What Makes EBay Invincible?

EBay (Nasdaq: EBAY) continues to stand out as one of the few clear-cut successes in the online world.

The auction giant has been consistently profitable at a time when other Internet companies are languishing in the red or closing down altogether.

So, what is the company's secret? Experts say a combination of factors has boosted EBay to the top of the dot-com heap.

Perfect Fit

Unlike some other Web companies, EBay's business model is truly suited to the Internet, analysts said. "The whole concept of auctions translates extremely well to the Web environment," Gartner analyst Walter Janowski told the E-Commerce Times.

"The type of real-time auctions that EBay hosts, with people simultaneously participating from all over the world, just could not exist without the Internet," Morningstar.com analyst David Kathman agreed in an interview with the E-Commerce Times.

Unlike EBay, Kathman said, other Internet companies closely resemble brick-and-mortar firms. "Amazon is ultimately just a retailer, Expedia (Nasdaq: EXPE) is essentially just a travel agency, and Webvan was essentially just a grocery delivery service, all of which existed long before the Internet," he noted.

Merry Middleman

EBay also is less capital-intensive than other e-commerce companies like Amazon (Nasdaq: AMZN), giving it a leg up on those companies.

"They are the middleman. They connect buyers and sellers and enable transactions, but they don't have to do any of it," Janowski said.

"Amazon had to build warehouses to hold all the stuff they sell, and ... they have to pay to ship it to the customers," Kathman added. While EBay leaves storing and shipping to buyers and sellers, fulfillment costs slash Amazon's gross by more than one-third.

The Fun Factor

Then there is the pure pleasure some people get from the auction process. "It's fun," Forrester analyst Christopher Kelley told the E-Commerce Times.

"Just like people like to go to flea markets or yard sales for used goods in the summer, or to outlets for new goods, EBay gives people a chance to have fun shopping, searching for the often-elusive deal on the perfect collectible or new item," Kelley added. "EBay is an outlet mall or flea market on steroids."

EBay also can be an inexpensive option for online shoppers. The site's users often know how much a particular item costs at a brick-and-mortar store, and they go to EBay looking for a deal.

"For consumers who have to tighten their financial belts, it's the perfect place," Kelley said.

Community and Critical Mass

But any auction site could be described as fun, less capital-intensive than other e-businesses, and well suited to the Web. EBay clearly has something extra.

According to Janowski, EBay has an edge over other auction sites because it worked hard to build a community. "Buyers and sellers are easily able to communicate with each other and share ratings and opinions," he said.

That sense of community has led to what Kathman calls the "network effect." "The more people use EBay's system, the stronger it becomes," he said. "All the buyers go there because that's where all the sellers are, and all the sellers go there because that's where all the buyers are."

Simple, Safe and Secure

Another thing EBay has done right is Web design. The company has shunned bells and whistles and has kept its interface simple and easy to use.

"EBay learned early on that people who use the Web want the sites they use to be very fast and efficient and uncluttered," Janowski said.

EBay also has focused on reliability and security, according to Janowski. "They have built a sense of trust with their customers," he noted. "They work very hard to maintain standards for what's being offered, to restrict people from abusing the system and to pull inappropriate material."

On the technical side, EBay has focused on making sure its site is always up and running, able to handle user traffic with no trouble.

"They very rarely have service interruptions, and they struggle to give the impression that they really have their act together and that it's a stable environment," Janowski said.