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.

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