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Yahoo! Cashes In On eBay's Outage

By Chet Dembeck
Jun 18, 1999 12:00 AM PT

The Internet can give and the Internet can take away. This e-commerce fact of life should now be crystal clear to top eBay, Inc. executives, in the aftermath of the online auctioneer's 22-hour outage last week.

Although its auction Web site was trouble-free most of Monday, that same day, investors cut away $4 billion from eBay's market value -- anticipating the damage its outage has done to the loyalty of its 3.8 million users.

In addition, a study by Nielsen Media Research and NetRatings Inc., which measure Web site usage, said the average time spent per person at Yahoo's auction site increased to 18 minutes Friday from seven minutes Thursday -- the night eBay's site crashed. The number of people using Yahoo's site also skyrocketed to 135,000 Saturday from 62,000 Thursday. But the number of users fell to 90,000 Monday.

In an effort to make amends to its users, San Jose, California's eBay promised to refund listing fees for all auctions that were running Thursday and Friday. Based on its fees, this translates into another $3 million to $5 million (US$) loss. Add this to its loss in equity and you can see that eBay paid one of the biggest prices in history for a not having its infrastructure together -- with systems bulked up enough to handle it staggering volume.

Can eBay recover?

Some analysts say -- as inconceivable as it may sound -- another similar outage could force eBay into an unrecoverable tailspin. How can this be? When all a company really has to offer is its ability to connect millions of buyers and sellers -- reliability is its greatest asset. Without it, customer loyalty can evaporate overnight.

America Online suffered repeated outages in 1996, including a day long crash in August, which brought it to the brink of losing its customer base. Tens of millions pumped into advertising, infrastructure and customer service made it possible for AOL to eventually recover. But analysts wonder if eBay will be as lucky?

Could have been avoided

Perhaps the saddest part about what has befallen eBay and its online customers is that it could have all been avoided if only the company had learned from the mistakes of AOL and online stock brokers such as E*Trade. It's as though eBay's meteoric rise blinded it to the most important of all fundamental e-commerce principles: never grow faster than your ability to serve your existing customer-base. Let's hope for eBay's sake and that's one axiom it quickly relearns.


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