Hoping to emulate eBay's success, e-tailers, portals and content sites added auctions to their offerings. Meanwhile, a slew of new companies tried to cash in on the fervor by offering their own spin on online bidding, whether by offering services to auction users or by setting up "reverse auction" sites.
All were looking for a piece of the skyrocketing auction market. Gomez Advisors projects that consumer spending on online auctions will grow from $1.5 billion last year to $4.5 billion this year. In 2001, Gomez estimates that consumers will spend $15.5 billion on online auctions.
The best part about all that spending is that it comes relatively cheaply: eBay is profitable for a reason. Unlike Amazon, which has spent millions of dollars on inventory, distribution centers to house that inventory and marketing to promote its stores, eBay has virtually no inventory, spends a fraction of what Amazon spends on marketing and mainly worries about keeping its computers up and running.
But even more than a cheap new source of income, the companies wanted to add an element of "stickiness" to their sites. eBay, the online auction leader, is not only the thirteenth-most popular site on the Web, according to Media Metrix, but its users tend to visit the site more often and stay longer than they do on other e-commerce sites, analysts say.
All of eBay's advantages have added up to a soaring stock price, which is up nearly 50 percent for the year and more than 2,300 percent since it debuted on the public markets last year.
But eBay knows first hand that such popularity can be almost as much of a curse as a blessing. The company's site ran into scalability issues this year as an ever-growing number of users started searching for bargains. The problems culminated in a 22-hour outage in June. But even after that, the company struggled at times to keep the site up and running, and spent millions of dollars to put in place backup systems to improve site performance.
Despite the problems, other companies seemed to be in a rush to add auctions, especially as eBay and Yahoo saw their auction listings grow. By the end of the year, eBay averaged nearly 3 million daily auction listings, while Yahoo had more than 1 million.
Amazon, which launched its auction service in March, quickly saw its site become the third-leading auction site, and a primary alternative destination for eBayers disgruntled by recurring outages.
Other companies rushed to take advantage of eBay's problems as well. Auction software company FairMarket brought together a wide range of companies such as MSN, Dell and Playboy into a network of auctions sites. Meanwhile, other sites such as the Go Network, Egghead.com and Cameraworld.com decided to add standalone auctions to their sites.
Even Wal-Mart wanted to get a piece of the auction action, posting a job vacancy for an online auctions manager, and exploring the possibility of adding auctions to its Sam's Club site next year.
As the competition stepped up, each of the three main auction sites became more sophisticated. eBay and Amazon got into high-end auctions through their partnerships with offline auction houses Butterfield & Butterfield and Sotheby's, respectively. And eBay and Yahoo went global, with eBay launching country-specific auction sites for Canada, the United Kingdom, Australia and Germany and Yahoo targeting some 17 countries around the world.
At the same time, eBay also headed into local auctions, allowing users to buy and sell bulky or expensive merchandise such as cars and dishwashers. As part of that strategy, the company acquired car-auction company Kruse International and launched some 50 Web sites for metropolitan areas around the country.
The success of eBay, Yahoo and the other auction sites opened the way for auction portals such as AuctionWatch, Bidder's Edge and AuctionRover. The new sites offered auction services such as image hosting, message boards and universal search engines that allow users to search for items across auction sites.
The last service rankled eBay though, and the auction giant moved to shut down many of the search services, cutting off AuctionWatch's access to eBay's search engine and suing Bidder's Edge.
Also trying to get in on the auction game were companies such as Imandi, BizBuyer.com and Exp.com, which launched reverse-auction sites. The sites encouraged service companies to submit bids to small businesses and individuals looking for everything from house painting to legal advice to long-distance service.