Everyone's A Salesman

Baldwin Louie — Mon, 22 Nov 1999 17:00:00 -0500

Stephanie Satchouk remembers the wedding dress as if it were her own. The off-white satin, the taffeta overskirt, the simple neckline, the sequined chrysanthemum adorning the bodice. "It was nothing flashy. That's what I liked about it," she says, sitting in front of an aging computer in her cluttered one-car garage.

It was also a good find. Satchouk bought the dress at a garage sale not far from her San Jose, Calif., home for a mere $4. She thought she'd make a few bucks putting it up for sale at online auctioneer eBay (EBAY) for $9.99. A few days later, a vintage-clothing shop in Lakewood, Ohio, snapped it up for $100.

That was early in 1998, months before the 33-year-old Satchouk started keeping a soft-bound ledger, now a well-worn record of the nearly 1,000 items she has bought at local auctions and garage sales and then sold on eBay. It was before she spent hours a day at the computer in her overstuffed garage, checking the progress of dozens of auctions. The wedding dress, in fact, was the spark that ignited a new business that has become her primary source of income.

Now Satchouk is among the thousands of people who have joined a new class of Internet entrepreneurs. For some, like Satchouk, it was fortuitous; for others, a deliberate plan. Yet across the country, people specializing in everything from camera equipment to vintage records have become professional online storekeepers, pumping new life into a nontraditional segment of the U.S. economy.

This is not a business populated by venture-backed startups with lavish marketing budgets. It is mostly made up of home-based and small businesses that grow only as much as their profits allow.

While eBay is largely responsible for jump-starting this grassroots revolution, many other sites, ranging from rival online auctioneers to those that help individuals set up online stores, are hoping to benefit from this entrepreneurial spirit. Some are challenging eBay's hegemony by targeting niche markets, while others provide retail venues that could prove more attractive than eBay to some of these homespun merchants.

While none of these new venues so far has proven as effective as eBay, many are making gains and are certain to compete with the leading Net auctioneer in the long term.

Jim Breyer, managing partner of Accel Partners (dossier), a Palo Alto, Calif.-based venture firm, calls the emergence of these new Internet merchants "truly phenomenal," and says Wall Street and private investors have failed to fully grasp the significance of the trend. "It is almost impossible to peg" the size of the phenomenon, Breyer adds. "But we certainly know that the market is large and growing like wildfire."

For Satchouk, the wedding dress was also a bit of a salvation. Back in 1997, she worked two jobs and drove 80 miles round-trip nearly every day to take classes at the California Culinary Academy (dossier) in San Francisco. The heavy workload took its toll, and Satchouk became ill with anemia. Under doctor's orders to sleep 12 hours a day, she lost her jobs and was forced to drop out of school.

But the sale of the dress was an epiphany for Satchouk, who has always loved rummaging through antiques. "I decided then I was going to keep the $100, put it in my pocket and go to more garage sales," she says.

What she didn't know is that those garage sales would be the beginning of a lifestyle change. She began buying everything from vintage dresses and surplus designer bathing suits to Japanese pottery. As the items sold on eBay, she invested the profits into what has become a growing business.

By 8 a.m. every weekday morning, Satchouk sits in her garage-cum-office, a space that's packed with mink stoles, Chinese soapstone sculptures and an assortment of pottery. A makeshift loft overflows with used clothing, much of which Satchouk confesses she would like to keep.

On a recent morning, she eagerly checked her auctions. Some had closed in the past 12 hours; others were still open. A wood bookshelf hadn't sold. But a Siberian lamb coat, a shaggy white garment she had snagged for $20 and that had languished on eBay for days with no bids, had become a hot ticket the night before. In the hour before the auction was to close, 10 bidders sent the price up to $86. "It's getting darker earlier," Satchouk reasons, "so more people are getting online."

With the confidence of someone who knows her business, Satchouk says people typically wait until the last minute to bid. That's why she is surprised to see a 1917 Nippon 12-piece chocolate set that she listed for $29 going for $57 with four days left in the auction.

The day's overall gains are modest but encouraging. Of 33 items up for sale with a combined starting price of $425, current bids are now at $507. "That's not bad considering most of this stuff hasn't been bid up," she says.

For Satchouk, selling on eBay has become more than a job. She talks about the fun of doing what she likes and the satisfaction of being her own boss. "I used to buy stuff and hope that some day I would have a beautiful house to put it in. Now, at least I can own it for a while."

She also decries, in plain terms, what she sees as inefficiencies in the retail economy. "I think retailers have taken advantage of people for too long." Store prices are too high, she argues, because they cater to a semicaptive audience. On eBay - which has an abundant supply of buyers and sellers - the selling price for a given item is what the market is willing to pay, she adds, or closer to the fair value of the item.

