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Sittin’ on the Dock of eBay

The new-economy giant generates nearly $500 million in revenues, yet eBay doesn't manufacture a thing, hold inventory, move goods, or transfer payment. The 15 million or so registered users do most of the legwork.

In May, online giant Amazon.com reported it had increased the number of items listed for auction or fixed-price bid to 2 million, or about half of what eBay lists. And last year, Dell Computer, Microsoft, and more than 100 other companies announced they had linked their Web sites — along with their 46 million users — to a new auction platform run by FairMarket, a builder of online auction sites. “To eBay has become a verb now,” says Vernon Keenan, Internet analyst at Keenan Vision Inc., a market research firm.

Even old-economy stalwarts like JCPenney have aped the online auction house. “I’ve counted literally thousands of mini eBays, companies replicating eBay in part or in full,” says Keenan. “They all want to be the eBay of their industries.”

The secret to eBay’s remarkable success, however, goes beyond a brilliant business model. Bengier and eBay CEO Meg Whitman, a former Disney and Hasbro marketing executive, have consistently plowed revenues back into the company, investing in core acquisitions around the world. Management has also restructured the company along product category lines to obtain more marketing focus. Further, the company’s legal staff has not exactly been shy about going after intellectual property trespassers.

More important, eBay has been able to assemble a true Internet community — a feat that’s eluded even the best-backed dotcoms. “That critical mass of users drives a virtuous cycle of accelerating growth,” explains Noto. “The more sellers on the site, the greater the selection of goods for sale, which attracts more buyers. More buyers result in higher prices for goods transacted, which then attract more sellers.”

This virtuous cycle, propelled by unswerving brand loyalty, is the Holy Grail of ecommerce. Noto says simply: “eBay’s network effect creates a barrier to entry that is very hard for competitors to break.”

Hence, the Earlier Pez Reference

The origin of that network is the stuff of legend. In 1995, the founder and current chairman Pierre Omidyar’s wife, an avid collector of — yes — Pez dispensers, bemoaned the difficulty of finding other collectors to trade with. The complaint got Omidyar thinking, and he soon seized upon the simple notion of an Internet auction site for consumers. After writing some software code at home, he introduced the online world to what was then called AuctionWeb.com.

Shortly thereafter, an outside consulting firm concocted a simpler, more-elegant brand name: eBay. Benchmark Capital kicked in $6.5 million to fund eBay’s build- out (an investment now said to be worth some $4 billion). Following the IPO in 1998, the company’s fortunes simply skyrocketed. Omidyar’s initial idea — an online consumer trading community — was spot on. Users couldn’t get enough of eBay.

And they still can’t. For many consumers, eBay is practically an addiction. “eBay has one of the most powerful brands in business today,” offers branding guru Duane Knapp, author of The Brand Mindset (McGraw-Hill, 1999) and the executive director of FutureBrand, a New York-based brand consultancy. “eBay is as closely aligned to the process of online trading as Kleenex is to blowing one’s nose.”

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