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 [email protected] . 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.

News Around the Web