One of the toughest jobs I have as a journalist is taking a shot at someone who's riding high. It can easily be seen as a cheap shot, and (worse yet) I could be proven wrong. With that in mind, let's talk about eBay .
The beauty of eBay is that it seems to be a pure Internet play. Customers hold the inventory and transfer it. The Internet makes the auction idea extremely powerful. Leadership is "sticky." Competitors to AOL, Yahoo and Amazon have found it's tough to break an early lead.
But in the case of eBay, looks deceive. I'm not talking here about the "meat space" competition from Sotheby's or Christie's . I am not discussing the success of niche competitors , well-capitalized challengers, or AuctionGate (more on them later). I'm not even talking about the delivery of software that lets any site offer auctions. Nor is this about the launch of auction service bureaus for those who are too cheap to buy the software.
What I'm talking about is that first sentence, two paragraphs above - "The beauty of eBay is that it seems to be a pure Internet play." In fact, I submit, eBay has huge "meat space" costs to contend with.
The fact is that, without constant, labor-intensive monitoring, an auction site is constantly stepping in deep shit, not high cotton, as eBay did when a journalist auctioned off an award the site had earned, on the site. The fact is that, no matter what eBay does, claims to do, or denies responsibility for , if you don't take physical possession of the goods you're offering the cops are going to be on your tail . The fact is eBay may be the best thing to happen to lawyers looking for billable hours since Ken Starr.
Nearly all the stories I've just cited came out within the last month. They are public knowledge. Why, then, does the price of eBay stock keep rising? Rumors are one reason. Just whisper the word "AOL" and many of the Clueless will swoon. Day traders have done very well with the stock, as have Internet true believers, so anything that spurs demand in the issue sends the price up. Another reason is that "stock analysts," whom you must remember are paid by brokerages to encourage stock buying, continue to recommend the thing. . (Analysts don't have a stake in what they push and almost never scream "sell.") At its February 26 closing price of $334, eBay was worth over $12 billion, a price/sales ratio of over 2,000-1, according to some quick research I did on Schwab.Com. (They split 3:1 the next week, and the price kept rising.) The comparable figure for Yahoo was $454 in equity for each dollar in sales. This is a "buy"?
Even if everything goes right for eBay, even if I'm wrong about everything I've written and linked to here, in other words, its price doesn't add up. The fact is eBay will have real costs, real competition, and real problems "going forward," as those stock analysts like to say.
What we're really seeing here is another leg in a continuing mania. There was the software mania, the "portal mania," the "e-tailer mania," and now we have the auction mania. Manias always end badly. You've been warned.
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Now back to the show...
The first time I wrote this newsletter, I called Chris Barr of C|Net "Clued-in." I've seen nothing since to change my opinion. So when C|Net makes a number of moves in a short period of time, digging through the press releases is bound to yield some good Clues.
Follow all this carefully. First, C|Net bought NetVentures , creator of an e-commerce software package called ShopBuilder that lets people build online stores at C|Net. Second, C|Net got out of competition with these new stores by selling its Buydirect.Com software store (@Home and private investors also held stakes), to Beyond.Com. (Small world department. This came after Buydirect dropped its own fraud screen in favor of one run by CyberSource, which itself had been part of Beyond.Com when it was called Software.Net. But I digress...)
Next, C|Net bought AuctionGate Interactive , an online auction site specializing in computer products. (Do you see some synergy here? I do.) The price was pretty cheap - 50,000 common shares come to about $6 million. Vern Keenan noted that last year computer products represented 69% of all auction revenues. By adding pointers to AuctionGate throughout its current service, C|Net ought to get a bigger share of that.
Later in the same week, C|Net bought Winfiles.Com, a free software download service. C|Net is paying twice as much for Winfiles as for AuctionGate, $11.5 million, and it's paying cash. Winfiles will be added to two other shareware libraries, Shareware.com and Download.com -- C|Net already does over 1 million downloads a day. Finally C|Net said it will raise $150 million through "convertible subordinated" notes (if all goes well the bonds will turn to stock) which means the deal making will continue.
