A brief recap: so far we’ve found Ebay’s auction business to be a unique selling machine—one which has the benefit of never having to evaluate, purchase, store, market, or exchange the merchandise that it sells. Relative to other retailers—physical or virtual—this fact keeps their costs relative to sales far below all others.
But we should look closer at their sales. What do they sell? Everything, or at least everything legal (sorry, no kidneys)—autographed LeBron James memorabilia, a grilled cheese sandwich marked by the divine, lunch with Warren Buffett, executive jets, Ford Pintos, canned tomatoes, and dental floss. Not only can they sell all the basic consumer merchandise of an Amazon, but they can sell the one-of-a-kind discretionary items that often fetch premium prices. The range of goods that you can sell on Ebay far exceeds that available to any other broker (save perhaps Craigslist).
Even better is that each of these goods can be re-sold on Ebay almost ad infinitum. Ebay is not limited to selling new items, and consequently, it can facilitate the exchange of the same item, cutting its fee each time. Though Amazon does offer used items, their used market is still constrained only to those items which they also sell new—greatly reducing their ability to compete with Ebay for used items.
Ebay can sell almost everything, and it can sell it again and again and again.
Personally, I have taken advantage of this with some discretionary purchases, particularly the DVDs of TV shows. Buy the set used for a discount, watch the shows at your leisure, and then resell the set for nearly the same price you originally paid. I lose some frictional costs on the exchange, and I waste some of my time on the sale. But Ebay comes out very well.
Coming up next—Valuation. What’s this business worth?
Disclosure: I, or persons whose accounts I manage, own shares of Ebay at the time of this writing.