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eBay's auction rivals close in

Competitors of the Net's leading auctioneer are sniffing around the company's business strategy looking for ways to make inroads.

Rival auction sites are sniffing around No. 1 auctioneer eBay's business strategy looking for ways to make inroads.

There's no question that eBay dominates online auctions with about 70 percent of the market, according to Gomez Advisors analyst Sue Rothberg. But Rothberg said the latest numbers show the company is vulnerable, and its competitors could benefit from its recent stumblings.

Yesterday, eBay reported that its second-quarter earnings dropped 70 percent from a year ago. However, revenues, registered customers, and gross sales grew in a mixed bag of results.

That news comes after a 22-hour outage in June, which led the company to issue sellers nearly $4 million in credits, and a stagnating number of simultaneous auctions.

Representatives at Yahoo and Amazon said they have yet to target eBay's customers, although auctions have become a focus for both. Yahoo has seen the number of simultaneous auctions on its site more than double, jumping from less than 200,000 in late April to more than 500,000 today.

Amazon, which refuses to release numbers on its auctions, reported last week that auctions were the fastest-growing part of its business.

Steve Weinstein, analyst at Pacific Crest Securities, said Amazon's auction listings represent just 5 percent of eBay's.

In a recent survey, Pacific Crest also found that at Yahoo's site about 20 percent of the items listed sold to bidders within 24 hours, compared with about 45 percent of items sold at eBay, Weinstein said.

"People have been pointing to Yahoo's auction count, but you really have to dig in and look at the numbers," he said. "Yahoo is a free site. Their growth is coming from items that no one wants to buy."

That's not necessarily so, said Faye Landes, analyst at Thomas Weisel Partners. She noted that at last count Yahoo was listing thousands of coveted Beanie Babies.

"Certainly eBay is way ahead of everybody else, but it's not like Yahoo is a wet-behind-the-ears company. And I'm not sure Amazon is a company anyone wants to take on," she said.

Meanwhile, she noted, eBay reported that revenues per user last quarter dipped from $8.90 in the first quarter to $7.20. Landes said it's unclear which company will dominate the market in the long run, though eBay has a big jump on all its rivals.

Mark Dodd, administrator at the AuctionWatch Web site, said eBay's primary vulnerability is its technical problems. Fed up with the repeated system outages, many eBay sellers are now spreading their wares around to other auction sites, instead of selling everything through eBay, he said.

Still, despite the problems, Dodd said eBay will continue to draw sellers who auction a large number of items and provide much of eBay's diverse offerings. Such so-called power sellers are drawn to the site by its critical mass of sellers.

"I don't think they will ever lose them entirely," Dodd said. "Any power seller would be foolish to just abandon it."

Jupiter analyst Mike May said that many of these users stick with eBay in part because of the site's feedback rating system. Many sellers have built up high feedback numbers and responses over time, and those can't be transferred over to other auction sites.

But May said that eBay has a "very loose" relationship with its sellers, and that could lead them to jump ship quickly if the outages resume.

"All eBay's promised to do is keep the site up," May said. "If they don't keep the site up, it gives sellers a reason to look around."

According to Gomez Advisors, the consumer-only auction space will grow from $1.57 billion in 1998 to $15.5 billion in 2001. Meanwhile, the number of registered auction users will jump from 1.5 million in 1998 to 17.5 million in 2001. Gomez expects 15 percent of all consumer e-commerce spending this year to take place in auctions.

Gomez's Rothberg said that with that type of growth, Yahoo, Amazon, and the other auction players have a good chance of becoming successful. And while Rothberg expects that other auction players will eat into eBay's lead, she said that eBay continues to offer a better selection and better services than its competitors.

"They are the goliath and will continue to be," Rothberg said.