Leading Internet auctioneer eBay saw its shares tumble on Wall Street yesterday as Microsoft and two other major online services joined forces to share listings in a rival auction network.
The unusual pooling of resources among the Web's top competitors acknowledged the explosive power of the electronic flea market. EBay, which pioneered the concept, listed 3 million items for sale yesterday.
Microsoft's MSN, Excite At Home and Ticketmaster Online-Citysearch joined an auction network that makes items listed for sale at one site available for bidding on all the others. Another top Internet "portal," Lycos, and nearly 100 smaller sites are already part of the network. The network was created by Woburn, Mass.-based FairMarket, a two-year-old company that sold an equity stake to each of the four large portals that joined.
The new network does not include two of eBay's top competitors, auction sites at Yahoo and Amazon.com. But analysts said that the venture could present a substantial challenge to eBay's dominance and put pressure on stand-alone sites to join a network.
"EBay has first-mover advantage, but this new collaboration can steer an awful lot of traffic to their own network," said Gary Arlen of Bethesda-based Arlen Communications. "It is a contender that could come out bigger than eBay in the long run because these guys bring millions of customers."
Shares of eBay fell 7 percent yesterday, to $141, while the companies that joined FairMarket all rose. Ticketmaster jumped 9 percent, while Excite At Home, Lycos and Microsoft each rose by about 3 percent.
With the addition of yesterday's players, the FairMarket network now has about 100,000 items for sale. While that is still a tiny fraction of eBay's listings, the FairMarket sites together have 48 million registered users--more than 70 percent of the total Internet audience, said FairMarket's chief executive, Scott Randall.
The network will function invisibly to consumers who will buy and sell through the auction pages of MSN.com and other member sites. Each affiliate will customize its Web pages and charge different transaction fees. MSN, for example, said it will charge nothing to list items and will collect fees on each sale ranging from 1.25 to 5 percent. Lycos and Excite, by contrast, are waiving all transaction fees initially in a bid to attract customers.
About a third of each fee will be kept by the listing site, a third will go to the selling site and a third to FairMarket, according to Randall.
Randall said his company spent about a year negotiating with Microsoft Corp. to sign up MSN, which yesterday became the last of the Web's big portals to add auctions. MSN product manager Deanna Sanford said her company chose FairMarket because of its broad network reach. "Over time you will see us integrate auctions and general shopping more and more at MSN," she said.
Microsoft in recent weeks has added features to its MSN sites to match those offered elsewhere, such as a hotel-room bidding service to compete with Priceline.com and an instant-messaging service that mirrors the one long available at America Online.
The other companies that joined FairMarket yesterday had already purchased auction technology and had their own auctions up and running. But executives at Ticketmaster, which had bought CityAuction, and Excite At Home, which had acquired Classifieds 2000, said the appeal of FairMarket was the reach of its network.
"There are huge increasing returns in the auction business; it's true in most classified businesses," said Ticketmaster chief executive Charles Conn. "People want to be where the broadest and deepest selection of goods is."
EBay spokesman Kevin Pursglove contended that his company's service will be better because, in contrast to the general-purpose sites, its focus is exclusively auctions and it has more experience building a sense of community among its users. "We don't have a lot of other businesses that grab our attention and distract us from our core business," Pursglove said.
Pursglove said nearly $7 million of merchandise is sold on eBay every day, compared with well under $1 million for the company's closest competitors. The other portals don't disclose total auction sales, but Yahoo has less than a quarter of the listing volume of eBay, even though Yahoo's service is free while eBay charges fees of both buyers and sellers.
FairMarket, which began its business more than two years ago by signing up companies that wanted to sell discontinued goods, has some big-name electronic retailers in its auction inventory, including Dell Computer and CompUSA. That is another potential advantage over eBay.