Take a deep breath and add it up. C|Net's no longer the store, and it's no longer dealing with shrink-wrap. Instead, C|Net is the outfit behind the store. Whether someone's selling software, auctioning it, or giving it away, C|Net can run the shop, and it won't compete with the publisher in the process. Also, since it's no longer the store, no one has any reason to ever doubt News.Com's (http://www.news.com) editorial independence. This last is a Gordian Knot rivals like Ziff-Davis, CMP and IDG have yet to untie. It adds up to a very, very slick trick. Chris' boss, Halsey Minor, deserved his Clued-in designation years ago - I owe him an apology being so late with it.
The Problem of Microsoft's Fall
Do you think we can get through a few paragraphs about Microsoft without gazing at our navels or talking about the (big, bad) guvmint?
The great thing about Microsoft is that it can set standards. The problem with Microsoft is no one trusts it to set standards anymore. Here's an example in the area of privacy. Some time ago Microsoft bought a company called Firefly Networks Inc. Firefly was behind something called the Platform for Privacy Preferences (P3P), a standard for exchanging personal data. With Microsoft behind it, analysts figured that effort might get some momentum.
It didn't happen. So Microsoft re-packaged Passport as a proprietary solution called "Central ID." MSN merchants will be encouraged to use the "Central ID" to personalize shopping for their users based on preferences and purchase histories.
If P3P had worked as a standard, it would have been powerful for thousands of Web stores. Credit card data and privacy preferences could be stored in a standard format, passed along with one click, and shopping would be much simpler. There would be no more inputting your credit card number on one side, no more worrying about whether it was entered correctly on the other. That's just one example of P3P's potential usefulness.
Well, big merchants do offer the personalization benefits claimed for "Central ID." Outfits like Amazon.Com, Barnesandnoble.com, CDnow, Bid.com and TicketMaster Online offer it. Most spent $500,000 and more building solutions with software from NetPerceptions Inc., Eden Prairie, Minnesota. Vice president marketing Steve Larsen told me that if "Central ID" works under the P3P standard Microsoft has proposed, it's happening fine with his software. He also indicated failure of P3P shouldn't be laid at Microsoft's feet. "Merchants felt that understanding their customer's preferences was a key competitive advantage," he explained, one they resist sharing.
Still, if Microsoft has lost its power to set standards, because no one trusts it and it competes everywhere, who can set standards? Committees ratify standards set in the marketplace. Supporting any market standard that's not proven leads to the risk it will be supplanted, and you'll lose what you built. The bottom line is if we don't have Bill Gates to kick around anymore, the market will have to invent a replacement.
A lot of political shows, like CNBC's "Hardball," have become nothing but soft porn over the last year. If you really want to see hardball, go to the field of Internet access.
AT&T is currently trying to get a monopoly on cable-based Internet access and so far, despite a lot of opposition, it's winning. The FCC has approved the AT&T-TCI merger, and said the new entity will not have "common carrier" status, which means they won't have to let rival ISPs into their cable. TCI is fighting local efforts to open up the cable to ISP competition, both before local governments and, where necessary, in court. With the TCI purchase, AT&T becomes a controlling shareholder in @Home, which is buying Excite, which owns Matchlogic, which is heavily into the business of targeting Web ads based on databases. TCI tried to get ready for that by forcing its cable modem customers to give permission for its sale of their personal data, but they played hardball right back .
This is not the only area where broadband is leading to hardball tactics. Local Bell companies, which are common carriers, have been using pricing and technical objections to forestall competition, with great success. That's why ISPs are going to CLECs, and that's why the FCC's recent decision ending reciprocal payments to CLECs is important. (Many reporters got that wrong . The move to keep satellite dishes from offering local broadcasting, which slows the adoption of those dishes, may be seen in the same light, since many of those companies are moving to offer fast Internet downloads.
While the watchdogs are salivating over sex, in other words, real scandals are being ignored.
Watch This Space
Two sites that deserve your attention this week are "phase two" of Harry Motro's business plan for Go.com, called "Go Shop" and a site where, in time, Amway will launch its e-commerce efforts . Bookmark both, and re-visit them often, to see how your big competitors are doing.
Clued-in is Simon Realty, a shopping mall developer that has launched a major branding campaign and (finally) decided to get involved in e-commerce. Better late than never, and they've already picked up the Clue that brand is a key ingredient to a successful e-commerce launch.
Clueless is the Secure Digital Music Initiative , the latest attempt to stop MP3. The battle isn't between the industry and the public, but between artists and record labels for control of the industry.