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Ebay's enduring appeal

By Jonathan Guthrie
February 13, 2008 11:04 IST
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Ebay has been described as a church jumble sale without the ex­cuse of a belltower repair fund. But in the UK, the on­line auction website has been the launchpad for 178,000 full-time and hobby businesses. Turnover has more than doubled over two years to  pound 2bn in 2007. While the high street has become a graveyard for small businesses, small-scale retailing is flourishing online.

Recently Ebay announced it would change the fee structure of its UK site as part of a worldwide program­me aiming to move the US-based web business upmar­ket. Cuts to listing fees will be accompanied by relatively large increases in fees for selling items. Ebay said the changes would be "essentially neutral" because of discounts for volume sellers.

Some Ebay traders were unconvinced. One, writing anonymously on an Ebay message board, pointed out that he would pass on the cost to the buyer, opening up a gap between the price on Ebay and the price on his own website.

However, the costs of offering products to Ebay users - 20m registered in the UK - remain low compared with trading from a bricks-and-mortar shop or using advertising to drive internet traffic to an independent website.

At 73 years old, George Crudgington is a counter-intuitive example of the new Ebay traders. Based in Chesterfield, Derbyshire, he sells about pound 100,000 of goods via Ebay every year. He needs to. He was made redundant from a job in engineering in his 50s without an adequate pension. Mr Crudgington now makes a living selling ceramic collectibles and an­tique fishing gear on Ebay. He has even bought a retirement home in France with the profits.

"If you're a mature citizen it's difficult to get a job," he says. "So this is perfect. An advantage is that you need very little capital." He buys undervalued items online from conventional auction houses and sells them at a profit on Ebay, which aggregates a greater number of buyers. His coups have included selling a Royal Worcester figurine of "Bubbles", a small boy dressed in blue, for pound 350 more than he paid for it. He also buys job lots of old fishing rods, which he sells individually on Ebay at a mark-up.

Jamie Murray, 29, used a similar strategy when he started on Ebay in 2005. He bought electronic game hardware and split it into consoles and memory cards that he sold separately at a profit. Mr Murray now sells accessories for mobiles sourced from big suppliers and employs five staff at his South Wales company BCM. But about three-quarters of his turnover of pound 2.3m still comes from Ebay customers. "You can't find a better trading medium," he says. "You take very little risk." He says consumers who shop on Ebay can protect themselves from fraudsters using the Paypal payments service.

Jonathan Reynolds of Saïd Business School in Oxford says the success of some Ebay traders has tempted them to try high street retailing: "But you then find yourself in a cost environment with a sluggish local market." Failure rates are high.

Ebay can be a tough environment too, since low entry costs stimulate competition. Anyone selling commodity-type goods can find their margins are whittled away by the price-cutting of new entrants. That is the downside of participating in any market with the liquidity that comes from aggregating many thousands of buyers and sellers.

Mr Reynolds believes the real money might lie in creating software to allow traders to manage the stock they are offering online. As ever, the easiest way to profit from a gold rush is to sell picks and shovels.
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Jonathan Guthrie
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