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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.

Don’t Touch the Merchandise

If eBay has deftly limited much of its enterprise risk, observers say the company has done an even better job defending its intellectual turf. When it comes to copyright infringement, eBay protects its brand like a pit bull with a porterhouse.

Two recent lawsuits exemplify the company’s dogged determination. In July, ReverseAuction.com agreed to pay $1.2 million to settle a suit brought by eBay. Apparently, ReverseAuction had used softbots — software robots — to harvest hundreds of thousands of email addresses off eBay’s site. “The company demonstrated a blatant disregard for the privacy of our community,” Bengier claims. eBay sued on several grounds, including a California anti- spamming statute, as well as a legal theory in intellectual property law that specifically prohibits robotic harvesting.

The second suit was filed this year against a company called BiddersEdge.com. Basically, the company assembled a multi-auction comparison service that allowed users to skip eBay’s site to do a search of available items. Visitors to the site could enter an item — say, a Jimi Hendrix autograph — and BiddersEdge would pull up listings from a variety of auction sites in a commingled fashion.

Bengier and CEO Whitman were not pleased. “Their revenue model was advertisements over what were, in effect, our listings,” claims Bengier. In June, the U.S. District Court in San Jose granted an injunction in eBay’s favor. Alleges Monahan: “They were free-riding, so we took them to court on a variety of legal theories, including robotic trespassing.” The case is currently on appeal in the ninth circuit.

Beyond suing auction aggregators, eBay management strictly enforces the company’s licensing agreement. Even smalltime operators sometimes feel the wrath of eBay. In October, the trading site reportedly pulled the plug on 127 auctions for BeesKnees, a home-based seller of collectible china. In a published report, an eBay spokeswoman claimed BeesKnees had linked its items to rival auction sites — a violation of eBay’s policy.

In addition, eBay routinely intervenes to curb misuse of its brand name. Some ecommerce operators insert “eBay” into their own sites or their company names. Others knock off the catchy, multicolored look and feel of eBay’s logo. Often, managers at the offending dotcoms remain blissfully unaware that they have infringed upon eBay’s trademark or copyright. “In these cases, sending a ‘cease and desist’ letter or just having legal call directly does the trick,” says Monahan.

When threats don’t cow offenders, eBay ups the ante. “We follow through on every incursion, no matter how small or seemingly irrelevant,” notes the company CFO. “We don’t want a reputation as a paper tiger.”

And Yet More Animals

If eBay’s fierce defense of its turf has repelled poachers, Bengier’s policing of the balance sheet has kept the vultures away. At the end of September, consolidated assets totaled $1.1 billion — and $766 million of that was in cash and other financial instruments. The company’s gross profit margin is now almost 80 percent — miles ahead of other dotcoms. The gross margin at Amazon.com, for instance, is around 26 percent. “Gary is always focused on profitability and returns,” says Noto of Goldman Sachs. “In the Internet world of riches and exuberance, he has a philosophy of making sure eBay is profitable, first and foremost.”


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