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The rules rule eBay's infrastructure

The rules with which communities interact with and across the infrastructure can be at least as important as the infrastructure itself.

As technology observers, it often seems most natural to view the strengths or weaknesses of some online service through an infrastructure lens. For example, the virtualization layer underlying Amazon's EC2 very much shapes the nature of the offering. On the one hand, virtual appliances of a sort let you quickly fire up a virtual machine (VM) instance. At the same time, VMs are, in a sense, ephemeral--which has implication for the way you store data permanently within the Amazon framework.

Other examples simply involve trading off service levels against costs. Want double-redundancy? You get what you pay for.

However, some of the recent changes at eBay are a reminder that optimizing for a particular type of customer and, ultimately, for a particular business model is also about the rules imposed on top of the infrastructure. To be sure, some rule choices are shaped by technology and the realities of a World Wide Web.

However, other rules are just choices. And, in the case of eBay, even fine tweaks of the governing rules and procedures can hugely affect all sorts of dynamics between buyers and sellers--and thereby how attractive a venue is to buy and sell in general or even just to buy or sell items with a particular set of characteristics or in a particular way. For example, standard eBay auctions--in which eBay's computer will "proxy bid" up to a pre-determined maximum--look like a sealed-bid, second-price Vickrey auction. This has all manner of implications for buyer and seller behavior--as well as for the ways in which the system is potentially exposed to gaming in various ways. (In The Undercover Economist, Tim Harford takes a look at how changing auction formats made a huge difference in selling wireless spectrum frequencies.)

eBay's recent feedback and pricing changes are another example. Pricing changes explicitly favor large sellers. In addition, it's now changed the longstanding (if only middling effective) mutual feedback system so that sellers can't leave neutral or negative feedback. Instead, eBay claims that it will pump up enforcement against non-paying buyers. In other words, the feedback system now looks a lot more like a conventional e-Commerce system. After all, buyers get to rate online merchants but doesn't go around rating its buyers; it just wants its money. However, the new setup is probably not as attractive for a small-time seller who might want to be more selective about the buyers they sell to instead of just playing the odds like any store of significant size does.

eBay provides lots of game theory data points with respect to, not only auction theory, but all sorts of buyer and seller behavior. However, beyond the specific, it also provides plenty of evidence that relatively small changes in the ground rules can create outsize consequences in the way that communities interact and operate--for better or for ill.

That's worth remembering if your business or organization depends on community--and oh so many do today.