eBay: The Lobby

What happens when an 800-pound gorilla comes under attack? If it's eBay, it counters with an army of professional lobbyists and amateur petitioners drawn from its member base. EBay's aggressive agenda of lobbying on a state and national level bodes well for all eBay sellers, and may actually make the difference as to whether the small and part-time seller can in the future continue to participate on the site.

EBay's business model has been under assault by state legislatures seeking to place the same regulations and licensing fees on eBay sellers as exist for auctioneers, live auction houses and pawnbrokers. Consumer protection is claimed to be the main reason — offering recourse to victims of Internet fraud unable or unwilling to use online remedies. But in states facing financial difficulties — which is to say most states, avarice and desperation are likely the main reasons.

For years states have been losing sales tax and other business revenue to interstate sales via the Internet, now many states are seeking a piece of the Internet pie by way of regulating and licensing eBay's sellers. The specific targets of the regulations are eBay seller assistants and drop-off stores, but extend in some locales to all eBay sellers, from Platinum Power Sellers to the smallest of small fries.

Proposed State Fees Prompt Action
Among other states, California, Florida, New York, Ohio, Louisiana, Illinois, Maine and Tennessee have attempted or passed regulatory legislation aimed at eBay sellers. These range from a $300 licensing fee and $250 surety bond in Louisiana, to a California bill that would have subjected eBay drop-off stores to the same restrictions as pawn shops, to a Tennessee law that requires $700 in fees and a week's attendance at an auctioneering school.

Ebay's stock in trade is its listing fees from the average 89 million sales running on the site at any given time, and, more lucrative, the closing fees on sell-through auctions and fixed-price sales. Given that eBay's gross transaction fees for the first quarter of 2006 were more than $500 million, eBay has a lot to protect, and it's doing so in an aggressive, multi-pronged attack.

While eBay's high volume vendors can easily absorb the fees, the same can not be said for the majority of eBay's sellers, many of whom are part-timers who would drop out or curtail their activity on the site if regulated or hit with licensing fees. EBay's business model is centered on the volume of sales, anything that threatens that volume, threatens the company's prosperity.

Further, there is the problem of precedent — once a state passes regulations, other states are more likely to follow.

In the opinion of many analysts, eBay had no choice but to jump into the breach and try to stem the regulatory tide with everything at its disposal. Furthermore, they say that states are taking a short-term view because, by collecting annual licensing fees, people in their own states wind up unemployed.

eBay Legal Presence Across America
Realizing all this and more, eight years ago eBay began a massive state lobbying program that now extends to 25 states, and is, by all accounts, a highly organized and successful apparatus.

Despite the friendly family marketplace image, there is nothing warm and fuzzy about eBay's lobbying strategy. EBay recruits experienced state and federal lobbyists with little concern for cost, (According to Katie Hafner in the NY Times, some are on $10,000 a month retainers,) weaving attack teams which petition legislators in states with pending hostile legislation.

So far, the results have primarily gone in favor of eBay:

• In late 2005, investigators from the Louisiana State Licensing board began paying visits to residents who were registered as eBay trading assistants(sellers who take auction consignments form other eBay members,) notifying them that they had to get state auction licenses at $300 and a $250 surety bond or face a cease-and-desist order. By May, 2006, eBay lobbyists in Louisiana managed to introduce Bill 642, exempting Internet transactions, such as those conducted by eBay trading assistants, from Louisiana licensing requirements for companies conducting auctions.
• In 2005 the California legislature was poised to pass a bill placing eBay drop-off stores in the same category as pawn shops — requiring them to fingerprint consignors and report all transactions to the police. In rode an eBay executive team, headed by Meg Whitman, eBay CEO, who met with the State Republican caucus, managing to peel off enough votes to squash the bill.
• After Ohio, Maine and Tennessee passed laws regulating eBay sellers, the company's lobbyists intervened and the laws were changed to exempt Internet auctions from licensing requirements.
• Following successful eBay lobbying efforts in Illinois, New York and Florida laws were changed allowing Internet auction sites to compete with local licensed ticket brokers to sell tickets for higher than face value.

While eBay dispatches its army of state lobbyists, a grassroots mobilization of its 193 million membership base is also underway. The eBay Main Street program, open to all eBay members, holds meetings in state capitols "to educate sellers about both National and state specific threats to eCommerce." After feeding attendees a free breakfast or lunch, the eBay reps march them off to the capitol to confront legislators on pertinent issues.

Further, on eBay's "Government Relations" Web page, the company offers Main Street members applications for voter registration and early, absentee and overseas voting. It also appraises members of their local state issues, providing talking points, addresses of relevant government offices and officers and form letters to legislators-which can be emailed with a few mouse clicks.

In a sign that the campaign is escalating, on May 30th, in a rare public appeal, eBay CEO Meg Whitman sent an e-mail to all members petitioning against the proposed two-tiered Internet legislation that would create a fast and slow lane for broadband access, depending on fees paid. Proposed by the cable and phone companies, which control 95 percent of Internet access, it is vehemently opposed by eBay, which realizes a 'pay-to-play' Internet would spell disaster for their business model.

While eBay sellers, especially those who list part-time or have low volume sales, are likely thrilled with the legislative effort on its behalf, not everyone else is happy with the eBay's powerful, activist juggernaut. eBay's one-two punch of state lobbying and rallying its enormous member core to garner exemptions that protect the bottom line raises ethical questions beyond those posed by state lawmakers and officials. As noted by Katie Hafner in the New York Times, some are concerned that eBay's political power, "raises anew the perennial questions about the proper balance among public policy, consumer protection and business interests."

Still, some powerful entities are lining up behind eBay, such as the Federal Trade Commission, which in late May gave its stamp of approval to eBay's Louisiana bill for promoting competition and increasing consumer choice.

The FTC is not alone; eBay is certainly the people's choice whether the people are state and national legislators or its many millions of enthusiastic users. To obtain link information on the licensing laws for your state, visit A1Auctions.com at www.a1auctions.com/licensing.htm.

Frank Fortunato is a regular contributor to ECommerce-Guide.com.

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