Ebay and Auctions II — The Deadline

Following from yesterday’s post, I want to further explore my hunch that Ebay is a great business. One of its major sources of revenues are its auctions, which bring unique excitement to what has become an increasingly homogenous experience of shopping. Additionally, it has attained that critical mass of buyers and sellers (often called the “network effect“), making it the optimal marketplace for buyer hunters or bargain hunters.

Yet another critical feature of auctions is that they offer a transaction structure that exploits an important selling strategy—the deadline. As all good sales representatives know, one of the most difficult hurdles for a buyer to jump is the last one—the one which concentrates his will in a yes. Hence most sales promotions employ this strategy’s advantage by pummeling their buyer with the knowledge that their purchase price will only be available for a limited time.

The deadline, coupled with a bidding format, almost guarantees that interest will transfer into sales at a very high rate. At a brick-and-mortar store, a buyer rightly assumes that the product will be there whenever they return. There is no time constraint; I’ll buy it later. Not so with Ebay. In fact, on Ebay, the opposite is closer to true; this particular item will never be available again. Of course, many auctions and fixed-price listings on Ebay offer identical commodity goods that you could find in Wal-mart. But, unlike Wal-mart, a substantial percentage of its market’s goods are unique items. This fact, coupled with the deadline, means that Ebay has a selling format uniquely geared toward propelling sales.

Coming up tomorrow—Ebay and inventory.

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

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One response to “Ebay and Auctions II — The Deadline

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

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