The New York Times

May 24, 1999

DIGITAL COMMERCE

Success Stories From Ebay

By DENISE CARUSO

In addition to being the most important invention since fire, the commercial Internet is, apparently, the perfect parking lot for a global flea market.

The overwhelming popularity of the online auction giant Ebay -- with a $22 billion market cap and millions of daily visitors -- has inspired a convoy of me-too sites hoping to slipstream on its success. They range from Amazon.com, branching out from its pure retail roots with a huge advertising campaign to draw people away from Ebay, to the online technology site Cnet, which started its auction site for high-technology products last week.

Whether the gargantuan success of Ebay can be duplicated is anyone's guess in today's surreal business environment. But it has clearly stumbled onto something the likes of which has never been seen before.

Consider the experience of one consultant whose interest in emerging technologies dove-tailed rather nicely last week with her fascination for Star Wars mania.

Sally Rosenthal, who is based in Palo Alto, Calif., said that while at a Target store in Silicon Valley watching collectors line up to buy Star Wars trinkets, she started talking to a couple in their early 40s, with infant in tow, who had been returning to the shelves every 20 minutes. The couple systematically bought up $4,000 worth of stuff, each buying the maximum items that Target allowed each customer, then going back for more.

"They said they'd decided that the lowest risk with the fastest, highest return," Ms. Rosenthal said, "was to buy Star Wars merchandise, then post it on Ebay for a seven-day auction, with a reserve" -- the lowest price they would take -- "of double their money." Thus, at the end of seven days, they would double their investment, maybe doing even better, "or they would return the merchandise, making it zero risk; their only investment was their time and running around to buy the stuff."

If Ebay is easing windfalls for creative investors, it is also inspiring more traditional creators.

Allee Willis, a Grammy-winning songwriter and artist who abandoned a seven-year foray into multimedia because she could not get the "suits" in Hollywood to invest in her Willisville Web community project, said Ebay "honestly inspired a career change for me, and after seven years of dedicating my life to interactive and being repulsed by it, Ebay brought me back."

A fanatical collector of 1950s atomic kitsch and a talent scout for what might best be called "outsider art" and artists, Ms. Willis found her online home.

"It's not even the sagas and who I've met," she said. "It's the system I have going for bidding -- right now, I have three G3 Macintoshes, with three bidding windows opened on each of them -- and what goes on when I want to win. I have a special swivel chair that I got just to do Ebay, and all I do is spin around from computer to computer, bang-bang-bang. My final bid goes in three seconds before the end of the auction, and I knock everyone out."

Her discovery of a painter selling his work on Ebay inspired her to start painting again for the first time in 10 years. "I thought if I could make enough money to keep my house I'd be happy," she said. "By the time I sold the third painting, the bell went off and I felt like I'd stumbled into what I'm supposed to be doing."

Sunday she opened a Web site for her latest find, Bubbles(www.bubblestheartist.com). But unlike previous discoveries, Bubbles the artist is Ms. Willis herself. She will sell Bubbles' paintings, along with matching objets de kitsch (such as Black Power Afro Picks and dog accessories), matching music (from her musician friends who have recorded "really, really horrible" versions of their famous songs) and outrageous, matching on-site animations with sound tracks (also for sale, of course), on both her Web site and on Ebay.

Ebay, she said, is "a fantastic interface for doing nothing but getting people together and getting the business people out of the way -- it's making a people's medium out of something that today is just being cluttered by business and technical junk."

Even though Ebay is big business, Ms. Willis said, "you don't see it -- you don't have to deal with anyone except the person who's buying or selling."

"If the trend in the next century is working for yourself," she asserted, "Ebay is going to do more for that than any other interface. It's easy and it's comfortable, and when you do it once you aren't afraid of it anymore."

Stories like these do not surprise Larry Downes, a technology consultant and a co-author of the book "Unleashing the Killer App: Digital Strategies for Market Dominance" (www.killer-apps.com). Downes, an unrepentant Ebay addict and collector of 1950s vintage horror comics, finds the auction service to be the perfect example of a killer application in which the Internet lowers transaction costs and creates new markets.

Downes is a devotee of Ronald H. Coase, the economist and Nobel laureate who more than 60 years ago first explored the concept of transaction costs.

Coase's transaction costs, which Downes says are still not considered in most business formulas, include that of buyers and sellers finding each other, of finding or providing the information needed to make the transaction, of bargaining and making the buy-or-sell decision itself, and of policing and enforcing the terms of the sale.

Downes says Ebay virtually eliminates several of these. "What Ebay lets you do is find mini-transactions where otherwise people would never have gotten together," he said. "Because it's so diffuse, there was a much more liquid market for comics, for example, than any of us knew. Every year there's a comic book convention, but otherwise the market was not very liquid. Ebay's made it a 24/7 bazaar."

On just one day last week, there were nearly 500 active Ebay auctions just in the category of 1950s horror comics and more than 25,000 for comic books over all.

Ebay and its clones are not without the kind of caveat emptor problems that plague all flea markets. But on Ebay, at least, scammers offering nonexistent or fraudulent goods, for example, are often caught by shrewd buyers who can then post comments about the sellers, warning off the unwary.

"The most interesting difference between Ebay and other auction sites is who decides what merchandise is sold," Downes said. "Sites like Onsale.com," which sell distressed, surplus or bulk goods, "are saying, 'Here's what we've got; this is what we'll auction off.' Ebay says: 'We have no idea what you want to buy or sell. We'll just create the platform and a set of tools and allow the markets to define themselves."'