Amazon have launched the most serious threats to eBay. While the size of their marketplaces remain a small fraction of eBay's, they are growing at a healthy rate. And FairMarket, which recently linked with auction sites including those of ExciteAtHome, Lycos (LCOS) and Microsoft (MSFT)'s MSN, doubled the number of items listed on its network within a month of its September launch.
All of these players hope to tap into the dream awakened by eBay: the desire to start a new life as an Internet merchant.
Take 38-year-old David James, of Odenton, Md., a trumpet player who has been selling musical accessories via online auctions since April 1998. James began by offering a couple of harmonicas on eBay, and quickly expanded to sell items like guitars and guitar strings. "By last Christmas, I was shocked by the amount of money I was pulling in," he says, adding that his sales for 1998 topped $20,000.
James augmented his eBay business with his own Web site and eventually quit his job with a music-accessories distributor. This April, he began experimenting with Amazon's new auction site, and business started to take off there, too.
About 70 percent of James' sales come from eBay. But the Amazon share is growing. Things got even better in June, when an Amazon sales rep who specializes in music contacted him with an offer: Set up a storefront on Amazon.
But eBay's Westly claims zShops and similar online malls see little traffic. "The sellers are finding that there is very little activity." Similarly, ExciteAtHome's iMall, a zShops rival, received only 447,000 visitors in September, according to Media Metrix. Traffic on zShops hasn't been measured yet because the service launched in October.
Merchants say they are trying these alternative venues in part because running an online auction business is a time-consuming proposition. For Satchouk, it's become a 30-hour- a-week operation. Much of that time is spent offline, buying items and then photographing them from various angles with a digital camera. Then there's the lengthy process of uploading images and listing auctions. After sales are completed, Satchouk spends hours matching eBay user IDs with names and e-mail addresses, contacting successful bidders and making sure checks arrive before she ships the merchandise. Packing boxes carefully to make sure nothing breaks and frequent trips to the post office and bank all add to the workload.
"I'd like to be spending less time, but making the same amount of money with higher-end items," Satchouk says.
An online retail storefront has a few advantages over auction sales, says James. At a retail store, items typically have a longer "shelf life" than at auctions; those items that don't sell don't need to be reposted. In addition, James doesn't need to contact buyers to make sure they know where to send the check: Amazon takes the credit card payments and sends the proceeds directly to James' bank account, letting him know where to ship the merchandise. For its part, eBay is expected to launch a credit card service for its sellers before the end of the year.
While eBay is largely responsible for sparking this new type of commercial activity, auctions are increasingly becoming just one effective mechanism, among several, to complete online transactions. "Over time we will continue to see a blurring of auction and fixed-price variants as power sellers experiment with optimal pricing structures," says Accel's Breyer.
EBay remains the focal point for cottage businesses such as James' and Satchouk's. But analysts expect that other marketplaces will soon emerge. Breyer, who is a board member and investor in Andale, the auction-services company, predicts that a few sites, including eBay, will thrive at the top of the market, cementing their positions through consolidation. "At the same time, there will be phenomenal underlying growth in marketplaces that have highly focused strategies around certain products, services, customer demographics and communities," he adds. Specialized auctions already market themselves in specific categories, from luxury goods to home
