22 May 2003

The success of eBay as an e-marketplace for consumers has been phenomenal. But will that translate to its new business-to-business site for companies, asks Robin Parker

Want to blow millions of dollars on an executive jet while haggling with strangers across the Atlantic for a gift for the kids - without leaving your desk? The Internet has promised many things but the addictive "anything goes" ethos of global flea market eBay is a true phenomenon.

Profitable from its creation in 1995 as a place to help hobbyists trade collectable toys and games online, the marketplace has become a household name in its native US, and Europe is fast catching up. Along with the bookseller Amazon, it is one of the few genuine "brands" to exist purely on the web.

It is no mean feat that it maintains this reputation when its hosted catalogue swings between high-street goods - computers, furniture, CDs - and the more esoteric and occasionally scary extremes of the web: anarchist manuals, playing cards featuring Iraqi leaders, and even remnants of the crashed Columbia space shuttle, hastily withdrawn by eBay's security scouts.

The marketplace's users bought and sold a staggering £3.4 billion worth of goods last year, helping the company to more than double its profits to £66 million. And it has high hopes for the UK market, predicting that half of the population will trade goods on its site within five years.

eBay now commands an audience of 68.8 million in 20 countries, half of whom are regular users who deepen their online experience in chat rooms.

Having conditioned customers in new ways of buying leisure goods, eBay now wants to step up its role in the business community with the launch of its first spin-off site, eBay Business (www.ebaybusiness.com). The site currently serves just the US but its model is likely to be replicated in other countries too.

It is perhaps surprising, and often forgotten, that business purchases account for almost one-third of eBay's sales by volume. Business also hosts some of the more unusual sales on the site, including eBay's biggest ever transaction two years ago, when purchasers at an aircraft company paid $4.9 million for a Gulfstream II executive jet. An old missile silo, now transformed into property, went for $2.1 million last year.

eBay argues that computer-savvy businesspeople from companies of all sizes, hooked on searching for concert and sports tickets or last-minute gifts in their leisure time, will turn to the site to cut corners on some of their corporate purchases, or browse its listings in their lunch breaks.

The bulk of corporate purchases are conducted by small businesses seeking cheap one-off deals on anything from office furniture and second-hand computers to electronic components and construction tools.

Jordan Glazier, general manager of eBay Business, says the site deliberately mirrors the standard eBay model because it is the easiest way to get US small businesses, which number around 25 million, to meet each other online.

"Small businesses often behave like consumers in their purchasing, and the senior partner is often in charge of buying decisions rather than an appointed procurement team," he says.

This works for suppliers too, he says. Just as most sellers on the consumer side are auctioning off books, toys, games and CDs they no longer want, so too do suppliers left with stock they can no longer get rid of through the normal channels put their goods on the auction block. And in doing so, new markets open up to them in return for a basic fee.

"This is a highly coveted but very fragmented base that's difficult for suppliers to find and expensive to search. Buyers can also more easily find suppliers, especially if they are geographically isolated," Glazier says.

With a brand power beyond the dreams of most old-economy businesses, let alone websites, eBay Business is in a position to hit the ground running, even if its services still amount to little more than a flea market.

Laurie Orlov, research director of e-commerce analyst firm Forrester, says that although she believes no e-marketplace has really been successful, eBay knows its market and, more importantly, the market understands eBay.

"This is less a new service than a repackaging of the old one. It's a good way for suppliers to get rid of anything they want to dump from their inventory and for buyers it makes ad hoc, periodic purchases quite easy and is a good way for them to get to grips with online auctions without buying software."

But a difficulty in replicating the community spirit of eBay's public area is that, by design, it is biased towards the supplier since sellers' fees are its main source of profit.

Pierre Mitchell, vice-president of research at AMR Research, believes its credibility as a tool for purchasers will be compromised if it does not get to grips with the specific nature of industrial buying.

"eBay needs to provide buyer-specific tools such as supplier directories and a basic topology around business categories searchable by specific attributes rather than just keyword. That supplier discovery business is as important as actually being able to find out whether a product is available.

"It will pooh-pooh that because it doesn't want to threaten the cash cow - the suppliers currently putting food on the table. But until it really starts addressing buyers' needs, its idea of 'supply' will be just whatever pops up on the site."

eBay remains realistic that attempting to compete with industrial marketplaces would need significant investment that could affect its profitability. With the brand and reputation it has built up, maybe it simply doesn't want to, given the mixed track record of many business-to-business e-marketplaces.

For now, large companies appear to be using eBay more as a pricing benchmark than as a strategic purchasing tool. Managers in charge of technology buying at major league companies such as General Electric and Horizon Communications have admitted they check computer prices on eBay before dictating how much their purchasing teams should be spending. eBay's claim in its most recent financial report that its average user spends 71 minutes online during each visit suggests that business purchasers are not alone in this.

Glazier hopes that eBay Business will be one way of getting these large companies to translate price-checking into purchases. But for now, the extra services suggested by AMR's Mitchell would not directly benefit its current business customers, he argues.

"Small businesses are not necessarily accustomed to having long-term relationships for their suppliers. We find it is best to bring a breadth of suppliers so that they are not dependent on individual companies and so that prices can be more competitive."

But Mitchell is convinced the site will be a token nod to corporate purchasers - a gimmick to perpetuate the brand - until eBay learns about how businesses buy things.

"Industrial business is all about relationships and it needs to hook up buyers and suppliers, even if the deal doesn't get consummated. If suppliers were to get referrals through eBay, they would want to keep using it - to eBay's benefit."

SMmay2003