eBay - How Far Can The Niche Revolution Reach?

For a company that started less than ten years ago as little more than an experiment in whether the Internet could do a better job of selling old stuff than a garage sale, eBay is nothing less than a phenomenon.

On any given day some of its 60 million active users are selling or buying more than 30 million items, making eBay one of the largest retailers in the world—brokering more than $100 million in transactions each day.

But there’s a big difference between eBay and Wal-Mart, which sells a roughly equal volume of stuff. Most of the goods eBay is selling can’t be found on the shelves of big traditional retailers, and most of the people selling them aren’t traditional retailers.

Instead, eBay is both the Long Tail of products and the Long Tail of merchants. It’s a classic user-created marketplace, with eBay itself simply the facilitator.

It has brought nearly every Long Tail tactic to bear, extending variety to levels unimaginable before the Internet. Like Amazon’s Marketplace program, eBay is built around the notion of distributed inventory: All it provides is a Web site on which buyers and sellers meet and agree on a price (about half of the time via eBay’s original auction process, and the other half with a Buy It Now fixed price).

So its inventory costs are zero.

It’s not quite as easy as turning the computers on and watching the money roll in, but it’s not far off.

EBay is also a self-service model—sellers create their own product listings and handle their own packaging and mailing.

So eBay has managed to build its huge business with remarkably few people on salary. It has about $5 million in revenue per employee, nearly thirty times that of Wal-Mart.

Finally, it offers filters, mostly in the form of search and a multilevel category structure, to help buyers find what they’re looking for.

The range of products for which the eBay model has proven to work has exceeded anyone’s expectation. It now does far more than clear the nation’s attics.

It’s also America’s largest used-car dealer and largest seller of automotive parts. It’s among the largest sports equipment sellers and is one of the largest computer dealers. With its purchases of Half.com (overstock items) and Shopping.com (an online superstore selling new goods), it now extends from head to tail, selling both the newest blockbuster products and the most narrow niche goods and one-offs.

More than 724,000 Americans report that eBay is their primary or secondary source of income, according to an ACNielsen study in 2005.

In the UK, Nielsen found that more than 68,000 cottage industries, from CD shops to sculptors, depend on the site for at least a quarter of their income. On average, each eBay-based business employs nine staffers, and almost half of those businesses earn more than three-quarters of their income through the site. It’s the ultimate small-business aggregator.