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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.

The single-minded pursuit of black ink is leading Bengier and eBay to seek out new sources of revenue. The bulk of the company’s revenue comes from straight fees. eBay charges a listing fee of from 25 cents to $2, based on the merchandise value, and an additional success fee of from 1.25 percent to 5 percent if an item is sold. Obviously, the more valuable the merchandise, the greater eBay’s take.

Although personal buyers and sellers make up the majority of eBay users, small-business sales on the site are increasing substantially. The company estimates that 50,000 to 100,000 sole proprietors make their primary living hawking items on eBay. “Some of them had storefronts, some sold through small catalogs,” says Jeffrey Jordan, eBay senior vice president and general manager (U.S.). “Others were just collectors who realized they had the makings of a nice small business.”

Not surprisingly, the advent of these so-called “power sellers” has given rise to something of a cottage industry. In the past two years or so, a slew of vendors have begun selling auction organization and sales management software, as well as auction-oriented insurance and escrow services. Eager to grow the small-business segment, eBay management allows these vendors to advertise on the eBay site.

Fact is, transaction-related vendors are practically the only advertisers allowed on the home page. Remarkably, eBay does not run the typical banner ads that front so many portals, arguing that such come-ons are an intrusion upon the community’s good graces. “For the time being, we believe advertising should be synergistic, focused around aiding the transactional process,” explains Bengier. A clever strategy, May contends. “They’re providing a service to their users and deriving an incremental flow of money at the same time,” he says. “Instead of festooning their site with banner ads that most people ignore anyway, they’re using advertising as an enhancement to their core selling proposition.”

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Ironically, that very proposition — Omidyar’s original vision of a dynamic consumer-to-consumer auction — has seen a considerable reworking of late. Keen to expand its user base, eBay now operates a virtual trading floor, where small businesses can bid on new, used, and refurbished office equipment. Dubbed the Business Exchange, it’s the company’s first foray into the burgeoning B2B marketplace, estimated by IT research firm Gartner to reach nearly $4 trillion in sales by 2003.

Moreover, eBay has begun conducting fixed-price sales. In fact, a number of large companies now sell commodity items at fixed prices on eBay, using the site as a distribution channel. Sun Microsystems, for instance, uses eBay to sell its refurbished computers, some valued in excess of $100,000. At first blush, peddling an UltraSPARC IIi server on a site that also traffics in doilies would seem a stretch. But the numbers say otherwise. “Sun’s internal statistics indicate that 45 percent of people buying their products on our site are new customers,” Bengier points out. “That’s clear proof that our channel is extending their market.”

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