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Where would you find a velvet Elvis painting and lava lamp to decorate your pad? Try eBay. Or Times Mirror's Auction Universe. And there's Yahoo and Excite. In a year or so, you might even want to check out Sotheby's.
Therein lies the problem for eBay, a consumer auction site that will start trading shares publicly as early as Thursday. Investors are watching its initial public offering closely because its business is thriving. The San Jose, California, company has attracted 1 million registered customers. In the first six months of 1998, revenue more than doubled to US$14.9 million.
And eBay is one of the few Internet companies to actually make a profit. In 1997, it made $874,000 on revenue of $5.74 million.
But literally hundreds of companies are jumping into the online auction fray. Conceivably, every newspaper site on the Web, every Internet directory, every music and video retailer -- even every personal homepage -- could become a competitor to eBay. The only thing eBay has going for it is its name, a rather tenuous asset, industry executives said.
"There will be so many auctions on the Internet, they won't [all] be able to sustain their existence," said Craig Froelich, senior technology consultant for Webvision, maker of auction-building software for Fortune 1000 companies.
EBay's 1995 launch gives it a big head start for now. The trick is to use the proceeds from its IPO to build a brand as unassailable as that of Yahoo and AOL.
EBay plans to sell 3.5 million shares at about $15 each, or about $55 million total. The shares likely will be priced Wednesday and will begin trading as early as Thursday. Led by Goldman, Sachs, the offering is expected to do well even in this volatile market.
Looking for opium bottles?
Picture eBay's business as a giant flea market with a mix of standard garage-sale fare and genuine antiques. Any eBay visitor can browse among more than 600,000 items for sale, many of which are unique or otherwise hard to find, organized across 1,085 product categories.
Sellers register their items by paying a fee from 25 cents to $50, depending on placement. The site then solicits bids for an item starting with a seller-specified minimum bid. At the end of the auction period, usually about a week, eBay notifies the highest bidder and the seller via email, and the buyer and seller consummate the transaction on their own. With a deal closed, eBay charges the seller a commission from 1.25 percent to 5 percent of the closing price.
Like traditional auctions, the action can get furious. It's so addictive, in fact, that spectators often become compulsive buyers.
"When I first went on there, I went a little crazy," said Mark Faigenbaum, 39, a San Francisco-based artist and eBay fan. He used eBay to find Yoko Ono albums and antique opium pharmaceutical bottles. He would search for about two hours a day at one point, and said he would often "pay a lot of money for stuff I really don't need."
Consumer online auctions like eBay will move about $500 million in merchandise this year alone, said Vernon Keenan, principle analyst at Keenan Vision in San Francisco. By 2000, the amount will surge to $8 billion a year.
No wonder the business is attracting so many contenders.
Here comes Sotheby's
Earlier this month, Internet king Yahoo (YHOO) turned to eBay rival OnSale for technology to set up a Yahoo-branded auction section.
No. 2 Internet directory Excite's 3-month-old service combs its auctions and its Classifieds2000 listings for items. And Times Mirror, one of the country's biggest newspaper publishers, launched its Auction Universe site in January, which has ties with papers like the Los Angeles Times.
Even Sotheby's, the most prestigious real-world auction house, is getting into the game.
"The eBay model is not for Sotheby's," sniffed David Redden, executive vice president of the London-based auction house. "Sotheby's reputation is based on the ability to provide expertise and some level of qualification for the property that comes through us."
Sotheby's so far has held one online auction of original manuscripts and first edition books �- one manuscript fetched $30,000. There will be more, Redden said.
Survival strategy
What's more, companies like Webvision are developing software that could power mini-auction sites within ordinary Web sites. An online music retailer, for example, could set up an auction area within its main site to trade used Depeche Mode CDs.
In addition, some of eBay's competitors don't charge registration fees or commissions. Yahoo's auction site, for example, gets enough traffic that it can be supported purely by advertising, said Jeff Mallet, Yahoo's chief operating officer.
More disturbing to investors are the legal troubles that lately have hounded eBay. In its 1 September prospectus, the company said state attorneys general are investigating customer complaints about advertising. EBay, customers claim, has the obligation to guarantee the verity of every solicitation. Not so, says eBay and other online auctioneers. Their service is akin to classified ads. The onus is on the buyer and seller.
Lawyers said there is too little case law on the subject. Dave Kramer, a technology lawyer at Wilson Sonsini Goodrich & Rosati in Palo Alto, said auction sites should offer mandatory "click here to accept" contracts for customers. Some sites post a disclaimer, but don't have mandatory agreements, he said. EBay currently has a registration process where the user must click through a user agreement to complete the registraion.
With the barrier to entry in this business so low, and companies with brands like Yahoo and Sotheby's lurking, how will eBay survive?
"They may get acquired by a huge company, but their service will definitely be there in five years," said Maria LaTour Kadison, analyst at Forrester Research.
Company executives declined to be interviewed, citing "quiet period" rules before an IPO.
To be sure, analysts are far from gloomy about eBay's future. "EBay has a tremendous amount of momentum behind them and a good amount of name recognition," said Ryan Jacobs, analyst at the Internet Fund. "They should still be OK."
But the company has to be nimble and creative to stand apart from competitors, analysts added.
Editors' Note: This story has been corrected. In the original, Wired News reported that eBay did not require users to specifically state that they accept eBay's terms of service. In fact, eBay does demand that users accept its terms of service in the registration process. Wired News regrets the error.
