E-COMMERCE EBay bucks economic downturn among Web businesses

EBay continues to rack up profits despite the failure of other online ventures.
SAN FRANCISCO CHRONICLE
The owner of Andover Consulting Group, which resells cast-off computers from failed and downsized companies, never intended to make eBay rich. But he has nevertheless contributed thousands of dollars in fees to eBay coffers since opening for business on the online marketplace last year.
Thanks to sellers such as Andover, and legions of willing buyers, eBay has defied the current economic slump. Instead of being bulldozed like many of its Silicon Valley neighbors, eBay has prospered by nearly every financial yardstick.
The Web site's role as a clearinghouse for others to sell surplus merchandise and used goods has partly been its savior, analysts said. Because pocketbooks are tight, people are lured by the promise of finding cheaper prices than in stores.
"Selling on eBay is a very easy way to do business," said Mike Syiek, owner of San Francisco's Andover, which sells about $300,000 in merchandise per month. "There is no other Web site that competes."
What is eBay's recipe for success? How can it be increasingly profitable while many other companies across a broad spectrum of industries are in such a sad state?
Some answers
Part of the answer is simple. People enjoy browsing eBay for bargains on everything from digital cameras to Spider-Man comic books to Prada boots to vintage pornography.
But the full explanation is more complex. Analysts and executives point to the Web site's broad marketplace, blossoming international popularity and expansion into new categories of merchandise and carrying products from established retailers such as Home Depot and Disney.
Unlike many businesses, eBay, in San Jose, Calif., has no expensive warehouses and is never stuck holding the proverbial bag of unwanted wares. The Web site has no bag because it is simply an online venue where others do the selling.
The company's only responsibilities are to maintain what is essentially a souped-up classified-ad service and ensure that there are plenty of users.
As a result, eBay enjoys an operating profit margin of 84 percent, one of the best in the Internet industry. In contrast, Amazon.com's profit margin is 25 percent.
Executives at eBay say that their company's resilience in difficult economic times is partly explained by the breadth of items available on their Web site. For example, sellers of luxury jewelry may be doing poorly, but other vendors selling less-expensive necklaces and rings may be more than picking up the slack.
The company reported a profit of $61 million in the latest quarter, more than double the same period in 2001. Revenues climbed to $228.8 million, up 49 percent from last year.
At eBay's analyst meeting in October, the company reaffirmed its expectations for rapid growth. Revenue is expected to leap nearly 50 percent annually, from around $1.18 billion this year to $3 billion in 2005.
"Actually, online commerce companies are doing exceptionally well," said Shawn Milne, an Internet industry analyst for SoundView Technology Group. "There [are] not many left, but the ones that are left are reaping the rewards of increased demand."
Andover, the computer liquidator, is a case in point. Syiek, the company's owner, said demand for his used merchandise is strong, helped by eBay's unparalleled reach to 54.9 million registered users.
EBay's fees, commissions
The more items listed on eBay and sold, the more eBay collects in fees and commissions.
Sellers pay between 30 cents and $3.30 to list an item for sale. Sales commissions range from 1.5 percent to 5 percent based on the final price.
Sellers on eBay have few alternatives. Other Web sites feature online auctions, but they have too few users to offer much of a challenge, analysts said.
The Web site is so popular that nearly 30 percent of all Internet users visited it in October, according to ComScore MediaMetrix. The total for the second-place online auctioneer, Andale, was just 3.4 percent.
Because of its incredible dominance, eBay is sometimes likened to Microsoft.
And like Microsoft, the Web site is not afraid to make some users unhappy, for instance by raising some fees and commissions earlier this year.
For example, listing an item for a fixed price was free until January, but now costs 5 cents. Sales commissions were raised a quarter percent.