There has been much articulate commentary lately arguing that unless eBay makes its listings free--and freely searchable by Google--it is toast (see Marc Pincus, Fred Wilson, John Battelle, Bill Burnham and others). The presumed killers? GoogleBase, Craigslist, the free web, et al. At first blush, this argument seems a slam dunk: free seems a hard price to beat. As yet, anyway, I'm not convinced.
The first point that trips me up is that I have heard (and initially believed) this argument before, way back in the mid-to-late-1990s, when eBay had just gone public and the biggest concern among investors was that Yahoo! was going into the auction business--and that its listings, unlike eBay's, would be free. As one of my colleagues put it, "free's not a bad price," especially when offered by a company as prominent and reputable as Yahoo!. And Yahoo! made its announcement and its listings were free, and eBay's stock temporarily took it on the chin. But then, lo and behold, although Yahoo! immediately amassed jillions of listings, eBay's seller and buyer communities stayed put (and its revenue and profit continued to soar). A few years later, throwing in the towel on free, Yahoo! started charging fees. That didn't work, either. So now they're back to free.
In this and other cases, eBay was able to defend itself because of the network effect: without the buyers, it was hard to retain sellers, etc. In Yahoo!'s case, moreover, it seemed that free listings actually made the experience worse for users: because sellers didn't have skin in the game, they would list pure junk just to see if it would sell, and buyers would have to sift through reams of crap listings to find the few that were worth anything. And, as time progressed, it also seemed that eBay's intense focus on auctions (and, later, commerce) allowed it to introduce ancillary services that Yahoo! couldn't keep up with, etc., all of which made eBay's fees worth the price.
I realize that today, the situation is slightly different: now that we have Google, the theory goes, we can search the entire non-eBay web, and soon eBay's listings will be a tiny fraction of the total readily available to a buyer (and, if eBay refuses to allow Google to index its listings, eBay may even be invisible--the "dark web" theory). This, the Freebay folks argue, will negate the network effect, and sellers will no longer have any reason to use eBay.
For this to happen, though, two things must be (or become) true. First, eBay's listings must, in fact, be a fraction of the total available on the web in any given category (I suspect that this is not the case, but I haven't tested the theory). Second, and just as important, the non-eBay listings have to be just as high-quality, fresh, and trustworthy as eBay's, or buyers will be reluctant to depend on them.
I realize that Craigslist has fanatical supporters who loathe eBay (even though eBay owns 25% of the company) and that there will always be a segment of the web population that considers it the deepest of insults to ever be asked to pay for something. The web being what it is, these folks will always have free marketplaces or communities where they can trade with one another.
After watching eBay's experience over the last (near) decade, however, I am skeptical that the majority of sellers who absolutely positively need to 1) sell the item, and 2) get the highest possible price for it, will try to save the 10% or so by uprooting and moving to a free site. Especially if they have to buy Google keywords--or share revenue with Google--to show up in its search results.
This does not mean that eBay will grow 30% a year forever. It also does not mean that eBay can keep jacking up prices: the near-revolt that followed the last increase demonstrated that this source of growth has come to an end. It may mean, as some have suggested, that eBay has to start offering volume discounts, better all-web promotions, cheaper listings in exchange for higher-priced ancillary services, etc. It may also mean that eBay will forever have to persuade sellers that, although free is a viable option, it's worth paying for eBay.
In any case, I think the consensus that eBay either 1) goes free, or 2) is toast, may be a rush to judgment that will later prove wrong (or at least prove a vast over-statement). I don't think the "paid model is dying," as Fred succinctly put it, just as I don't think free office suites will suddenly take over the world. I think the two models will continue to co-exist, just as they have since the beginning. But I'm happy to be persuaded otherwise.