Jesse Berst: The plan to kill eBay (and why it won't work)

If you can't beat 'em...

... gang up on 'em.

FairMarket is teaming up with Microsoft, Excite@Home, Lycos, Ticketmaster and other leading Web sites to create an "eBay-killer" -- a mega-auction network. Post your item on one site and it will automatically appear on all the other sites that are members of the FairMarket Auction Network.

In 1998, roughly one million people took part in online auctions. That number will grow to 14 million by 2003 according to Forrester Research. On the US side, eBay is the 800-lb. gorilla in this space. Rivals Amazon.com and Yahoo are far behind, followed by at least 500 more auction sites.

FairMarket is the engine behind many of today's auctions. For a fee, it hosts the entire auction experience while putting someone else's name on the front. It can quickly build a network simply by linking its customers. The question is -- will it be soon enough? The answer is -- probably not. And the reasons are -- 1) network effects and 2) eBay can gang up too.

"Network effects" is the economic principle that says the value of a network depends on the number of members. A fax machine is useless if you're the only person who owns one. As more and more people buy fax machines, they become more and more valuable. Likewise, if you're looking to sell something, you want to list it on the auction network with the most buyers. If you're looking to buy, you want the network with the biggest selection.

And that means eBay, which lists more than three million items for sale. By contrast, the FairMarket network will include only 70,000 (though it will grow quickly in the next few months as additional big-name customers join in).

As we head toward the next phase of the Internet -- the "get-big-or-get-lost" phase -- partnerships and "networks" will be the only way for second-tier players to challenge the increasingly dominant market leaders. We've already seen the "gang up to win" principle several times, with banner exchanges, with link exchanges and with Flycast's recently announced email ad network. In all these cases, small players band together to create a large network.

The idea is a good one for auctions, too, and it's likely the FairMarket effort will eventually challenge Amazon and Yahoo for the runner-up position. But it's unlikely to get within striking distance of eBay. Not only does the company have a powerful brand, it can easily spin out an affiliate network of its own. I expect it to do so within months.

When that happens, the game will be eBay's to lose. Only massive technical snafus or fraud could unseat it from the No. 1 position.

What do you think of this effort to gang up against eBay? Send me your opinion via the mailroom.