Auction service industry proving profitable

Companies such as AuctionWatch, Andale and PayPal are reporting financial success stories that draw on the popularity of eBay and its related services.

3 min read
eBay has always been profitable; now some of its stepchildren are starting to be also.

AuctionWatch.com, one of the oldest auction service sites, announced on Tuesday that it had reached profitability in the first quarter on a generally accepted accounting principles (GAAP) basis. The announcement comes as other auction-related companies, such as Andale, AuctionWorks and PayPal, have posted similar financial good news.

"Things are looking up for this little industry," said Munjal Shah, chief executive officer of auction service provider Andale. "It's a good sign."

As eBay grew from a small online flea market to the dominant e-commerce venue, a number of start-up companies formed hoping to cash in on eBay's popularity by providing services to eBay sellers. Among the services they offered were picture hosting, online escrow services, auction management and payment processing.

Despite the continuing growth of the eBay marketplace, the way has not been easy for many of these companies. Some services, such as escrow and online appraisals, proved unpopular with eBay members, leading to the demise of companies such as I-Escrow and Eppraisals.com.

Shaky relations
Meanwhile, eBay has had a somewhat contentious relationship with some of the service providers. A dispute over search engines that compared eBay's auction listings with those of other auction sites resulted in dustups with AuctionWatch and auction search site Bidder's Edge, which eventually led the latter to shutter its site. PayPal and eBay have fought over the online payments market for years, with both sides sometimes questioning the other's tactics in trying to lure customers.

The decline of the stock market and the withering of VC funds also hurt some of the providers. AuctionWatch, Andale and FairMarket all cut staff over the past year in an effort to trim costs.

But in recent months, the fortunes of such companies have started to change. eBay took a big step away from confrontation last year when it launched a "preferred service provider" program to tout companies with a proven record of helping sellers manage their auctions. The program includes start-ups such as Andale and AuctionWorks. Consulting giant Accenture will join the program this fall.

"eBay said in the past that they would support companies like Andale and AuctionWatch," said Vernon Keenan, an analyst with Keenan Vision. "(They're) beginning to walk their talk a little better."

eBay representatives did not return calls seeking comment on its efforts to work with auction service companies.

AuctionWatch and eBay buried the hatchet on their dispute last summer, when AuctionWatch agreed to stop searching eBay's listings and eBay named it one of its preferred providers.

Seeing green
Despite the economic downturn, many of the survivors have begun to improve their finances. Andale announced in April that it reached cash-flow breakeven in February and March and expected to remain that way. PayPal was profitable in the first quarter, the company reported last month. And AuctionWorks expects to reach profitability later this year.

"We're in great position," said Alec Peters, chief executive of AuctionWorks.

AuctionWatch was helped by the cutbacks it made last year. In addition to shedding staff, the company aborted an effort to court big business customers and shuttered its news and editorial operations. Instead, the company focused on its selling its service to small-business sellers, its core customers.

Getting back to basics has been a big success for AuctionWatch, said Larry Jordan, the company's vice president of marketing. Over the last year, the company's customer base has nearly tripled to 100,000 and the number of customer-operated storefronts on its site has doubled to more than 20,000. The company expects to continue its profitable ways in the future, he said.

"Customers view our services as quite valuable," he said.

Like other auction management companies, AuctionWatch provides tools that help customers list goods on eBay, keep track of inventory and communicate with customers. The company offers different rate plans, including annual and monthly subscriptions and per-item listing fees.