Not everything needs to be auctioned

Catherine Holahan has a piece in Business Week about eBay and the decline of the company’s traditional auction business — or rather, the increasing growth of its non-auction “Buy It Now” business, which she says currently generates almost half of the company’s revenue. Nick Carr (always eager to pronounce something dead) asks whether eBay was “just a fad.” Some fad: eBay has a market cap of about $40-billion and year-over-year quarterly revenue growth of about 24 per cent. But it’s certainly worth asking whether its business model is evolving toward something non-auction based.

If anything was a fad, it was probably the idea that the eBay auction model could be applied to almost anything — that online auctions could solve virtually any problem, from disposing of human organs to getting rid of all your life’s possessions after a divorce. In that sense, eBay was seen as a giant hammer, and everything started looking like a nail. But it’s been known for some time that the auction model works for some things and doesn’t work for other things. And if you think about it, one of the main downsides to the auction model — as my friend Mark Evans notes — is that it can be a gigantic pain in the ass.

The auction — whether it’s the English style (used by Sotheby’s, etc.) or the Dutch style (known as a “reverse auction” because the price starts high and comes down) — is a method that is best used for goods that are scarce and for which there is plenty of demand, such as paintings by the Group of Seven or tulip bulbs in the 17th century. Some products on eBay might fall into that category, but certainly not every single one. And the other requirement for an auction model is time — something many prospective eBay buyers don’t have a lot of.

Does the increasing interest in the Buy It Now option mean the online auction is dead? Hardly. But not everything is a nail.

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