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HOW TO INCORPORATE

Can You Survive the Ebay Economy?
 

If you think Web auctions are only for collectibles, you're in for a surprise. These online agoras now sell everything from moving services to real estate while giving rise to "microbusinesses," a new and increasingly powerful type of enterprise.
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Online auctions aren't just for collectibles anymore. They're selling everything from moving services to real estate -- and they may be muscling into your turf.

Online watch retailer Grandwatches sells Omega, Seiko, and other quality brand-name watches at steep discounts not only on its own Web site but also on eBay's and Yahoo's online auctions. The discounts are possible because Grandwatches operates with gross margins ranging from 1% to 12%, compared with as much as 50% at traditional jewelry stores. How does the company get by with such razor-thin margins? Low overhead, of course. In fact, overhead can't get much lower than it does at Grandwatches. The company consists of only Omar Nuno, a full-time Medicare claims processor at HMO Kaiser Permanente in Pasadena, Calif., who stays up late at his home computer putting up listings for new merchandise and trading e-mail with his customers. "It takes me a couple of minutes to put up another watch," notes Nuno. "I have a vacation coming up, so I should have time to double my listings."

Nuno's company is an example of a class of tiny enterprises -- call them "microbusinesses" -- that have come into their own online and may well be giving conventional small businesses a run for their money. The Web was supposed to level the playing field between large and small companies. It hasn't, because small companies' Web sites have been buried out of view from consumers in a sea of competitive entries. Large companies, meanwhile, whether they're conventional corporations fortified by brick-and-mortar sales or dot-coms wielding vast piles of cash hurled at them by giddy investors, are buying eyeballs via massive advertising campaigns. But what the Web has done is level the playing field between small businesses and the micro-businesses that until now barely showed up on anybody's radar screen.

Those microbusinesses are individuals without a substantial -- or in many cases, any -- business history or infrastructure behind them. Operating with virtually no overhead, typically with little inventory, and sometimes in legal gray zones, these one-person shows are often able to offer fire sale prices and still maintain a modest margin. And the billions of dollars in revenues that they in aggregate are piling up come, to a certain extent, out of the coffers of more traditional businesses.

The market
Microbusinesses are tapping into powerful markets. Grandwatches' Nuno, for instance, has sold watches to customers in Belgium and Japan. Another example is Ed Ciliberti, a Pacific Grove, Calif., real estate broker who three years ago opened a booth at a local antiques mall. It was a pleasant hobby, but he wasn't clearing much. Last September he tried his hand at selling on eBay, and within three months he had earned about $30,000 on sales of $70,000. An antique peanut roaster that he'd bought for $250, and that failed to sell at the mall or at local auction, went for $2,950 on eBay. A copy of the first issue of Playboy magazine, which he'd bought for $900 and had autographed by Hugh Hefner, went for $11,100. Now he spends 60 hours a week online, whereas his real estate activities have been pruned back to 15 hours.

Although the major online auctions have long been known for collectibles, an important change has quietly taken place during the past year or two: the auctions have become popular conduits for everything from real estate to automobiles. "This isn't the tchotchkes business," says Tony Surtees, general manager of the Commerce Group at Yahoo, which runs the second-largest online auction. EBay, the granddaddy of online-auction sites, lists more than 130,000 computer items and 6,000 cameras. "We have never wanted to limit ourselves in any way, shape, or form to the collectibles market," says Brian Swette, eBay's chief operating officer. As a sign of the times, he notes, the company plans to relabel its thriving "sports memorabilia" section as simply "sports" to reflect the fact that collectibles are being shouldered aside by "practicals."

Still, Swette and other eBay employees refer to their site as a trading community, apparently to preserve the notion that the online auction has more in common with swap meets than with malls or other retail outlets. "We offer something more personal, more special," says Swette. "Almost every item has some level of uniqueness to it."

Really? I did a few quick searches of eBay and came up with the following counts of listings: 295 for screwdrivers, 65 for guitar strings, 108 for staplers, more than 7,000 for sweaters, 4 for disposable diapers, and 10 for hamster cages. Throw in countless watches, cameras, and baseball cards, and that short list places eBay in direct competition with almost every retail store in the downtown area of the midsize suburb in which I live.

Last updated: Mar 1, 2000

DAVID H. FREEDMAN: A Boston-based contributing editor, Freedman is the co-author of A Perfect Mess, which examines the useful role of disorder in daily life, business, and science.
@dhfreedman




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