eBay Move To Solve Outage Woes Paying Off So Far
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Online auction leader eBay Inc. has seen its stock surge in the week since the company announced the hiring of Gateway Inc. top Internet technologist to help reduce the number of service outages that have acted as a drag on share prices.
(EBAY) closed at $79.63 last Monday, the day Gateway CIO Maynard Webb was named to lead eBay's technology team in its efforts to eliminate the kind of costly, brand-eroding computer malfunctions that have angered customers and worried investors through the spring and summer.
On Friday, shares closed at $98, a 23% gain in four days. The run-up continued through noon Monday, with eBay trading at $106 after reaching as high as $109.38.
While the rest of the market also fared better last week -- the ISDEX has gained ground four straight days - eBay's particularly strong performance indicates that the company's move has allayed investor fears that the outages could cost the Internet auction giant revenues and market share.
Many analysts, including myself, have warned that eBay's recurring outage problems threatened to give competitors a golden opportunity to steal customers. Indeed, after a June outage that cost the company almost $4 million in Q2 revenue, I wrote, "eBay is vulnerable, its failing technology essentially begging rival online auction sites to take away some of the company's reported 86% market share."
But the exact opposite has happened. The number of registered users on eBay's huge site increased 46% -- from 3.8 million to 5.6 million -- in the second quarter, the very time frame when the auctioneer's network woes were becoming national news.
Are eBay customers masochistic or merely loyal? Neither. They are making a rational market decision, for they know that their best chance by far to successfully buy and sell auctioned items online is on the eBay site.
All you have to do is compare eBay's site to any other online auctioneer's to see what I'm talking about. Try them out by searching for items on the various sites. The breadth and volume of merchandise available on eBay is staggering when compared to anyone else, and it's no mystery why the company has a market share of anywhere between 70% and 86%, depending on the survey.
This dominance is buying eBay precious time to solve its technical challenges. If the company is able to capitalize on its grace period and render routine outages a memory, it will continue to dominate the online auction industry, which is forecast by Gomez Associates to grow from$1.57 billion in 1998 to $15.5 billion in 2001.
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