By Rachel Chalmers Beleaguered internet auctioneer eBay Inc has spent the week trying to formulate sound policies to regulate the third parties piggybacking on its success. On Tuesday September 28, AuctionWatch.com launched a beta test of a search engine able to link users deep into the sites of eBay and its rivals Amazon.com, Yahoo, MSN, […]
By Rachel Chalmers
Beleaguered internet auctioneer eBay Inc has spent the week trying to formulate sound policies to regulate the third parties piggybacking on its success. On Tuesday September 28, AuctionWatch.com launched a beta test of a search engine able to link users deep into the sites of eBay and its rivals Amazon.com, Yahoo, MSN, Bidstream and Ruby Lane. AuctionWatch has an estimated 95% reach into the total internet auction inventory. The need for universal services reflects a growing trend toward fragmentation in the online auction market, AuctionWatch officials argued. Aptly named co-founder and CEO Rodrigo Sales went further still: We view this as a big win for the entire auction community, he said.
eBay is unlikely to agree. As long ago as August 1999 the company had harsh words with auction aggregators like Ruby Lane and BiddersEdge. The sites were told not to include any more eBay listings. By October 1, eBay had terminated its five-month business relationship with Ruby Lane. Co-founder Tom Johnson said: We regret that eBay is choosing to isolate themselves from internet search engines. Customers will continue to demand the auction search service we provide, allowing them to access and compare inventory from numerous sites simultaneously.
eBay justifies its anti-aggregator position on the grounds that the aggregators and search sites are interfering with the eBay user experience. But the real issue seems to be the revenue eBay derives from banner ads displayed on its front pages. If users can bypass these ads they will, and the value of eBay’s online real estate will drop sharply. eBay must, however, tread carefully. Not all of the third parties profiting from its marketplace are actively malignant.
Take Andale Inc, a provider of auction business management tools. The company is poised to announce a $19.6m first round of funding led by Accel Partners. Its customer base is the 4% of sellers on eBay and other auction sites who account for an estimate 80% of the goods sold. Andale’s web-based service allows such power sellers to post and manage auctions on multiple sites. Even though Andale implicitly encourages such sellers to be promiscuous with their sales, eBay can’t afford to alienate that hugely profitable constituency. Even as the auction giant changed its user agreement to prevent deep linking on the part of the aggregators, it issued a clarification exempting auction management tools like Andale’s.
Our key differentiation is that we don’t do an arbitrary download, explained Andale founder and CEO Munjal Shah. We are only acting as the agent for a specific seller. Our position is different [from that of AuctionWatch and Ruby Lane] in that we’re not looking to be a consumer portal, just a business operation center or hub for power sellers. Shah estimates that his customers can double or triple the amount they sell by licensing his company’s services. What’s more, he argues that online auctions are not consumer to consumer transactions, as most people think: they are mostly business to consumer transactions, and will eventually be business to business. He wants to grow Andale into the service of choice for business to business transaction management.
Andale has not announced pricing or specific services, promising full disclosure in November. It’s also lining up partnerships to enable its customers to handle online payments for the items they sell. If Shah is right about auctions becoming a business to business marketplace, Andale is likely to experience exponential growth. At that point eBay will be faced with an even harder decision than the ones it tackled this week. At what point in its life cycle does the presence of a beneficial client company like Andale cease to profit its host? And how do you get rid of it then?