Will eBay Strangle Online Commerce?

EBay may have an imperfect business model, as Yankee Group analyst Rob Lancaster told the E-Commerce Times, but users clearly are buying into that model, and the auction giant eventually could overshadow other e-tailers as it extends its reach into other areas of e-commerce.

Andrew Bartels, an analyst with Giga Information Group, told the E-Commerce Times that eBay's (Nasdaq: EBAY) foray into e-tail falls "somewhere between a threat to neutral" for other e-tailers.

"It's not the greatest news in the world when the company that has been the most successful in e-tailing and has loyal customers shifts its focus from auctions to becoming an e-tailer," said Bartels.

He noted that given eBay's resources, it has a "good chance of being successful."

E-Tail Threat Likely

The company has taken aggressive steps toward helping customers shop at its site. In particular, it has plastered its "Buy Now" button in high-visibility spots so that users only have to click on it to complete a purchase.

If eBay manages to extend its reach, its success may come out of the pockets of other e-tailers, Giga's Bartels said.

However, he noted, another possibility is that the company could enlarge the e-commerce pie for everyone, slicing off a big piece for itself but leaving even more for everybody else.

After all, according to a U.S. Department of Commerce survey, 39 percent of Internet users now make purchases via the Internet, and half of the U.S. population is online.

Soaring Earnings

Thanks to that growing interest in online buying and selling, eBay pulled itself out of financial mediocrity with first-quarter earnings that were more than double its results in the year-ago quarter.

First-quarter profits totaled US$47.6 million, up from $21.1 million last year, and revenue swelled from $154.1 million to $245.1 million, a 59 percent increase.

The company added some 4.6 million confirmed users this quarter -- and eliminated 1 million user IDs -- for a total of 46.1 million users. That number represents a 55 percent increase from last year's first quarter, when the company reported it had 29.7 million users.

EBay said it remains confident that second quarter and full-year earnings will approach the high end or surpass its previous guidance. The company projected full-year earnings of 73 to 75 cents per share on revenue of about $1.1 billion.

"It's just a strong indication that consumers aren't slowing down online spending and consumers aren't going to go anywhere," Lancaster said.

Sticky Site

In fact, it seems as if consumers are happy to stay at eBay. You cannot swing an optical mouse without hitting an eBay customer . And the company has continued to add categories to its online offerings, all of which are doing well, according to its financials.

Already, eBay's reach has grown significantly. In Canada, eBay.ca is the top online shopping site, with more than 1.5 million visitors each month.

In terms of number of visitors, eBay ranked eighth among the top 50 online shopping sites, with about 29.3 million visitors, according to Jupiter Media Metrix.

Stayin' Alive

E-tailers that fear the auction giant's might can stay a step ahead of eBay by remaining focused, according to Bartels, because eBay is wielding a broad brush rather than specializing in a single e-tail sector.

Bartels also said e-tailers should pay particular attention to execution.

"A challenge for eBay is it is a different skillset for a company to take responsibility for fulfillment of orders" when it instead has been a broker between buyers and sellers in the past, Bartels said.

He noted that no matter how strong eBay's numbers are and how ubiquitous the company may seem, other e-tailers have been executing pure e-tail strategies for a longer period of time and may have an advantage in that respect.