Profits may be new for Amazon, but eBay has had them from the
start
There is something faintly absurd about the milestone status
accorded to Amazon.com's
first profits. That something so ordinary in business
terms can become so extraordinary indicates
how necessary the recent e-commerce shakeout really was.
What makes the situation particularly odd is that another dotcom
has been happily churning out profits more or less from day one,
and yet it has received disproportionately little attention.
The
latest
earnings figures for eBay are, as usual, good and getting
better, but have occasioned little in the way of comment. Even more
impressive is the fact that eBay's share price has resolutely
defied the
dotcom downturn. Such an across-the-board success cries
out for an explanation.
The origins of eBay offer one clue. Unfortunately, the best place
to start, a page explaining the improbable beginnings of eBay in
the Pez candy dispenser collecting habits of the founder's
girlfriend, is no longer to be found on the eBay site. Perhaps the
suits now running the company think it a little unbecoming.
Fortunately, the Internet Archive lets us savour the
details.
It is clear from this that eBay has always fed off the enthusiasms
- some would say obsessions - of its users. One immediate advantage
of this is the natural way in which communities of users form based
around their common interests.
It also brings into play a lucrative process of natural selection,
whereby it is the most determined users that tend to turn to eBay
most. This, in turn, means that they are likely to bid more
fiercely against rivals when they find what they are looking
for.
Here is a case where being the first mover really did confer an
advantage. As word got out through collector networks that eBay was
a good place to look for obscure items, so sellers were also
attracted by this growing pool of buyers, which fed the virtuous
circle yet further. Later auction sites have only flourished to the
extent that they have been able to offer specialised services or
benefits not otherwise available on eBay.
With a user base that tends to grow itself, the company has been
shrewd in capitalising on that asset in other ways, notably
fixed-price sales.
More recently, it has also been successful in selling this audience
to major retailers, in what amounts to a new kind of
auction-flavoured Web advertising. Here click-throughs lead to
sales in a natural fashion through continuity with the surrounding
pages, rather than turning into a distracting sideways move away
from the main page, as is the case with conventional banner
ads.
Two good examples in the field of computers are offered by
IBM and
Sun, both of which now routinely sell computers to the
eBay membership from the eBay site.
The reason that all of these different approaches contribute
royally to eBay's bottom line is that its fundamental business
model is to act as a mediator between parties - and to take a
percentage of the sales. This must be the dream of all online
companies, since it frees eBay from worrying about the details, and
lets it concentrate on maximising its membership base and the
overall use that it makes of the site.
In a way, though, the reason eBay is so successful is because it
offers something quite amazing:
a genuine interface between the Internet and everyday life. It
allows anyone on the Internet to search not Web pages, as Yahoo or
Google do, but through the physical world for objects rather than
information. This achievement, the company's great secret, is
perhaps the main reason why eBay is a truly special dotcom - and
unfailingly profitable.
Next week: Safari