Open Letter to Abusive Auctions Posters

I am going to tell you two stories (though I know there are bad people out there who will lie about and twist them).

Story #1: Ten years ago I was working in the shmata trade. The two brothers with whom I ran the firm were Jewish. One day one of them, Roger, who handled large accounts, was visibly upset about a customer. I asked him what was up, but he downplayed his pique. Finally I pried out of him the fact that one of our larger customers, the manager of a store in the Midwest, had made an anti-Semitic remark (something on the order of, “Yeah, when it comes to money you people…” blah blah blah). I was so furious I called the customer, confirmed the remark, and fired him. He told me, “You cannot fire your own customer!” I did anyway, telling him that we would no longer accept orders from him. (Showing immense class, Roger took his call a few days later, forgave him, patched things up, and even refused to comply with my request that he jack the guy’s pricing 20%.)

Story #2: In the early days of Overstock, we were so small that we fit into one room, and when we sold something an email went around the company (“Someone just bought a $29 watch!”) In that environment one afternoon I walked past a customer service rep who was upset, so I stopped. She covered the mouthpiece and whispered, “Irate customer.” I took the phone and listened as some guy screamed at her, using words one does not normally use with a woman. I interrupted the fellow to tell him we’d return his money but were closing his account and not to order from us again. From that point forward that has been our policy: people we do business with can be nasty to me, they can even be nasty to my partner Jason, but no one else who works here has to take anyone being abusive to them.

I have read the postings of moondance4me, jwautographs, and dreamdeals, to name a few, and have seen the insults directed to my colleagues. I have no idea why you think that you can talk about my colleagues that way and continue as our business partners. Forget the two years and $6 million it has cost thus to develop this auction tab for you (and the amount of heat I have had to take from Wall Street, shareholders, and others in the company, all wanting me to close this on the grounds that it is a money-losing distraction). The people you are insulting, my colleagues, have coughed up lungs to try to make this work for you. Even Byron, who has hovered over this board for two years, wants me to tell you that he is disappointed in your behavior.

Here are a few simple truths for you to consider:

• eBay is already in the textbooks as the most perfect increasing-return-to-scale idea to come along since language. For years it has been an accepted article of faith in business circles that no one could ever compete with eBay, so wonderful was its business position. We watched as the eBay seller community came to feel that eBay was using this wonderful position to hike its fees excessively, “extracting a monopolist rent” as economists would say (though in fairness to them, eBay makes the point that they need to do it to cull extra auctions from their site). So we did the unthinkable: we decided to offer an alternative to eBay that gave sellers what they were demanding from eBay, but not receiving. Our skeleton crew developed seller-centric features (such as subscriptions) that eBay has made no appearance of considering. People in our auctions program have turned down lateral moves within the company, so determined are they to make this work. There is not an evening or weekend I come in here that I do not find customer care agents, developers, or seller managers here, mostly working on their own time, trying to make our auction tab work for you.

• It has not worked as we had hoped. Yes, we will reach about $40 million in GMV this year and, since Stormy and Meghan took it over two months ago, for the first time it is breaking even (last week it even showed a small profit). But in the two year since it opened, it has not met our expectations, as must be clear to us all.

• Our auction tab needs two changes.

o Change #1: people are posting vast numbers of “auctions” of the form, “Starting price $29.95, Make it Mine @ $30.00.” Folks, that is not an auction, that is a classified ad. Our real auctions have disappeared under an ocean of such classified ads, which destroys closing rates for everyone.

oChange #2: we know that the ethic of some auction sites is, “Since we don’t know if it is fake or not, we let it go up.” From the start we wanted to be more conservative (“If we do not know if it is real, then it should not go up”). In the end, however, we trusted the community not to sell fugazi handbags and accessories. Last week Stormy, Meghan and I reviewed these auctions with the help of someone in our company who for three years made her living buying in thrift shops and selling on eBay. We decided that our auctions of designer items were little better than the competition’s. I know that the ethic of auction sites is to hide behind the claim that they are a neutral venue, and in a legal sense that is what we are as well, but from an ethical perspective, I am simply unwilling to allow Overstock customers, even those visiting our auctions board, to be sold anything fake. If this means that all the auctions business dries up, then that is what it is going to mean. No one gets to sell fake merchandise on Overstock. It’s that simple. More generally, I think what I am witnessing is a microcosm of what we as a nation are experiencing. Our auction site should first consider the interests of consumers, then small sellers, then big sellers, just as our federal government should first consider the interests of all citizens then, once those needs are met, try to meet the needs of special interests. Nationally, our special interests have gotten so large and well-organized that they have warped the political process to their own ends and to the detriment of the citizenry. In a similar fashion, the largest sellers here have demanded, and received, such special benefits (such as “Trusted Merchant” status, which really conveys no new information beyond “buySAFE” certification) that the principles of our auction tab have been warped as deeply as our nation’s political processes.

We must return to our vision of a tab for people who want to create real, old-fashioned auctions, and consumers who want to participate in them in a search for good, legitimate products. This vision benefits the consumer, the small seller, and the sellers of legitimate designer products, in that order. Some large sellers may perceive this as a sleight on their interests, but upon reflection, they should see that these changes are intended to get our auction tab to catch fire, which in the long run is in everyone’s interests.

There are some other issues needing to be addressed, though I am hesitant to do so in this environment of distortion and vilification. But because there are legitimate questions being raised, I will address them briefly. Do people have to change the MIM’s of auctions that are already running? No, of course not. Must the MIM price really be 2X the starting price? One polite and reasonable woman, an antiques dealer, wrote a lovely post that showed why this does not work for her products: her logic is compelling, and we will heed her advice and revisit the details of this (being worked on now). Are there going to be exemptions (other than Enterprise Merchants) from the MIM@2X rule? Yes: we will offer exemptions on a case-by-case basis to anyone else: simply call. But the decision of Stormy and Meghan to disallow what are in effect innumerable classified ads suffocating our auctions, and their decision to have a zero-tolerance policy for fake merchandise, are decisions by which I stand 100%.

To all those who thought it was OK to be abusive to my colleagues, I say: after viewing those postings, my instructions were to eject all the nasty critters from this auction tab. I would shut it down before I would ask any colleague to put up with that treatment. It is still my preference to do so, but Stormy, Meghan, and Byron insist to me that you have come from a competitor’s environment where such behavior is tolerated, and you might not understand that our principles are different. So at their insistence only, and this time only (and with the exception of only the most egregiously impolite people), you get a buy. But let’s not have this conversation again.

Most Sincerely,
Patrick Byrne