At Web giant eBay, it's out with the new and in with the old both in terms of corporate strategy and product mix. After trying in vain to remake itself as an online retailer of fixed-priced items to rival the likes of Amazon.com and Wal-Mart, eBay last week cried uncle when it announced it was returning to its roots as an auction clearinghouse for used goods and collectables (in addition to overstocked items). Why the change? The past year has not been kind on the one-time darling of the Web which has seen its traffic and fortunes decline.

To compete in the fixed-price marketplace, eBay enacted a series of policies and site changes that favored power sellers at the expense of smaller sellers. As casual sellers abandoned the site, buyers have migrated elsewhere in search of the hard-to-find products upon which eBay built its business traffic to Craigslist has risen 40% over the past year. In contrast, eBay's traffic was down 5.2% last month over the previous year, while Amazon's traffic rose 18.7%.

Not only are fewer shoppers returning to the site, but average order values have stagnated at around $28 (other than the spike during the holiday season.) Since eBay's marketplace revenues are driven by fees charged to sellers, declining traffic and flat transaction values have led eBay to raise its fees in hopes of meeting Wall Street's expectations. As a result, eBay is squeezing the very sellers on whose backs the success of its business rests.

The more eBay has tried to be a retailer, the more its customers have gravitated to sites offering better overall shopping experiences with lower total prices, better customer service, and predictable deliveries; not to mention the avoidance of the risk of fraud. The percentage of eBay’s visitors who shopped at Amazon jumped from 41% in February 2008 to 53% last month. Over the same period, Amazon visitors' cross-shopping of eBay has remained unchanged at 58%, suggesting eBay's fixed-price strategy has failed to attract significant numbers of new shoppers to the site.

By focusing so much on fixed-priced items sold by large sellers, eBay has blurred the distinction between it and the litany of shopping comparison sites and tools on the web (such as shopping.com which eBay also owns). In so doing, eBay has traded away much of the brand equity that once set it apart from the rest of the online retailing universe.