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Auction Cartel Can't Slay eBay

Last quarter, online auction giant eBay saw registered users nearly triple to 15.8 million from Q2 '99, while hosted auctions rose 113% to 62.5 million and revenues climbed 97% doubled to $97.4 million.

Last week, online auction technology provider FairMarket announced that founder, president and CEO Scott Randall will step down, to be replaced by a long-time Lotus executive. The news comes a month after FairMarket posted revenues of $3 million and a net loss of $9.5 million in the second quarter.

The above information should give you a pretty good idea of how successful a combined auction service organized last September by FairMarket and a cartel of nearly 100 Web sites has been in challenging the supremacy of eBay. (See Time to Light the Torches.)

The FairMarket Auction Network was designed to provide synergy between the auction services of major Web destinations such as Microsoft's MSN, Lycos , Dell Computer, Ticketmaster-CitySearch and Excite@Home . The plan was simple: By combining traffic from dozens of sites, the network would attract enough sellers and bidders to cut into eBay's 70%-plus share of the online auction market. And at the center of it all, providing the technology and managing the network, would be FairMarket.

When the alliance was announced last September, it triggered an over-reaction among investors, causing eBay's stock to drop 10% in two days.

Back then, I wrote that the "trick for the insurgents will be execution. Holding a press conference is one thing. Making an auction network attractive enough to tame the eBay monster is something entirely different."

The FairMarket network, at least so far, has failed dismally in building an auction bazaar that is remotely able to compete with eBay. A look at the number of listings provided by each auction service for just about any item tells the story.

Let's say you're a guitarist looking for a deal on a Fender Stratocaster. Do a search on those words on eBay, and you get 225 items. An identical search on the FairMarket network yields no listings.

Suppose you want to buy a dehumidifier. On Monday, I found 24 for sale on eBay. On the FairMarket network, there were none.

If you're a collector of Michael Jordan memorabilia, an eBay search on that name turns up 4,431 items. The same search on FairMarket turns up 254 items.

For both buyers and sellers - the only people who really count in an auction network - the difference between eBay and the FairMarket network is like the difference between a mega-mall and some neighborhood yard sale.

That's why I've always considered eBay's dominant market position to be virtually unassailable. A handful of complainers may whine about outages on the eBay site, but serious buyers and sellers simply aren't going to look anywhere else because it's against their best interests.

None of this meant to suggest that the failure of the auction network to gain traction led directly to Randall's departure as CEO. More likely it was the company's growing losses and its flatlining stock. Since gaining 185% to close at $48.50 in its first day of trading on March 14, FAIM shares plunged 92% through August and are now struggling to stay above $4.

Still, there's no doubt that FairMarket and its investors expected more of the auction network. Their confidence, however, was misplaced.



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