E-Commerce's Growing Pains

By Leslie Walker
Washington Post Staff Writer
Saturday, June 25, 2005

SAN JOSE -- EBay hired the B-52's rock group for a gala dinner here, sent acrobats up ropes, rented an amusement park and threw open its corporate offices yesterday to thousands of Internet sellers for behind-the-scenes tours as part of its 10th anniversary celebration.

Yet no amount of fanfare could gloss over the rumblings of discontent among the 11,600 people attending eBay's fourth annual user convention. The mostly mom-and-pop sellers who helped build eBay into the world's largest Internet commerce company griped openly about their slowing sales growth and fee hikes that eBay imposed several months ago.

"EBay treated us as disposable sellers for the last couple of years," said Angela Cash of Kennesaw, Ga., who bought a warehouse in 2004 to hold the Internet home decor items she once sold only on eBay. "I have auctions on Overstock.com now and am launching on Yahoo Auctions next month. Amazon has been courting me for two months, too."

The grousing from eBay sellers -- and the fact that eBay rival Overstock.com brazenly set up in a hotel here and lobbied eBay merchants to use its year-old auction service -- reflects the growing pains and intensifying competition throughout the online shopping industry.

Most of Web commerce turns 10 this year, including eBay, Yahoo and Amazon.com. Both eBay and Amazon launched their first services on the Web in 1995, the same year Yahoo incorporated to make a business out of the directory two college students started in their dorm room the year before. Netscape also held its initial public stock offering in 1995, igniting a frenzy among entrepreneurs eager to commercialize what had long been an academic medium.

The next decade produced a boom and bust that left EBay, Yahoo and Amazon, along with younger rival Google, as the Internet's top survivors. All four have been on a tear over the past year as they rushed to copy one another, roll out new services and buy a string of start-ups. Each is positioning itself to catch the next wave of Web commerce. But first they have to figure out what that will be.

"The exciting thing to me is that while we are 10 years into Internet commerce, it is still hard to predict what the next 10 years will bring," said Scot Wingo, chief executive of ChannelAdvisor Corp., a firm that sells automation software to help Internet merchants sell from eBay, Yahoo, Amazon and elsewhere. "After hardly being known a few years ago, Google is on the scene today, changing the rules on a lot of things."

Today's top players thrived by serving the many online retailers that attracted people to the Internet to browse, buy and research goods. In 2004, online retailing accounted for 4.6 percent of total retail sales in the United States, according to data released by the National Retail Federation's Shop.org subsidiary last month. Typing credit card numbers into remote Web stores has become commonplace, with 69 percent of American households now using the Internet to make purchases, Forrester Research reported last month.

Of the big survivors, eBay's success was the most surprising because programmer Pierre Omidyar started it to test of his ideas about pricing goods online and reviving centuries-old notions about community. Folks scoffed at the AuctionWeb program he put on his Web site on Labor Day 1995, offering just three basic functions -- list, view or bid on items. Although it was profitable almost right away, venture capitalists belittled it as an electronic flea market, and even Jeffrey Skoll, the man who partnered with Omidyar to turn it into a business, initially failed to grasp Omidyar's vision.

"I said, 'Pierre, that's a really dumb idea,' " Skoll said at the convention on Friday.

Since then, eBay has exploded into a worldwide economic and cultural force, with about 60 million active users expected to swap more than $40 billion in goods and services this year. While its revenue is less than half of Amazon's, far more merchandise is traded through eBay's person-to-person trading model; it just isn't booked as revenue because eBay doesn't handle merchandise.

Yet eBay's annual revenue growth slowed to 36 percent in the first quarter this year, causing analysts to worry that it eBay could be losing market share. Its annual sales growth in prior years had been averaging closer to 60 percent.

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