January 23, 2016

11% of listings but 60% of sales: Analyzing eBay's Auction format

Origin of the Buy It Now format.

EBay started out as an online auction company in 1995. Four years later, it added a "Buy It Now" feature that allowed buyers to short-circuit the auction process and pay a higher fixed price. Today, sellers can offer items at a fixed price and their offerings will display the "Buy It Now" option only.

About a month ago, I read an article that argued it was better to sell through eBay's "Buy It Now" format than through the time-proven auction format. The writer made a number of well-reasoned and compelling arguments, so I decided to find confirmation.

It appears that many people accept the mantra that auction format sales have been dropping and that one day, eBay is liable to abandon the auction format entirely. That conclusion sounds a little odd to, especially once you analyze real data.

I read one article advancing that point of view, only to discover the writer had jumped to conclusions based on a single eBay promotion. Please understand that eBay is constantly running promotions of one type or another. The problem with chasing promotions to save a few dollars is that sellers can suddenly find their listings lost among hundreds of other new listings. They saved pennies on listing fees only to encounter more competition.

I found another article with the headline, Why does nobody ever bid on eBay anymore? Huhhh? Sorry to disappoint, but they are bidding.

Is the auction format REALLY dying?

In an effort to uncover some semblance of fact, I first started by learning about the current mixture of format types represented in the railroad category of collectible stocks and bonds. (From this point forward, I am going to talk strictly about items in the railroad certificate category. Be aware that every category will display different statistics and those statistics will vary from day to day.)

When I first started looking into various rumors on January 2, the ratio of "Buy It Now" (BIN) listings to auctions was about 9:1. As I write this, (January 23, 2016), 89.3% of all items are listed in the BIN format versus 10.7% for auctions.

There IS a big difference, but...

That whopping difference in ratio discovered, whether on January 2 or January 23, seemed to support some of the Chicken Little talk I had found. Thankfully, I kept going. I then decided to see what the mix had been over the previous months.

I managed to capture as much information as possible concerning past listings and sales although eBay does not make it easy. While the available data was imperfect, it appeared that eBay usually allows users to look back over 90 days of Completed Listings. Those are listings that ended, regardless of whether items were sold or not.

During that previous 90-day period, 6,678 sales closed. 58% were BINs and 42% were auctions.


The ratio of then-current listings was 90% BINs to 10% auctions. Why such a radical difference? When we examine eBay's listing policy, we learn a couple interesting facts.

When sellers decide to list items in the auction format, they also have the option of adding a "Buy It Now" button, as long as the listing price is above the start price of their auctions. If items receive auction bids, BIN options disappear and listings revert to auction-only formats. In the event buyers click the "Buy It Now" button, sales results are listed as BIN sales, not auctions. When that happens, results might get skewed a bit toward BIN, but I doubt that accounts for any measurable difference.

The REAL reason why BINS outnumber auctions

The thing that really affects the ratio difference is the significant differences in the lengths of time allowed for the BIN and auction formats.

Sellers with store presences (including me) tend to offer BIN items on a "Good Till Cancelled" basis. In other words, we list items once and they stay on eBay until we remove them or someone buys. Ideally, we will decrease prices over time because we don't want to maintain inventory forever. Unfortunately, many sellers NEVER lower prices.

The default period for auctions is 7 days. BIN sellers, however, have the option of listing items for 30 days and can even choose the "Good Till Cancelled" option. With the "Good Till Cancelled" option, offerings automatically re-list every month. Since the insertion fees are the same, most BIN sellers seem to choose longer durations for their BIN listings.

However, these different listing periods inadvertently create the very problem eBay has said it wants to correct: the perceived drop-off in the percentage of auction listings over time. Here's why.

All unsold auction items fall off eBay once auctions end in 7 to 10 days. BINs, however, tend to stay on the eBay site for 30 days and longer. Possibly indefinitely! Consequently, the percentage of unsold BINs is ever-increasing. Once we examine eBay listing rules, we realize that BINs will always outnumber auctions.

Can we confirm this theory? 

Yes! All we need to do is determine the ratio of BIN and auction listings started in the last seven days. (See the leftmost pie diagram in the illustration above.)

