Can eBay Copycats Thrive?

In the online auction sector, eBay (Nasdaq: EBAY) is not just king of the hill; it owns the mountain. Some challengers to the throne have stepped forward in the past few years, but all have been trounced.

Is it possible that in coming years, a more savvy and well-funded contender could challenge eBay and steal away part of its auction business? Although Giga Information Group analyst Steve Telleen told the E-Commerce Times that smaller players could attempt to nibble away at eBay's market share by serving niche markets, many analysts said the answer is: absolutely not.

"EBay will be [the] only real player for online auctions for a long, long time to come," Jared Blank, an analyst at Jupiter Media Metrix, told the E-Commerce Times.

Fee, Fi, Fo, Fum

Industry giants usually serve as attractive targets for small companies looking to copy their success . Witness the swirl of online booksellers that try to take on Amazon (Nasdaq: AMZN), or the multitude of ticket sites that want to catch Ticketmaster unawares.

EBay, however, has proven to be such a powerhouse in its field that attempting to copy it is widely seen as business suicide.

A recent Jupiter Media Metrix report on retail Web site traffic in April listed the auction mammoth atop the e-commerce heap, with 24.3 million unique visitors. The company's closest rival, UBid, squeaked into the rankings with just 3.6 million visitors during the same period.

"Basically," Blank said, "eBay is so successful because of its size. It became large very early and established such a cycle of growth that it became the online auction site of record. Which means that it's difficult, if not impossible, for anyone else to catch up."

Lightweights of the Ring

But although eBay is a heavyweight champion, it does not lack competition.

Sites like UBid and Abidon market themselves as alternatives to eBay's frenzied marketplace, where a bidder may be overwhelmed by competing offers. While some users may take comfort in a smaller pool of buyers and sellers, the majority of auction-goers gravitate toward eBay.

Few big players have tried to take on the Web auctioneer. Most recently, Yahoo! (Nasdaq: YHOO) attempted to enter the online auction fray -- with dismal results.

Jonathan Gaw, research manager at IDC, told the E-Commerce Times: "Yahoo just got out of it in Europe because they got their hat handed to them by eBay. In the U.S., the game's over. EBay won."

Rather than stumbling far behind eBay or shuttering its European venture, Yahoo! chose to forge an alliance with eBay's European operation and promote the auction site on its Yahoo Europe portal.

Plain and Simple

"There's nothing really magical about eBay," Gaw said. "If you and I were to sit down and really think hard about what we want in an auction site, we'd come up with something that looks a lot like eBay. It's pretty simple."

The formula for success, according to Blank, was that eBay built momentum quickly. It attracted a large number of buyers and sellers at a rapid clip, and provided them with a financially secure arena for their transactions.

The site also did not attempt to be anything other than an auction site. Yahoo, on the other hand, tried to be both auction site and Web portal, spreading its resources too thin and confusing consumers. In contrast, eBay resisted selling products or providing additional services.

This single-minded focus made a big difference as the economy went south, according to analysts. Everyone knows what eBay does. That consumer recognition secures the company's position in the marketplace.

Nibbles at the Pie

Although it is doubtful that a serious eBay competitor will advance, some companies may be able to capture at least part of the market.

Steve Telleen, vice president of Giga Information Group's Website Scorecard Service, told the E-Commerce Times: "There is some opportunity for smaller players to get in, but it wouldn't be in taking on eBay directly. Rather, they would have to look at nibbling pieces out of their marketplace."

Telleen said the only feasible way to do this is to open a segmented auction that relies on either geography or a limited selection of products. For example, if people in Texas preferred to buy from other Texans, or if antique clock collectors wanted to interact only with others of their ilk, someone might be able to serve such a niche.

Even if niche sites could be created, Gaw said he wonders whether consumers wouldn't gravitate toward eBay anyway.

"If you're a buyer or a seller, you go to where there are the most sellers and buyers," he said. "So, why would you go anywhere but eBay?"