Ebay and Auctions

One business that strikes me as potentially great is EBAY.logoebay_x45

Though Ebay has a wide variety of businesses under its umbrella–Paypal, Skype, BillmeLater–it is primarily known as an auction site.  So, let’s step back a moment, what makes an auction desirable?

Most generally, people like auctions because they are exciting–with outcomes unknown until the very end–and they give the buyer a chance to snatch up a bargain.  They offer us a chance to play with our emotions, as they present a shopping experience far more exhilirating than the local grocery store’s.  And by always offering a bargain, they can command our near everpresent attention.  Got a moment to spare–search for a bargain!

For an online auction site, it can be difficult to replicate the excitement found in a brick-and-morter auction.  However, its inventory will likely be much greater.

With these insights, how should we see Ebay’s moat?  What is its durable competitive advantage?  What would prevent me from setting up a knock-off site and challenging them tomorrow?

For one, inventory.  In order to fulfill a buyer’s thirst for the bargain, there must be a LOT of items for sale.  Any new competitor would have a very difficult time building the necessary cadre of sellers.  Ebay–being one of the most well-known internet sites on the web–has wide brand recognition and deep brand capital.  Since sellers want to sell where there are buyers, and since buyers want to shop where there are bargains, there is a sort of chicken-and-egg problem for any would-be competitor.

What does Ebay’s auction lack?  It lacks some of the palpable excitement that bubbles at a brick-and-morter auction.  Let’s be frank–an auction is a social event.  You compete with other buyers to pay the lowest price you can.  It is human sociality at its most pecuniary.

What does Ebay need to do?  It needs to recreate–as best as it can–that excitement of the auction.  In the age of Web 2.0, the task is not insurmountable.  Blogging, tweeting… the tools are there.  Ebay just needs to better deploy them.

Disclosure: I, or persons whose accounts I manage, own this security at the time of this writing.

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2 responses to “Ebay and Auctions

  1. Pingback: Ebay’s Potential Problems « Wide Moat Investing

  2. Pingback: Ebay and Auctions II — The Deadline « Wide Moat Investing

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