eBay Has a Trust Problem – Can It Fix It?

How long does it take for people to take notice when a brand tries to change its reputation?

This is the dilemma eBay is facing as it attempts to explain away large buyer losses by convincing investors it is targeting high-value buyers that can increase revenue and General Merchandise Volume (GMV).

First, let’s take a brief look at what happened over the last two years on the marketplace.

eBay data shows that at the end of 2019, the company had approximately 154 million* active buyers. In the second quarter of 2020, the company gained 8 million buyers as shoppers shifted rapidly to buying online due to the pandemic.

However, in 2021, eBay lost a net of 18 million active buyers, finishing the year with 147 million active buyers.

The company considers an active buyer to be a buyer that has made at least one purchase in the previous 12 months on the marketplace.

So, despite a huge bump of new buyers eBay gained during the pandemic, the company had a net loss of about 7 million buyers from the end of year 2019 to end of year 2021.

Last year, during the 2021 Q2 earnings call, eBay introduced a new strategy claiming it was shifting its marketing strategy to attract more high-value buyers. Many of these buyers would be coming from its authenticity guarantee program which is currently available in the sneakers, watches, designer handbags, and trading cards categories.

“This higher-quality mix of buyers increases value for sellers and will lead to improved health of our ecosystem over the long-term,” said eBay CEO Jamie Iannone during the call.

Steve Priest, the company’s CFO added, this “high-value segment represents approximately 20% of our buyer base and they purchase around 75% of our GMV.”

Focusing on a select group of customers that represent a higher value to a company is not a new strategy nor is the idea that about 20 percent of customers make up a significant portion of sales.

The 80/20 rule or Pareto Principle is taught in Business 101 classes at college and the airline industry is probably one of the most prolific industries to use loyalty programs as a marketing tool to tie customers to its service.

However, unlike airline frequent flier programs, eBay didn’t announce a loyalty program, nor did they announce a comprehensive strategy on how they would focus on these higher-value customers.

Throughout the rest of 2021, eBay only provided some metrics to imply that its strategy was working and higher value buyers were spending money on other categories.

Trust is Core Element of New eBay Strategy

It wasn’t until its Investor Day two weeks ago that eBay provided more of a strategy on how it will attract these buyers and keep them on the marketplace. Throughout the 4 hour presentation, it used the word TRUST frequently, claiming that its platform is providing the trust to execute the strategy successfully.

The cornerstone of this trust relies on its authenticity guarantee programs which the company offers in select categories such as sneakers, watches, handbags, and trading cards.

When eligible items are sold using its authenticity guarantee program, they are sent to an authentication service for verification before the buyer receives them. This is supposed to ensure the buyer receives a professionally vetted and genuine product that is exactly as described.

Many items sold through its authenticity program are pre-owned products, so the condition of the item is a key factor in the price a buyer or collector is willing to pay.

eBay even acquired one of its third-party authentication partners last year to secure more control over the process and in theory, this should benefit both buyers and sellers.

But as good as the program sounds, there have been problems reported by sellers and buyers on social media and the company’s community forums. From long delays to authenticate products to buyers claiming they ended up receiving fake goods despite passing through the vetting process.

In addition, sellers have claimed they received fake goods as returns or buyers would send items back in a condition that did not match the original item as listed. Most of these anecdotal claims are difficult to confirm after the fact, but now there is one that was reported by a TV station in Atlanta.

Part-time eBay seller Tricia Johnson complained to WSB-TV about a purse she sold on eBay which passed through the authentication process. Ten days after receipt, the buyer filed a claim with eBay claiming the purse had stains and scratches and requested a refund.

“She [the buyer] got her money back before they [eBay] let me do anything,” Johnson said to WSB-TV and when the purse was returned to her, it had no stains, but more new scratches, she added.

Johnson also told the TV station that this was the second time she had an issue with a designer item she sold on eBay and voiced her frustration with the platform, “I honestly feel that eBay is probably becoming a platform for scammers.”

That sentiment doesn’t build trust!

It’s possible that like other similar complaints on social media, Johnson’s experience could be isolated and there is no way to know if eBay has a systemic issue with its authenticity program.

But since the company highlighted its authentication service during its Investor Day as a cornerstone piece to attract more high-value buyers, problems with the program could be problematic for its strategy.

It even plans to roll out an eBay Vault that will enable alternative asset investors to store items that passed through its authenticity program in a secure facility that can be sold on the marketplace instantly or fractionally.

This requires the ultimate amount of trust as buyers may never see the item to be able to independently confirm its authenticity and have to fully rely on eBay’s service to be accurate.

Trust is at the heart of these initiatives and eBay appears to be facing headwinds with this issue as reinforced by nationally recognized consumer advocate and expert Clark Howard.

Howard told WSB-TV that he cautions against selling high-end goods on eBay and recommends consumers use marketplaces specifically designed for luxury goods.

“eBay is just not structurally equipped with people selling high-end goods to protect both the buyer and the seller,” Howard added.

While Howard didn’t specify which marketplaces he suggests for these goods, GOAT and StockX had entered the higher-value and luxury goods authenticity space well before eBay.

Both companies are smaller niche players but build their reputation on their authenticity programs. In other words, their success depended on it from day one, while eBay is really pretty new in this space.

Reports of scams on both sides of the transaction have plagued eBay for years.

The eBay authenticity program is supposed to cure this problem, at least for high-value and luxury goods, by having a third party (eBay or a vendor) confirm authenticity and condition.

But considering that 18 million buyers fled the marketplace in 2021 alone, and 2 million sellers called it quits as well, eBay has a lot of work cut out for itself to build that trust. The only plausible explanation for the exodus is that users are unhappy with eBay.

A brand that is trusted usually doesn’t have declining metrics at record levels and that is exactly what has happened to eBay in 2021. Claiming the losses are due to pandemic buyers is disingenuous as the platform’s active buyer base is now lower than it was before the pandemic. That simply runs counter to most other online commerce retailers and marketplaces.

eBay is not heading toward financial trouble. It’s still a profitable business that keeps finding new and creative ways to squeeze out more revenue from sales on its marketplace.

But should active buyer and seller numbers continue to tumble, no amount of corporate-speak will keep investors satisfied for long that its strategy of focusing on a small segment of enthusiast buyers is the key to long-term success while “low-value” users are fleeing the platform.

Users don’t leave brands or platforms if they are satisfied and happy. They leave because they no longer like or trust the brand or service.

It could be a pivotal moment in the company’s history as it tries to change the perception of its brand and reinvents itself as a higher-end marketplace to drive GMV from fewer users than it had two years ago before the pandemic.

* Adjusted to reflect today’s eBay marketplace operation. eBay originally reported 183 million active buyers at the end of Q4 2019, which included StubHub (~9 million) and its Korean operations (~20 million). Both units have been sold since.

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