The Ebay Flap caused by Businessweek yesterday is interesting to me.   Here's a succinct quote from Nicholas Carr that sums up the basic idea...

Now we're beginning to find out that eBay's seemingly revolutionary core - the online auction - may have been a fad all along. As Business Week reports, eBay's auctions are "a dying breed." Buyers and sellers are reverting to the traditional retailing model of fixed prices:

This is another one of those topics where I really thought someone else would jump up and give the opinion I had (since it seems obvious) but no one did.  So I felt I should make a quick post on the topic to address it. 

First things First: This isn't about Buyers Preference

A lot of people are presenting this issue as "Buyers and Sellers are choosing a set price model" and that isn't the case.  EBay has always offered the "Buy It Now" option alongside auctions.  So the seller could set a "But It Now" price but then have a traditional auction.

Given that option simple logic says that, if the buyers were making the choice, the auction model would continue unabated.  Buyers would simply be using the "Buy It Now" button more and bidding less.  The fact that there are fewer auctions indicates a sellers' decision.

What was the original point of eBay?

Anyone who has studied eBay knows there was a central idea to the service from its beginning.  That idea was to create the perfect economic system.

(For anyone looking for a good book on eBay I strongly recommend "The Perfect Store: Inside eBay" by Adam Cohen)

Auctions are the perfect capitalist system because products end up being sold for exactly what they are worth.  The market literally determines the ideal price and then pays it.  In economic terms that is essentially perfection and eBay founder Pierre Omidyar was known to point this out repeatedly.

So what does that mean?

A perfect economic system is profoundly affected by the economy.  Prices are determined by the consumer so when every consumer has less disposable cash prices tend to go down.  Now ask yourself, if prices start to go down too much what happens?

Sellers start to revert to set prices. 

So there you have it.  The issue here isn't that auctions are a fad its that eBay's model is more susceptible to economic downturns and this is the first sustained economic downturn the service has had to live through (the dip and recovery from the 9/11 downturn was actually fairly quick in economic terms). 

Conclusion

I suspect what we're seeing is the beginning of what will be a cyclical business model for eBay.  Auctions will start to wane when the economy is bad and reemerge when the economy recovers.  In the end it all boils down to one simple economic concept: Which method do sellers believe will net the highest reward?  The answer to that will determine what direction eBay heads in at any given time.