e-Bay’s secret of success

The recent earnings of eBay are, good and getting better, as usual, but have gained little in the way of comment. Even more surprising is the fact that eBay’s share price has resolutely defied the dotcom downturn. Such an across-the-board success obviously cries out for an explanation.

It is clear that eBay has always fed off the enthusiasms or we can say obsessions of its users. An immediate advantage of this is the natural way in which communities of users are formed according to their common interests.

It also brings into play a profitable process of natural selection, whereby it is the most determined users that tend to turn to eBay most. As a result, they are likely to bid more fiercely against rivals when they find what they are looking for.

Here is a case where existing as the first mover really did confer an advantage. According to the words of collector networks, 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 a lot further. Later auction sites have only grown to the extent that they have been able to offer specialised services or benefits but not all which are available on eBay.

EBay has been shrewd in capitalising the user base that tends to grow itself, on that asset in other ways, notably fixed-price sales.

More recently, a new kind of auction-flavoured Web advertising has been introduced where ebay has also been successful in selling the audience to major retailers. In eBay, clicks lead to sales in a natural manner through continuity with the related pages, in place of turning into a distraction and sideways move away from the main page, due to the conventional banner ads.

IBM and Sun are two good examples in the field of computers. Both the brands now sell computers routinely to the eBay membership from the eBay site.

EBay’s fundamental business model is to act as a mediator between parties – and to take a percentage of the sales. This is the reason that all of these different approaches contribute royally to eBay’s bottom line. It is the dream of all online ecommerce 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 few things quite amazing. It provides a genuine interface between the Internet and everyday life. It allows everyone using Internet to search not Web pages, as Yahoo or Google do, but through the physical world for objects rather than information. This achievement is the company’s great secret. Perhaps it is the main reason why eBay is a truly special dotcom as well as unfailingly profitable.

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