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EBay's Magic Has Faded But May Be Back

Yet it is unlikely eBay's latest results will stop the debate analysts have been having over whether the auction site has simply taken a breather from its heady growth -- or is wrestling with more serious problems that could loosen its monopoly-like grip on Internet auctions.

Derek L. Brown, analyst with Pacific Growth Equities LLC, has seen signs of slowing growth over the past year that he described as too deep and wide to be minor. While eBay's revenue and profit are still growing, Brown's research showed some metrics declining, such as the amount of revenue generated per listing. The average number of items listed per eBay user also started dropping last year, Brown found.

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"Any one of these metrics is easily explainable or overlooked," he said earlier this week, "but collectively they tell a fairly strong story, one that has been supported by the conversations we have been having with sellers."

More and more top eBay sellers are dipping their toes into competitive waters, Brown said, testing not only rival sites but also using Google's and Yahoo's search-related marketing services to advertise their own Web storefronts.

Mark Mahaney, an analyst with American Technology Research Inc., said it remains to be seen whether Google and Yahoo present direct competition to eBay. "Right now I am skeptical of that approach, but it is an open thesis," he said.

Nobody is sure what, exactly, is causing eBay's growth to slow or its dealers to get restless. There are hints of buyers drifting away, too: After years of steady growth, eBay's traffic has dropped for nine months in a row compared with the same months a year earlier, according to ComScore Media Metrix. In January and February, eBay's traffic drops were particularly steep -- 14 percent each month.

EBay still commands huge traffic -- 66 million visitors in March, more than a third of the 164 million Internet users in the United States, according to ComScore. And its transaction volume dwarfs that of all competitors, with a total of $10.6 billion in goods sold in the first quarter of this year.

But eBay dealers have been complaining that their auctions are drawing fewer bidders and lower selling prices -- something eBay executives chalk up to natural demand cycles in any marketplace.

Bob Lee, a video-game dealer in Columbus, Ohio, who runs a Web site called Power Sellers Unite, said he stopped selling on eBay after the recent fee increases.

"We are now helping sellers find alternative auction sites and ways to promote their listings," Lee said. "We have members who will never list on eBay and many that have cut down on their listings."

Other dealers, however, find eBay's sheer number of buyers irresistible. Rmenda Rice, a seller in Disney, Okla., said she tried auctioning her goods on Overstock.com a few times after eBay raised her fees: Overstock's "fees were lower, but the site just wasn't getting the business eBay did."

Nobody, of course, is suggesting eBay is facing any real financial trouble. It remains one of the world's most profitable companies and might even get its mojo back if its auctions catch fire in China, say, or another large market and spread there at the same amazing rates once seen in the United States.

Leslie Walker's e-mail address is walkerl@washpost.com.

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