Clash of the Titans

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.”

Lucky Pierre

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.”

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That includes a no-haggle, no-deductible, no-third-party money-back guarantee for purchases up to $250. “The amazon.com auction guarantee was absolutely ground-breaking,” says Spiegel, a 2 1/2-year veteran of Amazon and former vice president of engineering and store development.

Many differences between the sites are subtle: Whereas eBay offers auctions that run three, five, seven and 10 days, Amazon’s run from one day to two weeks. But in a marked departure from eBay, where “snipers” are known to come in and pick off a high bid during an auction’s closing minutes, Amazon has a feature, named Going, Going, Gone, which extends an auction for 10 minutes from the last bid any time a bid is made 10 minutes or less before closing.

Amazon is determined not to suffer the same fate as Yahoo, which draws more than 30 million visitors to its portal each month but whose auction sites and chat rooms bear a close resemblance to ghost towns. “If Yahoo couldn’t do it, I have doubts that Amazon can do it better,” says Emaze’s Rubenstein. “It’s a completely separate business model. It’s not Amazon’s business.”

Don’t tell that to Amazon, which launched its auction site March 30—barely six months after CEO Jeff Bezos gave the project the green light. While the company is mum on specifics, Spiegel claims that the auctions drew more participants than anticipated in its first month—even more than in the first month following Amazon’s fast-starting music launch. “The truth is, being an underdog can be motivating and challenging,” he admits. “The issue gets back to focusing on customers and not inordinately on the competition. If we serve them well, they will reward us.”

Friendly competition?

“Our customer service group is absolutely second to none,” boasts Spiegel, who has been known to send his customer service people anonymous e-mails at 1 a.m. “Go try to get a problem resolved via eBay’s customer service,” he adds cattily.

EBay, by contrast, takes the high road with regards to the competition. “A lot of people are going to try to emulate us,” says Pursglove. “We have to keep our ear to the ground and listening and twisting it around.” In response to user requests, the company launched a feature earlier this year called the Gallery—in other words, eBay with pictures—while its Personal Shopper device notifies a customer when an item they’re searching for comes up for bid.

Even so, the site’s recent glitches have chased a few sellers away—for the first time in ages, the number of items listed for sale briefly dipped below 2 million in mid-June. And for now, many of the eBay faithful are on Community Watch. “This thing has been running like a three-legged giraffe for a long time, and each little goodie will only make it worse,” one longtime seller posted to the site’s message board (which made for pretty lively reading in the days following the outage).

Ken Orton at Cognitiative thinks that eBay’s management team would be well-advised to study the approach that America Online took some years ago when the portal experienced outages as its popularity took off. “They greatly underestimated demand and they did a miraculous job of getting out in front of the public and doing a mea culpa,” he recalls.

“I think that eBay is a bit of a victim of its own success,” Orton adds, noting that consumers still don’t have the same expectations they have of online retailers as they do of their bricks-and-mortar counterparts. If eBay’s executives would be upfront about what they’re doing to fix the problem—and they maintained an unusually low profile in the days following the outage—he sees the opportunity to “spin this lemon into lemonade.”

In any event, Orton believes that eBay’s shortcomings have created opportunities for the competition—and not just Amazon. Other potential threats include Yahoo, which currently provides auction listings as a free service to its users, and AOL, which has a short-term commercial agreement with eBay but may have its eyes on the auction market as well. “Right now both of them have to be looking for chinks in the armor,” he says.

For the attendant pleasures and pitfalls of its overnight success, eBay isn’t standing still as the bidding for bidders heats up. “As we continue to grow we have to find a way to constantly reinvent ourselves,” Pursglove says. “Every three months this is an entirely different company. It’s a very big challenge to handle growth historically. That’s why we’re hiring more customer support people to keep pace and make sure that the ratio of users to support staff as low as it can possibly be.”

The acquisition last April of Butterfield & Butterfield—one of the top three U.S. auction houses, with headquarters in San Francisco—gives eBay entree into new and uncharted territories. It provides access to the higher-end ticketed items in Butterfield’s inventory as well as tentacles into international markets including Europe, Asia and Australia, to say nothing of access to the 134-year-old auction house’s expert appraisers and authenticators.

Not to be outdone, Amazon raised the stakes in June by investing $45 million for a 1.7% stake in Sotheby’s Holdings Inc., with plans to launch an online offspring, sothebys.amazon.com, later this year. “I wouldn’t count Amazon out of anything they decide to do,” says Orton. “They are laying in the infra-structure to be really big.”

But never underestimate the power of community. “I occasionally get links e-mailed to me regarding other auction networks, but they never seem to have the selection that eBay does,” says doll and toy dealer and collector Laurie Dowell of San Diego, Calif.

EBay’s commitment to its community recently manifested itself through the company’s eBay Foundation, which equipped an isolated village in Guatemala with computers a few months ago. Once the village is online, its residents plan to sell a few homemade dresses, scarves and shoes on eBay, using the money raised to help a local school.

The next thing you know, they’ll be selling Pez dispensers.