THE DAY AHEAD: Put eBay's outages in context; Qwest's quest

Larry Dignan
3 min read

EBay Inc. (Nasdaq: EBAY) has been down more than it's been up in the last few days, lost $3 million to $5 million in second quarter revenue because of outages, and as of Sunday evening still had problems. None of that is good news, but shareholders should take a heavy dose of context before dumping eBay.

Will we remember this outage in five years?

eBay: Are outages a long-term threat?

Warning: Wearing your context cap on won't be easy. If eBay shares got an outage-induced 10 percent haircut Friday, today's action could be a real doozy. Outages are one thing. Lost revenue is quite another.

If eBay shares get hammered remember the context. Here are a few items to tape to your computer screen.

Context point 1: This is the Internet and was bound to happen. The Internet isn't perfect and it sure isn't fail-proof. Every Internet company has a few paragraphs in its regulatory filings stating the risks with failing systems, outages and other glitches. Granted, eBay's outages have spanned four days or so, but investors had to know it was coming. Chalk eBay's problems up to growing pains. America Online Inc. (NYSE: AOL) and Amazon.com Inc. (Nasdaq: AMZN) had them.

Context point 2: The main outage -- from June 10 to June 11 -- was Sun Microsystems' (Nasdaq: SUNW) fault. "The cause of the outage has been traced to Sun Microsystems software," the company said. Translation: If you're selling eBay be sure to dump a few shares of Sun (Nasdaq: SUNW) while you're at it. Without the specifics of what happened, it's hard to pan Sun. However, the eBay fiasco certainly isn't going to win Sun any customers as it paints itself as the "dot in dot com."

Context point 3: The eBay outage will improve the company's systems in the long run. Conducting millions of auctions daily isn't easy, but eBay had to learn a few lessons here. Once the crisis is over look for an upgrade.

Context point 4: EBay is still the real deal. Just because eBay lost $3 million to $5 million in revenue doesn't mean competitors such as Amazon.com Inc. (Nasdaq: AMZN) are going to catch eBay. EBay's outages are certainly good for its dozens of competitors, but doesn't mean the company isn't still numero uno in the auction world. There's a reason eBay has the largest garage sale in the world. It has community, commerce and even a profitable business model. EBay also has the largest selection of items.

What about all the "eBay defection" stories? Don't worry. We journalists are always looking for an angle. Writing about the folks that left eBay forever and went to Yahoo! Inc. (Nasdaq: YHOO) and Amazon is a much sexier story than writing about the people that are sticking around. Wanna bet the press doesn't cover the defectors' return to eBay?

Context point 5: Strong management. Credit eBay for being open. Many companies would have clammed up, but eBay has a running log of its problems and what it's doing to fix them. EBay up until now has had a great track record of delivering. Cut them some slack.

Qwest's quest

Aren't those guys at Qwest Communications International Ltd. (Nasdaq: QWST) something? Instead of trying to one-up Global Crossing (Nasdaq: GBLX) once, it went for the double.

Qwest is offering $55 billion to buy both US West (NYSE: USW) and Frontier Corp. (NYSE: FRO), both of whom are supposed to merge with Global Crossing. See full statement. US West shareholders were less than thrilled with the Global Crossing deal, so Qwest's offer will look pretty good.

For Global Crossing the Qwest bid is a nightmare. Without US West and Frontier, the company looks like an also-ran. For Qwest, the synergies are there. Qwest has a snazzy fiber-optic network, but few customers. Frontier and US West would fix that problem pronto. Qwest's offer for Frontier and US West is better, easier to understand and simply makes more sense.