AOL, eBay Alliance a Win-Win Deal

In the world of Internet alliances, Tuesday brought a pretty good one.

The launching Tuesday of a co-branded site by America Online (AOL) and Web
auction leader eBay (EBAY) is a great example of how two powerful companies
benefit each other by combining their respective strengths in a seamless

The main benefit of the deal for eBay is it eliminates what I believe
would be the company’s most serious competitor. With more than 18
million registered users, AOL would have a formidable customer base for
its own online auctions.

Instead, eBay now has an inside track on AOL’s rapidly growing number of
subscribers, giving it an even bigger edge over Yahoo!, and
the hundreds of other auction sites trying to eat away at eBay’s market
share, estimated to be at least 70%.

It’s an uphill struggle for these companies, however, for eBay’s site
dwarfs all others in terms of traffic. If you’re a buyer or seller, you
want to be where the action is. And if you’re talking online auctions,
the action is at eBay, where as of Tuesday you could find nearly 2.6
million items listed for sale in 1,628 categories. Even the biggest eBay
malcontents, after trying inferior sites, usually concede that the grass
is not greener.

For America Online, the marketing agreement gives subscribers access to
the dominant online auction site, but with AOL’s “look and feel.” It
also should give AOL a piece of the online consumer auction market –
estimated by research firm Gomez Advisors to reach $15.5 billion by
2001 – though the two companies mentioned nothing about that in
announcing the deal. AOL will promote the co-branded site on several of
its channels.

The only potential complication here is eBay’s questionable capacity to
handle more traffic. The online auction site has experienced a series of
outages through the summer, forcing it to hire a Gateway technical
executive early this month to fix the problem.

If there are any difficulties, I expect them to be short-term. Overall,
the agreement announced Tuesday is good news for investors of both companies.

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