rare."

As the company has scaled back in recent months, glitches have broken out. In one instance, Amazon had to credit some sellers after they did not receive promotions they had paid for. In another, bidders could not use the proprietary payment system to pay for their auctions. And this spring, technical problems caused dozens of auctions, zShops and Marketplace listings to disappear from the site.

There are additional problems that have not been widely reported, sellers say.

"Lack of customer support is extremely apparent," said Spencer Zink, an Amazon seller from Torrance, Calif.

Others lament that Amazon is retreating just when it could have taken advantage of fee hikes at other online auction sites.

Earlier this year, Yahoo started charging sellers to list their auctions for the first time, causing its listings to plummet. Then eBay raised its rates--leaving Amazon as an attractive option for cost-conscious buyers and sellers.

Amazon responded by essentially raising its own rates, initiating closing fees on sellers who used its proprietary payment service. Previously, Amazon exempted those sellers from its final value fees, which are based on winning bids. The move followed a rate increase last summer that left many sellers shaking their heads.

"I think they missed the boat when Yahoo dropped off the face of the Earth with their auctions," Zink said.