eBay buys stake in surplus site

SAN JOSE, Calif. -- eBay Inc., which has persuaded millions of Americans to trade everything from Beanie Babies to high-school yearbooks online, now is betting that U.S. corporations are eager to sell their odds and ends over the Internet, too.

In one of its first equity investments in another company, eBay (Nasdaq:EBAY) is co-leading a $22 million venture-capital investment in TradeOut.com Inc., which runs an online marketplace for corporate surplus materials. eBay declined to say how big a stake it is buying. But it said its CEO, Margaret Whitman, will join TradeOut's board.

TradeOut (www.tradeout.com), based in Ardsley, N.Y., started operations in June and currently lists about $500 million of business equipment for sale. Items range from surplus office furniture to 10,000 pairs of orthopedic pantyhose.

TradeOut's founder and CEO, Brin McCagg, said that only about 5 percent of the items listed on his site have sold to date. But he predicted that figure will rise as TradeOut uses its venture-capital infusion to market aggressively to likely corporate buyers and sellers.

Already, McCagg said, he is getting listings from IBM Corp. (NYSE:IBM), Abbott Laboratories Inc. and other major corporations. Those sellers pay a $10 listing fee and 5 percent commission when items are sold; they are betting that Internet sites like TradeOut will attract more potential buyers than they could locate via conventional means.

Hoping to be the next eBay
Plenty of other Internet pioneers are hoping to create the business market's equivalent of eBay. A recent Goldman, Sachs & Co. report listed 22 closely held companies specializing in business-to-business electronic commerce, many of which see online auctions as part of their strategy. Among publicly traded companies, VerticalNet Inc. runs a variety of industrial auctions online.

Still, growth forecasts are so robust that analysts see room for many online industrial-commerce companies to thrive. Forrester Research Inc., of Cambridge, Mass., recently predicted that business-to-business online auctions will amount to $52.6 billion in 2002, up from $8.7 billion last year.

Benchmark Capital, the other major new investor in TradeOut, offered even more ebullient growth forecasts. David Beirne, a Benchmark partner, said TradeOut could compete in a market with $380 billion of annual revenue, adding: "If we do it right, this could be our eBay of the business-to-business market."

Beirne and William Gurley, another Benchmark executive, will join the TradeOut board. Benchmark, a Menlo Park, Calif., venture-capital firm, was an early investor in eBay. That initial stake of less than $10 million has surged to more than $4 billion in value.

Meanwhile, Morgan Stanley Dean Witter Inc. is making an equity investment in TradeOut as well.

At eBay, Whitman said her company had looked at four or five other industrial-auction opportunities, but felt the TradeOut management team was farthest along in building its business. She said eBay, which has more than $700 million in cash, may look for other chances to make minority investments in companies that provide a strategic benefit.

While TradeOut's McCagg said he emulated much of eBay's business plan when he formed his company, there are some notable differences. TradeOut allows sales to be made on a sealed bid or first-come, first-served basis, as well as by auction. And unlike eBay, which keeps most auctions running a week or less, TradeOut will allow items to be on the block for as long as a year.

Some items -- such as a liver-transplant database system being offered for $25,000 -- just aren't likely to sell in a few days to an impulse buyer, McCagg explained.