We need to physically navigate through several pages in order to count BIN and auction listings that started in the previous week. It takes a while to do that, but we can see that as of today (January 23, 2016), sellers started 532 new Buy It Now listings versus 493 auctions. The ratio for the past week turns out to be 52% BINs and 48% auctions. Note that this 52:48 ratio is much closer to the 58:42 ratio we saw earlier in the 90-day collection of completed sales.

At this point, the data is suggesting to me that:
  • "Buy It Now" listings might help items sell faster during the impulsive Christmas buying season. During that period, many buyers should probably not wait 7 to 10 days only to learn that they failed to win an auction item. 
Okay, we've determined that the ratio of BINs to auctions in the 90-day period at the end of 2015 generally reflects today's ratio. Let's look at sales.

Now the story gets more interesting.

While the ratio of BIN listings to auction listings was 58:42 for the last 90 days of 2015, the ratio of successful sales in that period was 44% BIN to 56% auction.

  • BIN listings outnumbered auctions but auctions clearly outsold BINs. 

While I was not terribly surprised, I did not expect that level of disparity.

  • Quite obviously, auctions sell better than "Buy It Now" listings, not worse as regularly reported on the web. 
(Please remember, I am not claiming this conclusion applies to all specialties, let alone all products and all countries. I am concerned here only with collectible stocks and bonds from railroads.)

What happens when we look at dollars instead of the numbers of listings sold?

Looking again at all 6,678 listings that either ended or sold during the 90-day period at the end of 2015, we see that the average asking price across all price bands was nearly identical between BINs ($26.79) and auctions ($26.78.)

Digging deeper into the data, it appears that BIN listings not only sold lower percentages than auctions, they also netted lower prices. While average ask prices for BINs and start prices for auctions are identical, BIN sales averaged 15% (!) lower than average auction sales. ($20.58 for BINs versus $24.05 for auctions.)
  • Again, the data clearly indicates the auction format is a better choice overall.

Finally, let's look at total sales by price band. 

In terms of dollars netted, we see that:
  • Auctions clearly outsold BINs in every price band except for the $10 to $24.99 category. In all higher price bands, auction listings netted much more money.

At this point, I'd really like to ask many more questions. Unfortunately, I would need much more data than eBay is willing to divulge. I do, however, believe we can draw a few conclusions consistent with the data we already have.

At this moment, there are 4,593 BIN listings compared to 548 auction listings of railroad certificates on eBay. Of the 4,593 BIN listings online right now, around 760 were posted in the last ten days. By subtraction, that means about 3,833 "Buy It Now" items have been listed for longer than 10 days. Obviously some BIN items have been listed for over 10 months. I suspect many have been listed for over a year or more.

If these sellers want to move their inventory, they'd better start dropping their prices!

Because BINs stay around for so long, we cannot accurately determine sales percentages. My analysis here suggests that about 48% of auction listings result in sales. It would be tempting to predict the same sales percentage for BIN listings, but I'm not buying that conclusion.

In fact if we compare the value of listings created in the last week, I would expect to see many more BIN sales. Moreover:
  •  the substantial underperformance in sales suggests deep troubles with the BIN format.
EBay can mess around with its pricing structure all it wants, but that is not where the problem lies.
While the eBay auction format seems to be selling around 48% of its lots, I personally think it should be even higher. All we need to do is notice the difference between eBay prices and prices garnered in formal auctions. Thankfully for the auction houses, eBay sellers seldom offer the same kinds of collectibles. Yes, we can blame a lot on disinterest across the entire collectors' market. No doubt in my mind about that.

Unrealistic expectations of value

I suspect, however, that the greatest hindrance to sales, especially BIN sales, is pathetically simple: unrealistic expectations of value by sellers. In some cases, wild price expectations border on delusional.

Now I am not saying sellers should start running eBay auctions with 99-cent start prices. That's stupid. I'm merely saying to start auctions and BINs at reasonable prices.

I also suggest potential sellers discover what buyers have been paying in the recent past. Simply click the check box labeled "Sold listings" on the left hand side of the screen.

After the page refreshes, sellers can quickly research prices over the last 90 days. If a similar item has typically sold for $10, sellers should not waste money listing their own item with a Buy It Now price of $30. It isn't going to sell. Yes, I know there is an adequate supply of foolish buyers out there. Still, the chance of the "Greater Fool" paying $30 for a $10 certificate is slim, especially since he probably can find ten competing offers at $10 and less!

