Sunday, April 10, 2005

How to Beat eBay

Alyce Lomax at Motley Fool wrote a bunch of backhanded compliments about eBay and how she missed the boat in the 90's. She avoided eBay expecting it to eventually collapse after the dot com burst. I wouldn't have agreed back then (or now). Unfortunately, I didn't put my money where my mouth was. Now my neighbor drives a new car wearing a plate that reads "4MYEBAY" and I still have no eBay stock.

I still think eBay has a sound business model and I should probably buy the stock even at today's inflated prices and despite the sharp decline in 2005. Their long term outlook always looks excellent due to their powerful network effect. Plenty of other on-line auction options exist including big players like Yahoo and Amazon but they can't catch eBay which has already passed critical mass. If you want to sell something, you will have the best results by listing it on eBay because that's where the most buyers shop. Likewise, you have the best chance to find what you are shopping for on eBay because that's where the most sellers are. As long as that symbiotic relationship exists, eBay will be king (baring them doing anything blatantly stupid). However, I have a few ideas that could turn the tables on that relationship.

The best companies to attack eBay are the firms that make the technologies sitting between the sellers, ebay and the buyers. There are lots of threats that eBay should be worried about. Let's attack the two basic premises.

Buyers Shop eBay Because That's Where the Most Sellers Are

As a shopper, you want the widest selection so you start at the biggest auction site first. Having found what you were looking for, a prudent shopper would then move on to other auction sites looking for an even better deal. Most people don't take that much time. Furthermore, people don't want a dozen different accounts with a dozen different auction sites. It's too much for most people to deal with.

One alternative is the Auction Meta Search Engine. Several of these sites have come and gone. They allow shoppers to simultaneously search all the big auction sites. This seems like a good idea, but it doesn't eliminate the problem of multiple accounts and there's no good revenue stream. Most shoppers won't pay anything to use a meta search engine. Meta search engines also have a huge advertising problem. They need to convince would-be shoppers to start at their homepage rather than eBay's. That's tough. Everyone knows "eBay". Nobody knows your "SuperAuctionSearch.com" site.

Sellers List On eBay Because That's Where the Most Shoppers Are

As a seller you want your advertising to reach the widest possible audience. If you are only selling one item, you can only list on one site. That makes eBay the natural choice. Other auction sites can offer lower fees but it won't matter if you can't move your merchandise. To topple eBay, you need to convince sellers that you have as many shoppers as eBay.

The Evil Plot

Simply hi-jack eBay shoppers without their knowledge. For example, Internet Explorer could be programmed to recognize when the browser sends a search request to ebay.com and then redirect the request to some other search engine (http://auctions.msn.com?). To be very sly, you'd also run the search on eBay and mix the two results. Then you'd offer lower fees to sellers using your auction server and you tell them that anyone using IE (that's about 90% of everyone) will see your listings whenever they try to search eBay.

Result? You'd make it practically unavoidable for would-be eBay shoppers to use your service instead. Actually, the shoppers may not even realize they were using some other service! However, there's still the problem of multiple accounts. Now this isn't so bad because shoppers would only need two accounts (one for you and one for eBay) but it's still one more account.

Prey on Existing Subscribers

The best method of attack is to hi-jack customers that you already have an existing billing relationship with. This makes AOL and MSN the best threat to eBay. For example, AOL has the largest subscriber base of any ISP. They have millions of users by the credit card and they are already billing them every month. AOL also operates their own auction service and (this is key) they provide the browser to every subscriber. They have complete control over the network. AOL could seamlessly mix in their own auction listings with eBay listings and shoppers would be none-the-wiser. Furthermore, when an AOL subscriber purchased an item from a stealth AOL listing, the company could just add the charges on to their monthly bill. It would be even easier then buying from eBay.

AOL then puts the net out for would-be sellers. List your items on AOL and we promise every eBay shopper using AOL will see your ads and we charge half the fees imposed by eBay.

It wouldn't take long for sellers to spot the bargain and start moving to AOL. In fact, AOL could simply hi-jack eBay sellers too. When people start to fill out the "sell-an-item" form on eBay, the AOL browser would also offer them the option of creating an AOL listing at half the cost.

It Will Never Work

This plan is just too insidious for someone like AOL to take-on. There would be a flood of bad press. Then again, who reads the press? I think it would take legal action on the part of eBay to put a stop to it though I don't believe I've proposed anything illegal. AOL can market the whole thing as an enhancement.

The real threat is probably the unscrupulous authors of spyware. These guys could effectively make a Trojan horse that hi-jacked your browser to implement exactly what I've proposed. They don't have existing customer relationships but that might not stop them from trying.

2 comments:

  1. Jason the ColoradanApril 14, 2005 at 9:28 AM

    You won't do as well as your neighbor by buying ebay stock now. It's too high-profile and too big of a company now. You should focus on little known, undervalued small-cap stocks/companies if you want to be like your neighbor. You should know this already if you read articles on The Motley Fool website :)

    Your ideas sound like something Micro$oft would do. Don't give them any ideas, this web page is accessible to the public! :) And please don't tell me you're still using IE, the lamest, most insecure modern web browser in existence. Use Mozilla Firefox or the original Mozilla suite!

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  2. I downloaded Firefox and installed it. This website does not render properly in Firefox. There's some kind of bug with the menu mouse overs and the advertising banner. Firefox Favorites don't sync with my Pocket PC. The FTP client doesn't support drag-n-drop uploads. That's enough, sorry, uninstalling Firefox now.

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