There is no question that eBay has become one of the most subversive creations of the Internet Economy. Its success in bringing together buyers and sellers has created a revolutionary and active marketplace, and may forever change the world of commerce.

The dollars being traded on eBay by these new businesses and individuals are significant: Sellers took in a combined $741 million in the most recent quarter, almost four times more than a year earlier. That means for every dollar spent on Amazon.com (AMZN), the world's largest Internet retailer, more than $2 is spent on eBay. (However, eBay takes only a small percentage of items sold, so its revenues are much smaller than Amazon's.) At the current rate, eBay sellers generate roughly as many dollars in sales as all of the Barnes & Noble (dossier) brick-and-mortar bookstores combined.

Steve Westly, eBay's VP of marketing and business development, says more than 20,000 people conduct "some or all of their livelihood on eBay." EBay won't say exactly how many of the millions of items for sale on its Web site are posted by those merchants. But even as the company continues to call itself a "consumer-to-consumer" marketplace, it's increasingly become a business-to-consumer exchange.

According to Andale, a Santa Clara, Calif.-based software maker that provides Web-based services for eBay "power sellers," 4 percent of people sell 80 percent of the items on eBay. Others - such as Scott Randall, president and CEO of FairMarket, which runs a network of more than 100 smaller auction sites - more conservatively suggest that 80 percent of items at online auctions are sold by 20 percent of sellers.

Regardless of the exact numbers, it is clear that although eBay's 7.7 million users are the hallmark of its success, a much smaller number of power sellers grease the wheels of that online marketplace.

Not surprisingly, since eBay turned its early investors into billionaires, a slew of imitators has sought to challenge the company. Roughly 1,000 online auction sites have sprung up in the last couple of years. Some are general merchandise exchanges, while others concentrate on specialty items.

Yahoo (YHOO) and 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 furnishings.

Westly says that even in specific categories, eBay has more buyers and sellers than most specialized auctions. Even on Amazon and Yahoo, he points out, conversion rates (the percentage of auctions that result in a sale) are far below eBay's. [See chart]

Nevertheless, it's possible that eBay's enormous edge could wane. Currently, sellers get a premium for trading on eBay: The more buyers bid on an item, the higher the selling price. As the number of buyers in a marketplace grows, so does the average price of items.

But once a site achieves a certain critical mass, the selling price stops growing or grows at a slower rate. In other words, a site with 1 million buyers is sure to give a premium to sellers over a site with 100,000 buyers. But the premium awarded sellers by a site with 10 million buyers over a site with 1 million buyers is likely to be smaller. In that case, the smaller site could actually be more appealing for sellers, as it is less cluttered and items are easier to find.

That's already evident, according to Hakan Senkal, a 43-year-old coffee-shop owner who began selling used books and magazines on eBay in April but switched to Amazon shortly after. Senkal, who manages his auctions with a laptop computer whenever business is slow at his drive-through espresso stand near Seattle, says Amazon already attracts millions of book buyers to its site. Many of them are ideal prospective customers for his merchandise.

Plus, Senkal faces less competition from other sellers. "EBay is highly saturated," he says. "If I put a Life magazine from 1940 for sale as a collectible, I'd find a dozen other sellers [there] with the same magazine." Currently, Senkal has 1,486 auctions on Amazon and 364 books listed on zShops, in addition to the 125 books he's sold on zShops in the last month. He adds that conversion rates are higher on Amazon than they have ever been on eBay.

As marketplaces proliferate, they are likely to compete not only on the basis of selling prices, transaction fees and conversion rates, but also on services. These range from easy uploading features and shipping to escrow services and insurance against fraud - offerings first rolled out by eBay.

Some companies also are providing services that let buyers and sellers operate on multiple auction sites simultaneously. They make it easy for sellers to post similar items on various sites, allowing buyers to search for a specific item across marketplaces. EBay has sought to bar some of those companies from searching its site, saying it wants to protect the entire seller-buyer experience it provides shoppers. But critics say the company is simply trying to protect its market share.

"Markets can try to lock things up," says Munjal Shah, Andale's president and CEO. "But eventually they have to compete. There should be no friction in switching markets."

However those disputes are resolved, a proliferation of marketplaces is certain to benefit buyers and sellers alike. For now, Satchouk says, she does not pay attention to all those debates. "I never surf the Web," she says. "I just go to eBay and do my banking online."

Yet the thriving business that started with a white wedding dress is still in its infancy. Satchouk is talking about branching out. One particularly appealing idea is using some of the vintage pottery she buys to make gift baskets. Coffee and tea sets would go well with English teas, and perhaps she could add candy or shortbread cookies. "I have so many ideas," she laments, "but so little time."

VIEW POP UP CHART - SORRY THIS CHART IS NO LONGER AVAILABLE

The Industry Standard - Everyone's A Salesman - Comments

Everyone's A Salesman