The Perfect Store: Inside eBay

Author: Adam Cohen
ISBN: 0316164933

Books about the history of the major players in the Internet and technology space are a light read and most even manage to be mildly entertaining. The things you learn are not likely to help you at your local quiz night but there’s often one or two things you can take away. In the case of Ebay, two things stand out.
1. The power of community.
Ebay was part of the original dot com boom and is seen by most as a Web 1.0 company. Now we have Web 2.0 – which is basically used to describe the growing popularity of social networking sites and sites hosting user generated content. Ebay survived the dot com meltdown, and maybe it’s because it saw the future.Ebay made it’s “community” a key part of its business – often consulting them on major business decisions (and on occasions backing down on decisions made without consultation). For many people Ebay was not an auction site – it was their social network and their entertainment. Ebay recognised this and actively encouraged it. In return people willingly donated their time to help run the business. This meant that Ebay didn’t have to hire paid employees to do the work and it also meant that people formed strong bonds with Ebay, making them unlikely to switch to a rival site.Clearly it pays to build a community spirit around your company or its products and services.

2. The ‘Network Effect’. Throughout its short history Ebay faced a number of challenges from larger rivals with deeper pockets. It managed to fend off these competitors by virtue of the ‘network effect’. The network effect is a phenomenon whereby the value of a service increases as more people use it. In online auctions, sellers want to use the site with the largest number of buyers and buyers want to go to the site with the most sellers. More buyers mean better sales prices and more sellers means more products to choose from. It’s as simple as that. And is the reason why Ebay is likely to remain the leader in online auctions for a while yet. Ebay had to build its network but it did so when there was little competition. Today, competitors have the daunting task of building their network by convincing Ebay users to switch.

It’s important to note that ‘community’ and ‘network effect’ are not the same thing. Ebay is not alone in capitalising on the network effect, other Internet companies such as Skype and Paypal also understand the value of a large network. But these companies do not have a ‘community’ as such and it’s these two concepts working in tandem that have given Ebay its lead in the online auction space.


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