eBay outlines fee overhaul; Is it smoke and mirrors?

Updated with more information on listing fees: eBay on Tuesday said that it is cutting listing fees, boosting selling standards and dangling carrots in front of sellers to move more volume. The effort is new CEO John Donahoe's first move in an effort to boost eBay's growth.

Donahoe, technically president and CEO elect until March 31, unveiled the changes, which are designed to improve "the overall experience for eBay customers." The crux of eBay's problem is making it more easy to shop. Safety is also a concern.

Among the big changes outlined in a statement, which sparked some debate over eBay's intentions. Is the company raising fees overall or decreasing them? Here are the key components of eBay's grand plan:

Listing fees: eBay is cutting its listing fees by 25 percent to 50 percent. The fee changes will vary by country. To offset, eBay is increasing fees it charges when something is sold--so called final value fees. The goal is to get sellers to list more and align interests--eBay benefits when sellers get success. eBay also wants more pictures on its site and is eliminating gallery fees.

What it means: This move tries to align interests and clearly shows that eBay has lost pricing power with its communities after years of gradual fee increases. Success will depend on two factors: How much success eBay sellers have found elsewhere and how skeptical the community is about the auction site.

What it means take two: On further review this listing fee go round could be construed as a price increase. In effect, eBay is taking the low-rent stuff and pushing it away. But eBay's big sellers may take a fee hit.

Deutsche Bank analyst Jeetil Patel, who has a sell rating on eBay shares questions whether the move is an increase or decrease in fees. Patel writes:

As opposed to dramatically lowering listing fees (& almost completely aligning its business model with those of sellers), the company appears to have dramatically raised fees again (especially in the sweet spot of high vol transactions -- $10-$40 price points).

One eBay seller agrees with Patel's point. In an email, he noted the following:

I feel the need to point out that the fee changes are at best misleading by eBay. Low starting bid auction sellers are looking at a fee increase of possibly 60+ percent while those who list with fixed prices are looking at 10-60 percent increase in fees depending on the price of their item. The way the fee changes are structured, no seller will end up with reduced fees, the only question is how much your fees will increase.

This strikes me very much as a smoke and mirrors attempt to raise fees while generating hundreds of headlines declaring lower fees at eBay.

More stringent selling requirements: eBay said it is "making its minimum standards more stringent." In other words, sellers will have a tougher time charging high shipping fees and posting these great descriptions when the goods are crap. eBay will cull sellers with poor ratings from its search tool.

What this change means: Clearly buyers can be screwed on eBay--it's part of the reason I view the auction site as a store of last resort. eBay had to do something so buyers feel safer. The rub: These requirements could increase satisfaction, but hamper volume.

Power sellers will face new requirements: eBay said it is raising the bar to be considered a power seller. If you hit those requirements, eBay will give you fee discounts, "better payment protection from PayPal," and more search exposure. What this change means: eBay is trying to reward good behavior.

eBay will update its feedback system to encourage more trading. Details on this change were sparse.

It's a good start, but the jury is out on whether it'll work. These changes were already reflected in eBay's financial outlook for 2008.