eBay said yesterday it will pay $75 million to AOL to promote its person-to-person auction site on the AOL service, AOL.com, and other properties. Today, analyst Alan Braverman of NationsBanc Montgomery Securities suggested on CNBC that e-commerce giant Amazon.com may add an auction service, a story that Braverman's office later branded "a rumor." Amazon wouldn't comment.
Rumor or not, it's no secret that auctions are making big money, and are gaining cachet on Wall Street, as shown last month when shares of gadgeteer Sharper Image spiked partly in response to its announcement that it would add an auction component to its Web storefront.
Industry observers say there are all kinds of good reasons a big Web company might want to jump into the fray.
"It's really just another way to sell," said Jill Frankle, an International Data Corporation analyst. "It's a way to sell that drives community and drives visitation to the site. It's not tremendously cost-intensive."
"The name of the game," said David Baltaxe, e-commerce analyst at Current Analysis, "is to bring customers, to buy eyeballs. Auctions happen to be a way to do that."
The speculation about Amazon stems in large part from eBay's success. The company reports huge traffic numbers and counts itself among that rare breed of Internet companies that are profitable. On eBay, buyers and sellers meet to barter among themselves. eBay collects a listing fee and a cut of the sales price, and thus makes money even when an item doesn't sell.
Other big Web firms may also be getting ready to expand their auction efforts. Portal giant Yahoo features a person-to-person service called Yahoo Auctions. Even though Yahoo charges no fees to buyers or sellers--counting on ad banners on auction pages to generate profits--it still lags eBay.
Earlier this month, however, Hambrecht & Quist analyst Paul Noglows, who follows Yahoo, said after a briefing that the portal is interested in charging fees on the auction site.
That's a good start, said Frankle, but, "they need to do something to generate interest and make it higher profile for Yahoo visitors."
On the other hand, it may be even more of a challenge for a portal site like Yahoo to reap profits from auctions than it would be for a site that's more focused on e-commerce. "There's not a tremendous amount of traction on Yahoo Auctions," said financial analyst Derek Brown of Volpe Brown Whelan. "An auction service at Yahoo is one of dozens of other services they provide, so it may get lost in the shuffle." Nonetheless, Brown said he expects Yahoo to beef up its auction offerings.
One crucial question: would an Amazon or a Yahoo rather build an auction site or buy a company that's already in the business? In Amazon's case, "I don't think they need to buy an auction company," said Frankle. "The technology is out there and it's cost-effective. I don't see why they would go buy an entire company."
Either way, it's a challenge because of eBay's dominance, said Brown. "It's very difficult to break into this space because you need to offer something that eBay doesn't offer. It's difficult to offer more buyers or more sellers and that's only going to become more difficult as it gets bigger."