Fool.com: News and Commentary: eBay Under Fire, But How Hot?

eBay Under Fire, But How Hot?

By Dave Marino-Nachison (TMF Braden)
September 17, 1999

Shares of online auctioneer eBay (Nasdaq: EBAY) took a hit today following news reports that a consortium of Internet sites are teaming up to share auction listings in a move to shake up eBay's dominance in the bid-n-buy arena.

According to today's New York Times, online bigshots like Microsoft's (Nasdaq: MSFT) MSN, Excite@Home (Nasdaq: ATHM), and Lycos (Nasdaq: LCOS) are among the nearly 100 sites that will contribute their own auction rolls into a common network to quickly expand their total item and category counts in a move they hope will lure bargain and bric-a-brac hunters away from eBay. The new service will reportedly debut Monday.

Now, no business is unassailable, even in the Internet space where some seem to believe first-mover advantage and expensive branding are all it takes for companies to dominate. First and foremost, businesses are and always will be judged on their ability to serve their customers' needs.

So this new auction network won't be able to buy itself success with television commercials and press releases; it needs to have more item listings in more item categories with a better user interface than eBay -- easily the leader today -- or there won't be any reason for people to switch over or, if new to the 'Net, consider visiting some place else.

Conversely, eBay can't just wait around while Microsoft and its teammates chip away at its empire as some believe Amazon.com (Nasdaq: AMZN) and Yahoo! (Nasdaq: YHOO) -- both notably absent from the Microsoft militia -- might eventually do with their auction offerings. With regard to both customer service and technical aptitude, eBay must continually work its tail off to stay on top.

It's also worth pointing out that eBay still boasts prime promotional space on some of the most rarefied real estate on the Internet thanks to its four-year, $75 million deal to advertise its services on America Online (NYSE: AOL), which doesn't run its own auctions.

The thing is, there's nothing Microsoft's doing there that eBay couldn't do too -- if it believes assimilating other companies' item lists is an effective way to build up scale. Of course, it's worth remembering that eBay has managed to list more than 3 million items (as of today) without diluting its connection to its customers through partnerships like the one in the news today. That its would-be competitors think this is an effective shortcut might be interpreted as a defensive ploy-out rather than an aggressive thrust.

The idea is that MSN, Lycos, and Excite@Home users will become an instant customer base for the new joint project, to be run by a software company called FairMarket. "Rather than forcing a user to go to an auction," FairMarket CEO Scott Randall told ABCNews.com, "we're bringing the auction to where the users are."

That argument is a little Swiss-cheesy. People aren't "forced" to use eBay; they choose it because of its broad selection and easy-to-use interface. Not only that, people are picking eBay often over the auction services offered by top portals like Lycos and Yahoo! that might be their first stop on the Web.

As such, it's not exactly clear that there's an installed user base just waiting to be mined -- despite Amazon.com's insistence that its users were tired of having to visit shopping websites besides its own and were just itching to remove their eBay bookmarks from their browser.

All that said, however, no investor or entrepreneur should ever disregard the importance of the emergence of Microsoft as a competitor. Bill Gates' army assembled a good-sized portion of its war chest by identifying successful business concepts -- frequently pioneered by others -- and then entering the fray armed with its vast array of resources, talented staff, and marketing and distribution muscle.

Recent press reports have Microsoft considering a foray into Priceline.com's (Nasdaq: PCLN) name-your-price business, as well as the video-game console industry currently dominated by Sony (NYSE: SNE) and Nintendo. And the company's moves to horn in on America Online's instant messaging racket made Floyd-sized waves; it's also tackling AOL's Internet access market with cut-price connections.

Today it's the auction business, and while that doesn't mean the end of the world for eBay, it's certainly news.

While the alliance that arises out of this development might eventually present a stern challenge for eBay, investors shouldn't run in fear. This doesn't change the fact that eBay is still the only pure-play online auction site, boasts a huge chunk of the market and seems to battle mostly with itself and its always-popular-with-the-media outages.

The turning point in all of this -- and every business battle -- will still be quality. As a result, this movie is to be continued.

Related Links:
eBay
eBay Message Board
FairMarket Web Page

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