eBay Move To Solve Outage Woes Paying Off So Far

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.

If eBay shares get this kind of pop out of Webb’s hiring, imagine what
might happen if he’s actually successful in halting the troublesome
network failures. Maybe EBAY shares wouldn’t again attain the $200 mark
topped in late April, but the stock would be well-positioned to gain
back much of value it has lost over the past three months.

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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