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A State of Bliss at eBay
By Gary Gentile  Fox Market Wire
NEW YORK — People who think of the Internet as the electronic version of the backyard fence should not be surprised at the success of eBay and other online auction sites. After all, when neighbors get together, they gossip, they borrow, they swap and eventually, they buy and sell.

While the rest of America's attention has been focused on the big retail forays into e-commerce (witness the recent hoopla over the Victoria's Secret Web site), eBay and its imitators have been at the center of an online revolution. In the three short years of its existence, eBay has become the second-most visited site on the Web (after Yahoo!) and is a rare bird among Internet companies — one that actually makes money.

But eBay's story is about more than mere commerce. It's the Zen of eBay that accounts for the 1.5 million items for sale and the 600 million page views on its site each month. The great American flea market succeeds not only because people are hungry for bargains or retain some kind of prehistoric need to hunt and gather, but because in a triumph of paradox, it allows isolated individuals, sitting alone in front of their computers, to feel part of a community.

The site was launched in 1995 as an experiment in e-commerce by San Francisco businessman Pierre Omidyar, who was trying to find a market for the Pez candy dispensers collected by his fianc�e. From the beginning, part of eBay's charm has been its na�ve belief in the "kindness of strangers." The company, at least until recently, has run on the honor system, with buyers and sellers participating in a great act of faith as millions of dollars changed hands in the hope that what was ordered would actually arrive in the mail.

That kind of trust has led to inevitable abuses and triggered a series of fraud investigations launched this year by several state attorneys general. The company has reacted by instituting precautions, such as insurance, escrow accounts and access to experts who will authenticate some of the collectibles offered on the site.

While the site evolves toward a more mainstream e-commerce model, its core beats like the heart of a white-haired, aproned grandmother, inviting you in for a piece of hot apple pie. The executives at the company have a word for this touchy-feely vibe — "eBaysian."

"We don't really view this as a business as much as we do a community, and we view these people as part of the extended family," said Steve Westly, vice president of marketing and business development at eBay. "It's something that is inculcated in the marketing department here. If you treat people well, the business part follows. eBaysian means treating people with respect and treating people as if they are honest. Everything we do is fun, friendly and open."

The company has certainly worked its eBaysian magic on the bottom line. From April to December, 1988, traffic on the site increased 209 percent, while traffic on the entire World Wide Web increased by only 5 percent, according to Media Metrix, an Internet tracking firm. More minutes per month are spent on eBay than on America Online, Netscape or MSN, the company reports.

The "stickiness" of eBay's visitors has also made the company highly profitable and sent its stock price into the stratosphere. The company's revenues come from charging sellers a small fee to list items and taking a percentage of the proceeds. Buyers are charged nothing, and the site sells almost no advertising.

All this from the sale of Beanie Babies, comic books and, of course, Pez dispensers.

"An outsider might say this is hokey stuff, but they have really touched a nerve and created a market where there was none before," said Evie Black Dykema, an analyst at Forrester Research. "People are waking up and realizing they are interested in collectibles. People who would have never stopped at a garage sale are spending hours online."

The success of eBay is not only measured in dollars and cents. The fact that more than 200 other auction sites have cropped up in recent years is proof that eBay is on to something big. Even the more traditional auction houses, such as Christie's and Sotheby's, opened Internet sites this year. And the San Francisco auction house of Butterfield & Butterfield recently partnered with Yahoo! and LiveBid.com to run the first-ever live Internet auction.

Last December, Colin Webster decided that if he couldn't beat eBay, he would join them. He opened edeal.com, a site that has the look and feel of eBay with a twist — consumers from around the world can buy and sell in their own currencies, and edeal will handle the conversions.

"We realize eBay has quite a good stranglehold on the person-to-person auction market in North America," Webster said. "But the growth in the market is so big, they can grow at their astronomical rate and so can other companies. We started off with an angle that we would focus on being the international version of eBay. We figured, Australia needs its own eBay. Switzerland needs its own eBay."

The new site also has interactive classified advertising and soon will add several chat bulletin boards to foster the same community feeling found on eBay.

Clearly, eBay is the 800-pound gorilla in the online auction market, an image company officials would probably feel is not "eBaysian." But in a medium that is changing as quickly as the Internet, even gorillas are vulnerable.

Do eBay and its ilk have staying power?

"eBay as a stock is a bit richly valued, but I think it has clearly validated the online auction format and it's a format that, although native to the Internet, is durable," said Steven Horen, a stock analyst at NationsBanc Montgomery Securities.

Company officials say their future lies in not evolving their business model, but in resisting the temptation to fiddle with success.

"eBay is going to continue to do the exact things we do today," said Westly. But he also concedes that eBay will have to expand its offerings in order to remain competitive with sites that will try to increase profits by offering higher-end products for sale. While the majority of eBay's sales are in the $25 to $30 range, some items, such as a Greek urn and a Jaguar automobile, have sold for as high as $22,000.

"Our users have a high appetite for higher-end items," Westly said. "As we note these trends, we will provide people the tools to buy there. But we don't come out and say 'Here's where we are going.' We let them tell us."

eBay has already expanded abroad, offering Wayne Gretsky memorabilia in Canada and Spice Girls dolls in Great Britain. But it remains to be seen if the company will lose its loyal user base if it roams too far from its tchotchke-based beginnings. What is more likely is not that one site will meet all needs, but that a dozen or so sites will eventually survive, each appealing to one segment of a vast marketplace.

"Ultimately we're going to see a lot of eBays going forward, and it will be rounded out by a bunch of niche players, building communities around a base, such as sporting goods or computers," said Forester's Dykema. "eBay will win the prize for breadth, but not in terms of depth in the long term."

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