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Tue, May 30, 2000
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Not All Netizens Are So Nice
By Gary Gentile  Fox Market Wire
NEW YORK — Like everything that is too good to be true, eBay's stellar story is tinged with suggestions of fraud and concerns about security.

The New York City Department of Consumer Affairs is looking into charges that some disreputable sports memorabilia dealers have sold supposedly one-of-a-kind items to more than one buyer. eBay has maintained it is a neutral party in the transactions that occur on its site. But Consumer Affairs is currently holding the view that eBay itself can be charged with fraud and should not be seen as an innocent middleman because it collects a commission on the sales.

The company has run on the honor system since its inception in 1995, using a system of feedback to identify reputable buyers and sellers. That system, part of eBay's charm, may have to change as the auction site becomes more popular.

"What makes markets work is a trust contract between buyers and sellers that involves known identities and reputations, and that's tougher in an online environment," said Steven Johnson, co-director for Andersen Consulting's eCommerce program. "I think eBay has tried to exemplify a flea market business ethic applied to the net."

eBay has taken the investigations seriously and has increased security, including offering an escrow program, insurance underwritten by Lloyds of London and an optional authentication service.

"We have a zero tolerance for fraud," said Steve Westly, vice president of marketing and business development at eBay.

The company has also beefed up its "safe harbor" program and is clamping down on people who frequently change their e-mail addresses to avoid detection.

The explosion of online auction sites has also led to an explosion of business for companies that provide Internet security services. The California firm of iEscrow saw its business double from November to December of last year and is expecting even more growth in the months to come.

The company provides a third-party escrow service for eCommerce sites. Here's how it works: a successful bidder sends his money to iEscrow, which holds it in a trust account. The seller ships his item to the seller, who can have it examined or appraised. When the buyer is satisfied, the money is released. The service is paid for by the buyer, who adds 5 percent to the purchase price.

"Today, we estimate there are 5 million candidate transactions happening every month, and this is growing about 15-20 percent each month," said Sanjay Bajaj, vice president of marketing and business development. "We act as a trusted third-party intermediary for transactions between strangers on the internet."

Bajaj said that buyers spending as little as $10 and as much as $10,000 for items have used his services. While most of the items on consumer-to-consumer auction sites sell for less than $100, items sold on sites hosted by companies like Christie's can sell for much more.

While eBay has generated strong feelings from those who love it, it has also sparked strong opposition from those who see the online auction model as a feast for thieves.

"You know what sucks? eBay sucks," said David Lawrence, the host of Online Tonight, a syndicated radio show. "They're trying hard to get better. But for the longest time, eBay was so enamored of its IPO and its money, they had an attitude that was pretty haughty.

"They are trying to cast themselves as publishers, but they're not. They are facilitators. They are no less responsible for those transactions than Christie's and Sotheby's would be for a multi-million dollar transaction."

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