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And the E-Commerce Gold Medal Goes to...

By Mark W. Vigoroso
Feb 19, 2002 5:28 PM PT

It can be argued that e-commerce has suffered more agonizing defeats than thrilling victories over the past year.

And the E-Commerce Gold Medal Goes to...

But in this Olympic season, one determined company has earned a perch atop the e-commerce medal stand. Industry judges said they would bestow the gold on online auction giant EBay (Nasdaq: EBAY), with Amazon.com (Nasdaq: AMZN) taking the silver.

"EBay has been profitable nearly since Day One," Morningstar analyst David Kathman told the E-Commerce Times. "It has stayed profitable while expanding margins and maintaining growth, whereas Amazon had to sacrifice growth to get to profitability."

The San Jose, California-based auctioneer owes much of its success to its business model, which taps into the true potential of online communities, according to analysts.

Amazon's agility and resourcefulness earned it the No. 2 spot.

Strict Spending

For all of 2001, EBay generated revenue of US$748.8 million, representing a 74 percent annual growth rate, and earned pro forma net income of $137.5 million, representing 135 percent year-over-year growth.

Those bullish numbers illustrate EBay management's longstanding fiscal discipline, according to company spokesman Kevin Pursglove.

"[CEO] Meg Whitman has committed to running EBay by old-economy rules," Pursglove told the E-Commerce Times. "While [e-commerce companies] competed for first-mover advantage and market share, Meg ensured that expenses did not outpace revenue and that every dollar invested returned at least a dollar."

Community Service

While leadership and execution have contributed to EBay's success, Kathman said, the company's Internet-friendly business model has played perhaps the largest role.

In the simplest terms, EBay's success depends directly on the proliferation of a community of buyers and sellers, and the Internet has become the most efficient and ubiquitous community-building medium ever conceived.

What is more, EBay has used its first-mover advantage to build a critical mass of global buyers and sellers -- currently 43 million strong -- that perpetuates the community, Kathman added.

"Our community is dynamic and versatile," Pursglove said. "And with $29 million in daily sales, the community literally reinvents itself every four or five months."

Model Retailer

On the flip side, by virtue of its retail business model, Amazon contends with the costs of buying merchandise from wholesalers and reselling it to customers.

To its credit, the e-tail giant has responded to adverse economic conditions and to unique pressures in the online sales channel, some analysts argued.

"It is a tribute to Amazon's management team that the company has made changes in [its] business philosophy and operational model that take it away from being a pure play e-tailer," Yankee Group analyst Paul Ritter told the E-Commerce Times.

With its intense focus on the customer, Ritter added, Amazon also forged key brick-and-mortar partnerships with retailers like Borders, Circuit City (NYSE: CC) and Toys "R" Us (NYSE: TOY) to satisfy increasingly multichannel consumers.

Customers' Rights

For its part, EBay relies on customer feedback to continually and flexibly improve its offering, said Pursglove.

"We listen to our community, and we are flexible to make changes," he noted. "This helps us avoid a lot of contentious issues."

For instance, when EBay's sellers responded negatively to the checkout process in October 2001, the company gathered feedback from user groups then quickly made the feature optional, Pursglove explained.

Up, Up and Away

This agility, seen throughout the company, has allowed EBay to reach its current level of success, Kathman said.

When an overeager audience flooded EBay's ill-equipped servers in 1999 and crippled its Web site, the company made critical infrastructure investments to fix the problem, he added.

That move carried some risk and led to the company's only two quarters of operating losses. But CEO Whitman and her team recognized the importance of uptime for timed auctions, Kathman noted.

As a result, EBay has maintained 99.9 percent reliability over the last two quarters.

Golden Years

Some pundits harp on the fraud cases that periodically plague EBay's auctions.

But compared with the level of overall use, fraud has been relatively rare, Pursglove said. In addition, the company offers insurance and dispute resolution to help combat fraud, along with special services like authentication for sports memorabilia.

All told, EBay seems destined for another gold medal year in 2002.

How important is a candidate's knowledge of technology in winning your vote?
Extremely -- technology is at the center of most of the world's big problems and solutions.
Very -- a candidate who doesn't understand technology can't relate to young people.
Somewhat -- a general understanding is sufficient.
Not very -- choosing good advisers is more important than direct knowledge.
Not at all -- technology is often a distraction from more important issues.