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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 the case of The Sharper Image, the company CEO championed an auction format after looking at eBay’s site. “Our CEO, Richard Thalheimer, is the consummate shopper,” says Kathryn Grant, Internet strategist at San Francisco-based retailer Sharper Image Corp. “He saw eBay’s model and realized there was an opportunity for us. He knew we’d generate excitement for our customers if we had an auction site.”

Sharper Image launched its auction site in March 1999. “We looked at eBay and realized this was a great way to move inventory,” notes Grant. Sharper Image has one advantage over some retailers: The company operates a full-fledged catalog division and more than 80 stores worldwide. Thus, order fulfillment is not an issue. “We haven’t broken out the numbers yet,” says Grant, “but the sales are successful enough that we’re considering enhancements.”

Executives at JCPenney.com have broken out the numbers. The online operator expects to generate some $300 million in revenues from its dynamically priced Internet business this year — nearly a threefold increase from 1999. Like Sharper Image.com, the site features catalog overstock merchandise. “We see auctions tying into our three- channel strategy for distribution stores, catalog, and the Internet,” says JCPenney’s Last.

JCPenney.com also offers a fixed-price clearance model. Last points out that some goods — such as electronics — sell well in an auction environment. Items like clothing, however, are better suited to a fixed- price or falling-price format. “Many people may bid on a portable computer,” he explains, “but not a lot are going to bid on a size-8 dress in fuchsia.” —R.B.

Best Practices: The eBay Way

• Invest idle cash in technology.

• Outlast rivals, then acquire them on the cheap — particularly if they expand your product line.

• If customers like your product, focus on customer service.

• Litigate, litigate, litigate. Defend your brand as you would home and country.

• Organize around individual business units. Let each division run its own show — but insist on profits.

• Minimize bells and whistles on the Web site. A simple home page is a fast home page. And fast is good.

• Measure, monitor, and benchmark. Then do some more.

• Build brand loyalty by developing a user community.

• Get out of the way. Let customers do the heavy lifting

Ixnay on the eBay?

While eBay continues to rack up impressive user numbers, critics charge that some eBay members may need to check themselves into a 12-step program.

Dr. Kimberly Young is one such critic. Young, a clinical psychologist and director of the Center for On-Line Addiction, a behavioral healthcare practice in Bradford, Pennsylvania, says eBay sucks users in, then makes suckers out of them. “Lots of times, users end up buying junk,” she says. “But they don’t care because they’re thrilled they won something.”

By Young’s lights, eBay’s auction format gives shoppers something other Web sites don’t supply: a little action. “eBay is not Gap.com, where you go online and buy things you could otherwise buy in its stores,” she explains. “It’s this place where you bid like a gambler in a very nonthreatening environment, often on stuff you don’t need. The thrill of victory is a powerful intoxicant.”

Young believes eBay is a compulsion that, in some cases, may require treatment. Not all experts agree, however. Dr. Sheila Blume, a clinical professor of psychiatry at the State University of New York, Stony Brook, says the term addiction does not apply to online shopping. Explains Blume: “What we know about addiction from a physiological point of view and solid, scientific knowledge indicates that drugs, alcohol, tobacco — and not much else — are truly addictive.”

But what about the notion that eBay’s auction format is akin to gambling — and therefore potentially addicting? “There has been one behavioral addiction study I know of involving pathological gambling, which posits that the people who get hooked on it apparently achieve a high similar to the elevated feelings of a cocaine addict,” says Blume. “It might be true, but we can’t be sure until more neurophysical studies are conducted.”

For now, if baby needs a new pair of shoes, there’s always eBay. Even Young concedes: “The company has hit upon a very powerful way to separate people from their wallets.” —R.B.

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