Overstock Overtaking eBay?

Ah, the glories of competition. We have for years been lauding eBay's (Nasdaq: EBAY  ) business model as one of the most elegant in existence. That the company is able to conduct billions in commercial transactions without ever taking on a single penny of inventory is simply awesome. That eBay's massive network of buyers and sellers makes the company's moat as wide and deep as any I've ever seen without the benefit of government or natural monopoly is simply fantastic. eBay is the default place to buy and sell goods online. eBay's biggest competition, including Yahoo! (Nasdaq: YHOO  ) Auctions and Amazon's (Nasdaq: AMZN  ) zShops, seems almost desultory by comparison.

Indeed, eBay's biggest threat to its own success is eBay.

But that didn't stop Overstock.com (Nasdaq: OSTK  ) from mounting an assault earlier this year, trying to attract some of the power sellers at eBay who had begun to chafe as a result of their perception that the gigantic auction site had become unresponsive to their needs. And, boy, did eBay just hand Overstock.com some ammunition.

This past weekend, eBay announced that it was raising prices for listings and other services, such as its online stores, which are popular with power sellers, by as much as 60%. Immediately, the message boards at eBay heated up over the size of the increase. Some sellers fumed that they were taking their business elsewhere. And thanks to Overstock.com, they actually have a viable "elsewhere" to go. Overstock.com's shares screamed higher over the past few days as the company announced that its auction count had risen by more than 50% in the wake of eBay's announcement.

That's a huge loss for eBay, right? Not really. The Overstock.com press release failed to mention a raw number of listings. A quick look at the site tells me that there are currently about 31,000 ongoing auctions, a good number to be sure, but fewer than the number of items available in just the "Asian antiques" category on eBay. So while the gain may have been huge for Overstock.com, the loss is at this point a blip for eBay. Still, the situation creates an unquestionable opportunity for Overstock.com, and it's capitalizing. It's cutting its own listing fees, and it will give a $10 credit to anyone registering or visiting Overstock.com's auction site on the day that the eBay increase goes into effect.

The gain will be short-lived, though, if auctions on Overstock.com don't generate the same, or similar, net revenues to sellers. Reaching that point requires buyers to consider Overstock.com as a viable alternative to eBay in numbers large enough to generate a bid flow similar to eBay's. If Overstock.com's business dries up because of poor selling numbers, many of its hard-won power sellers are likely to swallow their pride and head back over to the biggest game in town.

Bill Mannowns none of the companies mentioned in this story.

Overstock.com is one of the inauguralMotley Fool Rule Breakersrecommendations.


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