The two firms will become independent publicly traded companies in 2015. The move follows pressure from investor Carl Icahn to spin off the payments ...
The test of a community is how well it stands up in the face of adversity. And for the denizens of eBay-whose members spend an average of 130 minutes a month browsing through its listings, poring over the more than 2 million items that are typically up for bid-adversity struck on June 10, when the site suffered an outage that lasted nearly 24 hours. It was the second major outage in as many days. It was, as one disgruntled seller put it, “The Day eBay Stood Still.”
The timing was unfortunate, coming as it did mere days after the debut of a new, improved and widely disliked eBay. While the company attributed the outage to a bug in the Sun Microsystems software being used to power the site, many of the eBay faithful were less than satisfied with the explanation. “We are all trying to hang in there,” wrote another disenchanted regular, “but how many days of no My eBay, stupidly slow response times, and ‘unscheduled down times’ can one take?”
While eBay struggled to make peace with its sellers-promising a day of free listings and a renewed commitment to uninterrupted service-many first-time visitors may have clicked over to Amazon.com Auctions, Yahoo! Auctions or one of the scores of other smaller auction sites looking for a piece of the action. But for all the would-be players in the hottest segment of the e-commerce market, the real thrills can be found in the war shaping up between San Jose, Calif.-based eBay, the pioneer of the online auction format, and Seattle-based Amazon.com, the closest thing to a household name in the world of e-commerce. It’s Goliath vs. Goliath, a culture clash of the titans-with eBay pushing community and Amazon touting customer service.
In the end, however, it may be a third factor-technology-that determines who will rule the category. “If you look at the Amazon and eBay auction model, there’s very little handling of merchandise,” says Kenneth J. Orton, chief strategist at Cognitiative Inc., a San Francisco-based consulting firm. “It’s a technology play-they’re person-to-person auctions.”
EBay’s strategy to be profitable in the short term may put handcuffs on its ability to build the necessary infrastructure, Orton suggests, noting that most of Amazon’s losses in 1998-$128 million-“went into building a platform to being all things e-commerce.” He adds: “At the end of the day it’s really strong management teams who are going to make these companies work.”
Founded by Internet programmer Pierre Omidyar in September 1995, the origin of eBay has quickly taken its place in e-commerce lore. Omidyar created the site to fulfill his wife’s desire to trade Pez dispensers with other enthusiasts outside the Bay area, and “Slowly but surely other people saw it was a way to engage their passions or their hobbies,” says Kevin Pursglove, senior director for communications for eBay. “Before [Omidyar] knew it, he had a real live business on his hands.”
While eBay doesn’t keep exact records, the company estimates that close to 50 million items have changed hands through its site. From the Civil War to Star Wars, from baby clothes to Beanie Babies, chances are that you’ll find it on eBay. If you’re looking for a video store, a tow truck or a pair of radio stations in DeSoto, Mo., you’ll find them, too, among eBay’s 1,627 categories. “If you can’t sell it on eBay, you might as well open up the window and throw it out in the backyard because it ain’t worth a damn,” says Bob Watts, an antique dealer in Fairfield, Va.
In the black
Unlike most of its e-commerce brethren, eBay has been profitable from the very beginning, with net profits of $34 million on gross merchandise sales of $1.2 billion in 1998. Prospects for this year are looking even rosier. In the first quarter, eBay conducted 22.9 million auctions and moved $541 million in goods, up from 13.6 million auctions and $307 million the previous quarter.
At the close of a successful auction, eBay collects a percentage of an item’s final bid ranging from 1.25% up to 5%. Other revenues are derived from insertion fees, ranging from 25 cents for low-ticket items to $50 for real estate listings. Additional options, such as gallery listings and featured auction status, add even more to the eBay coffers. Accounts are billed by credit card each month.
Many retailers are using eBay as a distribution point for their goods, with links to their own Web stores. “We have a lot of clients who literally upgrade from eBay,” says Steven Rubenstein, president of Emaze, a manufacturer of auction software based in Los Angeles. “The reason people stay on eBay is because it provides the traffic.”
In the last 18 months, eBay has grown from approximately 300,000 registered users to somewhere in the neighborhood of 3.8 million registered users. “It’s the equivalent of going from a good-sized town to a metropolis that includes Oakland, San Francisco and San Jose put together,” says Pursglove.
EBay’s phenomenal growth brings with it challenges great and small-everything from infrastructure to keeping the peace among its users. The company has been hiring customer support staffers at a brisk pace, and eBay is planning to open its first off-site customer support center in Salt Lake City, Utah.
“EBay tends to be one of the stickiest sites in the country,” says Pursglove, who calls the site “a safe, well-lit place for fun. We’ve heard stories of people who have formed their own little social clubs, and there are even two eBay marriages that I’m aware of. As people started writing to us on our boards, they began using the term community.”
If eBay thrives on community, Amazon hopes to steal its thunder by playing the customer service card. “What we want to be is the most customer-centric company ever,” says Joel Spiegel, vice president and general manager of auctions for Amazon, which, like eBay, sells collectibles of all kinds, including rare books and music, vintage toys, antiques and sports memorabilia. “What’s going to distinguish us is the tremendous focus on the customer.”