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.
WAIT A MINUTE!
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.
Another wonderful auction catalog arrived last week from Belgian dealer and auctioneer, Mario Boone (The Scripophily Center). This is now the 57th sale from Mario and his father, Eric, before him. Sale 57 features 1,490 lots of individual stocks and bonds from around the world, all in color and all viewable online. Included this time are 29 lots from the U.S. railroad companies plus seven more from Cuba (4), Honduras (1) and Mexico (3). In a time when the U.S. market is inundated with dreadfully common material and remainders, it is refreshing to get glimpses of items that are truly rare and seldom seen offered for sale.
Hands down, the rarest of the North America certificates offered in this sale is a bond (pictured at left) issued by the State of Pennsylvania, issued to aid the building of a "Pennsylvania Rail Road." This is a 5% $1000 bond issued in 1829 and is now the earliest rail-related security I have encountered from the United States. See lot #1493. Start price €2,000 (~$2,200 plus commission.) Be aware that the railroad mentioned in the bond was actually the Allegheny Portage Railroad and not THE Pennsylvania Railroad, which was not formed until 1846. The Allegheny Portage Railroad (1834-1856) was a state-funded, 36-mile long adjunct to the Pennsylvania Canal system. It consisted of a series of ten inclined planes (five on each side) that hauled wheeled barges over the Allegheny Mountains between Hollidaysburg and Johnstown.
