To extend its own market, eBay has completed a handful of deals. In March, the company agreed to work with AutoTrader.com, the world's largest used-car marketplace, to create eBay Motors, a co-branded automotive auction site. Then, in August, the online auctioneer formed a strategic relationship with zipRealty.com, an online real estate brokerage, to launch a new category, eBay Real Estate.
And in July, the company acquired Half.com Inc. in a stock purchase deal. Half.com offers buyers and sellers the chance to trade in four commodity product categories: used books, CDs, movies, and video games. Items at the site are sold at fixed prices typically half off the list price. "A John Grisham book is a perfect example of what would sell well on our site but not necessarily on eBay," says Josh Kopelman, founder and president of Half.com. "There are millions in print, they're not rare, and it's doubtful that owners will want to read them a second time."
Of course, for longtime members, fixed-price and B2B auctions may seem as un-eBay as a six- figure reserve. But Bengier argues eBay was never intended to be just an auction site. Rather, he says the site was designed to be a dynamic-pricing trading platform, where different products in different categories are sold via different means.
Smells Like Team Spirit
To reach their ambitious revenue targets, eBay managers will need to wring cash from various sources. Eventually, the company may embrace a more typical ecommerce approach to growth — acquiring some competitors, partnering with others. But Bengier isn't real likely to abandon the eBay way. "My role," he says straight out, "is to keep everyone on the surfboard."
So far, eBay has ridden the new-economy wave for all it's worth. "Unbelievable as it seems, the company has found a way to harness consumer spending in an assetless environment," raves Noto of Goldman Sachs. "To pull this off elsewhere would be pure nirvana."
Sort of like reaching the top of the Matterhorn (the mountain, not the ride). "I've been in technology for 19 years," says Bengier, "and I've never seen a business model as simple or as elegant as this one." He pauses, as if recalling nearly two decades in the high-tech hothouse that is Silicon Valley. "How many companies can say their business model is characterized by the things they don't have to do?"
Russ Banham is a contributing editor at eCFO.
The eBay eFfect
Why are traditional retailers like JCPenney and The Sharper Image now selling merchandise in virtual auctions? Call it the eBay effect "When you look at the customer-stickiness of a site like eBay — the number of minutes these shoppers spend online" — says Richard Last, executive vice president of JCPenney.com, "you just know something extraordinary is going down."
Extraordinary indeed. The success of eBay has scores of click-and-mortar operators launching online bidding sites. Overall, online business-to- consumer auction revenues will increase by a compound annual growth rate of 41 percent over the next four years, according to a forecast by ecommerce research firm Jupiter Research. If correct, revenues from B2C auction sites will top $4.5 billion by 2004.
In the case of The Sharper Image, the company CEO championed an auction format after looking at eBay's site. "Our CEO, Richard Thalheimer, is the consummate shopper," says Kathryn Grant, Internet strategist at San Francisco-based retailer Sharper Image Corp. "He saw eBay's model and realized there was an opportunity for us. He knew we'd generate excitement for our customers if we had an auction site."
Sharper Image launched its auction site in March 1999. "We looked at eBay and realized this was a great way to move inventory," notes Grant. Sharper Image has one advantage over some retailers: The company operates a full-fledged catalog division and more than 80 stores worldwide. Thus, order fulfillment is not an issue. "We haven't broken out the numbers yet," says Grant, "but the sales are successful enough that we're considering enhancements."
Executives at JCPenney.com have broken out the numbers. The online operator expects to generate some $300 million in revenues from its dynamically priced Internet business this year — nearly a threefold increase from 1999. Like Sharper Image.com, the site features catalog overstock merchandise. "We see auctions tying into our three- channel strategy for distribution stores, catalog, and the Internet," says JCPenney's Last.
JCPenney.com also offers a fixed-price clearance model. Last points out that some goods — such as electronics — sell well in an auction environment. Items like clothing, however, are better suited to a fixed- price or falling-price format. "Many people may bid on a portable computer," he explains, "but not a lot are going to bid on a size-8 dress in fuchsia." —R.B.
Best Practices: The eBay Way
• Invest idle cash in technology.
• Outlast rivals, then acquire them on the cheap — particularly if they expand your product line.
• If customers like your product, focus on customer service.
• Litigate, litigate, litigate. Defend your brand as you would home and country.
• Organize around individual business units. Let each division run its own show — but insist on profits.
• Minimize bells and whistles on the Web site. A simple home page is a fast home page. And fast is good.
• Measure, monitor, and benchmark. Then do some more.
• Build brand loyalty by developing a user community.
• Get out of the way. Let customers do the heavy lifting
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