RealTime IT News

eBay At a Crossroads

If I were any of eBay's competitors, I'd dump as much money as I could into a marketing blitz right now. RIGHT NOW. Because the champ's knees are wobbly.

The ongoing outage disaster at eBay's online auction site that began last Wednesday and spilled into Sunday could permanently cost the company thousands of customers, millions of dollars in potential revenue and a large chunk of its stock's value.

eBay is vulnerable, its failing technology essentially begging rival online auction sites to take away some of the company's reported 86% market share. And within the herd of customers and investors that ultimately will determine the company's fate, panic is detectable.

The site went down for about six hours from Wednesday night into early Thursday morning. It crashed again Thursday night and hasn't been right since, limping into the weekend at half-strength. On Sunday morning, customers were unable to access the site.

This prolonged problem followed separate outages on May 3, May 20 and May 30, each of which lasted several hours.

Now, you can get away with a service outage once, or even once in awhile, especially if you keep your customers well-informed, which eBay does. But when outages become routine, when they literally can happen at any time, that's when customers begin to abandon ship.

So do investors, as proven by eBay's stock performance in the past week. Following Wednesday's site downtime, EBAY shares fell just 31 cents to close Thursday at $182.69.

Once it became clear, though, that the most recent outage woes were not fleeting, eBay's stock price plunged to $165.88 by market close on Friday. Shares fell even further Monday morning, and were trading at $144.25 shortly after 1 p.m. That's a 21% drop since Thursday's close.

For the record, eBay blames the problems on faulty CGI database servers. Web auction customers, however, really don't care why they can't bid online. They only care about where they can bid online, and if it's not going to be at eBay, it will be somewhere else.

eBay executives moved quickly Friday to prevent a stampede, posting an apologetic note on its Web site and offering refunds on seller fees for all auctions held Thursday and Friday. They also began finger-pointing at software vendors such as Sun Microsystems, a sign that the situation is not yet under control.

To be sure, eBay can recover from its latest travails. Its huge market share gives it a cushion, as does its brand awareness. But brand awareness is not the same as brand loyalty. Awareness comes from marketing; loyalty stems from quality service.

eBay now faces perhaps its biggest challenge yet. It must assure increasingly skeptical customers and investors that it can deliver quality services reliably. If it fails to do so, the market will punish it severely.

ALL NEW! internet.com's HotWatch a monthly e-mail subscription for $99, featuring Internet Stock Report's Steve Harmon, and his top 10 noteworthy Internet stocks for the month. Each month you will receive in-depth analysis on the top 10 Internet stocks to watch with the information you need to assess the fast-paced nature of Internet stocks. Staying on top of market changes in the Internet Stock market is what counts. For $99 per year, you receive 12 timely issues sent to you by e-mail. Don't wait, our next issue will be out before you know it with a whole new perspective on the market. Sign up today at: e-newsletters