The world's most successful online auction site is looking to expand its horizons, writes Angus Kidman.

Published in The Bulletin, October 30 2001

Pierre Omidyar founded the web's most successful online auction site because he wanted somewhere to trade "beanie babies", a range of small, bean-filled toys much prized among collectors. From that small concept, Omidyar built eBay into a company that has managed to stay profitable even in a market that has become distinctly unfriendly to net-based businesses.

For its most recent quarter, eBay posted a net income of $US24.6m ($49.6m), up 80% on the same period last year.

Much of the success of eBay and its many imitators has been attributed to its success in allowing collectors to trade on a worldwide market. Those individual transactions may be small and eBay's cut of them even smaller but their sheer volume has given the auction site a path to profits unmatched by most other online business models.

However, while such low-value transactions may have provided a solid foundation for eBay in the past, that isn't where future growth is expected. Instead, eBay, like many of its rivals, is hoping to attract its own business customers, providing a larger and more diverse income stream.

One of the most obvious paths for businesses to make use of online auctions is as a cheap, convenient method for disposing of excess inventory or out-of-date stock. Selling via auction can market such goods to a wider audience, potentially attracting new customers while eliminating the need for an expensive e-commerce infrastructure.

"Many of our customers are finding that online marketplaces represent a more profitable alternative for moving refurbished or last season's merchandise than traditional liquidation channels," says Rodrigo Sales, CEO of US online auction consultancy AuctionWatch.

However, companies that have specialised in these kinds of services have found the going tougher in the Australian market. For instance, the Australian version of uBid, which specialised in selling electronic goods and other overstock items via partnerships with local businesses, closed down last October.

The closure of uBid Australia was just one in a string of woes for its owner, troubled dotcom stock LibertyOne, which itself has since gone into receivership.

Even companies with deep pockets have found it hard to maintain an auction presence. News Ltd's GoFish service, which also sought to promote itself heavily as a means for businesses to move into the online world, was shuttered in July. Despite the financial resources of its parent and apparent synergies between online auctions and the existing newspaper classified business, GoFish was never able to make a significant dent in the Australian market.

The Australian online auctions market has now been reduced to just two main players: eBay and Sold.com.au, a service originally created by Fairfax but sold to rival Yahoo! for a reported $24m earlier this year. Yahoo! merged Sold.com.au with its own existing auction service but to date the site still finds its greatest success in individual consumers.

Yahoo! has also suffered setbacks with its global auctions business, including a long-running court case in France over whether it should be required to block the sale of Nazi memorabilia. A move in February to start charging listing fees for auctions, which had previously been free, also saw traffic drop.

Meanwhile, eBay has been moving to aggressively court businesses. In June, it began a pilot program called eBay Stores, allowing existing sellers to use the site not just for highest-bidder sales of individual items but also for conventional fixed-price retail sales.

The service aims to leverage the large audience for eBay (it has 30 million registered users) while allowing merchants to sell a wider range of goods. In return, eBay receives a small up-front hosting fee plus a percentage of all transaction fees. "eBay Stores is the next step in eBay's evolution," CEO Meg Whitman says.

That service is expected to eventually find its way to Australia, where eBay has managed to establish a strong foothold, despite some initial problems (it was forced to delay introducing listing fees on its auctions for several months while it fought for market share).

The Australian operation, which is jointly operated by eBay and ecorp (part of the PBL stable, which includes the publisher of The Bulletin), achieved profitability during the second half of the 2000-01 financial year, as sales grew by a healthy 197%.