eBay Vs. Amazon Business Model

For sellers looking to unload grandma’s things, the decision to sell online is easy, and whether you list things while at home in your pajamas, have money sent directly to you, or drop packages off in the mail, it’s all way easier than the yard sales of yesteryear. But, you still must choose which big e-commerce site to list with: eBay (EBAY) or Amazon (AMZN).

The company that everyone and his brother seemed to use 10 years ago has fallen a bit out of favor in recent years. However, the eBay of today has snapped up quite a few companies since it first launched in 1995, including Paypal, kijiji, and StubHub, and, according to the company, had 800 million listings and 155 million active buyers at the end of 2014.

So how does eBay make money? First, and most importantly, is Paypal. Paypal will be spun off sometime this year in a move that’s expected the halve eBay’s value. The money transfer/payment website is enormously profitable for eBay and, in 2014, contributed almost half of the company’s revenue. With a 2.9% + $0.30 fee for each sale, Paypal fees can easily cut into a seller’s margins.

But let’s focus on the part of eBay that’s comparable to Amazon: the Marketplace. Back in its heyday the eBay Marketplace would charge users an insertion fee based on the item’s starting bid, and, when the item sold, a final value fee. Today, every seller on eBay gets at least 20 free listings. Unfortunately, eBay still charges a final value fee. However, the final value fee calculations have been simplified, and these days, eBay is charging a flat final value fee of 10% of the sale price.

For power sellers, eBay offers subscription packages which, for a monthly fee, give sellers between 150 and 2,500 free listings, a lower insertion fee for sellers who go over their allotment, and a less-simplified but lower range of final value fees that run from 4-9% depending on the item’s category.

Along with the marketplace, sellers can choose to upgrade their listings (better place in the search results, more pictures, etc.) or to list their items at a fixed price. Fixed price listings are subject to the same fees as auction listings and really only have the advantage of satisfying consumers who need to “buy now.”

Amazon has an even more complex fee structure than eBay. The company offers two options for sellers: they can either list as Individuals or as Professionals. For Individuals, Amazon charges $0.99 per item to list along with a referral fee that ranges from 6-45% depending on the item’s listing category. On top of that, there is a variable closing fee which, for BMDV (books, media, DVD and video) items, is not variable at all, at a fixed $1.35 per item. Other products are charged a variable closing fee that is calculated by the item’s weight.

Sellers can list their items in 20-30 different categories (depending on whether they are selling as Individuals or as Professionals) and for BMDV sellers, have set shipping rates set and collected by Amazon. These set shipping rates are great for buyers who know that, when purchasing BMDV items on Amazon, the total price can be easily calculated without searching for individual sellers’ shipping rates.

Amazon allows sellers selling products already listed on the site to list their product simply by entering in the item’s UPC or SKU number. This process cuts down on the time a seller needs to prepare a listing because the relevant information has already been input by Amazon employees. Payment is completed by periodic bank transfers to the seller’s account and sellers are protected by Amazon’s Fraud Protection service.

eBay, the original auction site, used to have complicated and expensive selling fees. Since streamlining their fees on May 1^st, the structure actually looks simple and easy to understand. Amazon, by comparison, can be confusing and frustrating to navigate.

Sample calculations would be helpful to compare the two sites but, with multi-tiered pricing structures and closing fees which vary by item category, item weight, and buyer payment option, any examples could be construed as cherry-picking or biased towards one company or the other.

Amazon has a few advantages over eBay. For starters, the site does a really good job of making a buyer feel that he is buying directly from Amazon. Seller’s items are listed alongside Amazon’s, purchases can be made using “1-click buying” and, unlike eBay and Paypal, buyers can complete their payment without leaving the Amazon site. With Fulfillment By Amazon, a seller can even have his items stored and shipped directly from Amazon’s warehouses.

On the other hand, a seller might prefer to use eBay in order to customize and personalize his listings. With the ability to post catchy full-color ads within a listing, it might be more appealing and more likely to result in a sale than Amazon’s neutral listings. In an effort to improve efficiency among sellers, eBay has begun a Valet Service that allows sellers to have their items listed and sold by eBay employees.

If a seller is worried about being scammed, he needn’t bother; both companies offer seller protection services as we as the ability to directly contact a buyer if an issue arises. Both companies also offer tutorials and customer support for sellers who are just starting out.

Finally, there’s the question of getting paid. Amazon has a multi-step procedure to set up a seller’s account. Users are automatically signed up for a Professional account and for Fulfillment by Amazon. Account information is input based on a user’s existing account (if any). Finally, there’s a section for Tax Identity Information. That’s right, there’s no shirking the IRS when selling with Amazon.

For eBay sellers, the process is simple: open an eBay account (or use an existing one) and start selling. Getting money into a bank account is a bit more complicated. Amazon users get paid via a direct deposit to their bank account whereas eBay users (usually) get paid through Paypal, a site that takes an additional 2.9%+$0.30 fee before allowing a user to transfer money to a bank account.

Whether selling through eBay or through Amazon, the key is to do your research. Given the different pricing schemes associated with each company, an item that might be cheaply sold on Amazon could demand high fees from eBay. For others, the higher price could be justified for the customer service received.