IBM, which will provide eBay with the software that will make its site run, also plans to step up sales efforts using the auction giant as a channel. The deal provides another example of eBay's strategy to add more big-ticket items and boost average selling prices, as it has courted business from corporations as well as government agencies.

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By Rex Moore (TMF Orangeblood)
September 6, 2001

IBM (NYSE: IBM) and eBay (Nasdaq: EBAY) announced an alliance this morning (yes, yes... a strategic alliance) whereby eBay will use IBM software to upgrade its platform to next-generation technology, and IBM will "significantly" expand its presence on eBay to sell more products on the company's site. The deal is a shot in the arm for IBM, and yet another example of eBay's strategy of catering to big businesses on its auction site.

With this deal, the unmistakable sea change in eBay's revenue stream continues. Although many still see the company as a quaint little site to buy and sell collectibles, management says the majority of its revenue comes from non-collectible items, called "practicals." Big businesses are fueling a lot of the growth in the practicals category, which executives say is growing more quickly than its traditional business.

IBM joins a list of official partners that include Sun Microsystems (Nasdaq: SUNW), networking equipment maker D-Link, and Compaq (NYSE: CPQ). Various state, local, and federal governmental agencies also regularly utilize the service not only to liquidate excess inventory and equipment, but also to conduct normal sales to business and consumers.

The U.S. Post Office, for example, is auctioning over 8,000 items at this very moment under various names, items that could not be delivered for one reason or another. When I last checked in late April, the Post Office had only 620 items listed.

Beyond selling products, the agreement also calls for eBay to change from proprietary software to IBM's WebSphere product over the next 16 months. WebSphere will be able to handle the billions of daily transactions that flow through eBay's site, important since performance and "up time" have been two frequent sore spots for investors and users as the company has grown.

And IBM is happy to step up its sales presence on eBay: Executives said in a conference call today that they saw "explosive growth" of servers and PCs sold on eBay during a recent trial period. What's more, 70% of their eBay customers were buyers who had never done business with IBM before.

These higher-ticket items are helping boost average selling prices, eBay CFO Rajiv Dutta told me a few weeks ago. As growth in the collectibles category levels off, the ability to widen the company's revenue stream is an important factor.

Rex Moore is tired of the word "strategic." At press time, he owned shares of eBay and Microsoft. The Motley Fool has a disclosure policy.

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