In conclusion, please remember that every article you read on the web needs to pass the smell test. Don't believe everything you read.

January 16, 2016

Spink's first Collector's Series auction of 2016

I just received a monstrous, 328-page catalog from Spink for its Collector's Series auction to be held January 27 and 28 in New York. As usual, the sale contains a wide range of collectibles including coins, medals, paper money, stocks, bonds and autographs.

While collectors in other specialties will disagree, I consider the standouts to be one hundred lots of autographs from the collection of Diana Herzog. Many of you probably met Diana at Smythe events and will remember Diana as the charming president of R. M. Smythe prior to its sale to Spink. You may not know, however, that she was a well-known autograph collector, speaker and president of the Manuscript society as well as being responsible for developing Smythe's autograph business.

The part of her collection being offered in Spink's current sale is focused entirely on notable English writers, poets and celebrities. I guarantee you will recognize numbers of very famous people, ranging from Joseph Addison to Emile Zola. Overall, I believe price estimates are very reasonable, if not a bit on the low side. May I suggest considering items from Pearl Buck, King Charles II (!), King George I, Agatha Christie, Charles Dickens, George Eliot, Rudyard Kipling, D.H. Lawrence, Henry Wadsworth Longfellow, Somerset Maugham, Lord Nelson, Beatrix Potter, Robert Louis Stevenson, Dylan Thomas, Oscar Wilde, William Wordsworth and Virginia Woolf.

Spink is also offering numbers of additional autographs outside of Diana's collection and I'll mention only a few that might capture your attention. Please consider items signed by William W. Astor, Sir Arthur Conan Doyle, King George IV, Jenny Lind, Sam Houston, Harry Truman and many others.

Obviously, my purpose here is to tell you about stocks and bonds, but there are only about 161 lots to choose from. There are some wonderful items outside of the railroad specialty, of course, including items from Atwater Caloric Water Elevator Company, White Sulphur Springs Company, White Cloud City Company, Yellowstone Park Transportation Company, Cocos Island Treasure Company, Consolidated Hidden Treasure Company, Hampton Whaling Company, Lackonick Whaling Company and the ever-popular Ocean Floating Safe Company.

Oh, yeah, don't forget to look at an uncancelled stock certificate for the Augusta National Golf Club signed by (you guessed it!) Bobby Jones. See lot 1563 and don't let this item escape if you're a golf collector.

Now to the railroad specialty. I count only twenty-six lots but can testify that none of the single-item lots are common.

Without a doubt, the item with the highest estimate is a Mason & Fort Dodge Railroad Company stock certificate issued to James J. Hill in attractive calligraphic style. While Hill must have owned thousands of certificates in his lifetime, his signature, like Commodore Vanderbilt's, is quite rare on railroad certificates. The opportunity to acquire a railroad item with Hill's autograph comes along very rarely.

Another certificate that attracts a lot of attention among collectors of Colorado narrow gauges is a Rio Grande Southern bond signed by Otto Mears. Seventeen of these bonds have sold on eBay in the last two years, generally at prices in the range of Spink's low estimate. I don't know how much longer the eBay supply will last, but when it dries up, prices for these items will surely rebound.

Other items that might attract collectors will depend, of course, on items they already have in their collections. One item I know that can only be found in a couple collections is an\ABN bond from the Kansas Mexico & Orient Railway (lot 1616). I've never encountered this cancelled item before and I know of only two other such bonds, both uncancelled and serial numbered 11 and 12. For comparison, #11 sold for $73 in 1992 and then again for $400 (by HSK) about a year ago, Serial #12 was offered by Erik Boone in 1993, but I never learned the sale price. I hope collectors will realize that Spink's $250-$350 estimate is very fair for such a rare certificate.

As usual, you may view Spink's catalog online at www.Spink.com where it offers both eCatalogue and PDF versions. The best option, of course, is to order one of Spinks excellent physical catalogs. While not every lot is illustrated, images printed in the physical catalog are much better quality than either the PDF or eCatalogue versions.

Whatever choice you make, please be quick about it. The sale will take place on Wednesday and Thursday of the last week in the month.