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Technology Stocks : eBay - Superb Internet Business Model -- Ignore unavailable to you. Want to Upgrade?

To: Doug Fowler who wrote (3076)	4/30/1999 12:57:00 AM
From: Stewart Elliot	Read Replies (3) \| Respond to of 7772

Gross margins could drop significantly as early as 3Q. The butterfield acquisition will likely have an immediate negative impact on margins. If Ebay continues acquiring companies, margins will continue to decline, whether or not margins in their core business decline. At some point, the ever increasing number of auctions is less valuable to the customer: each additional listing has diminishing returns, because there's no way to sort through the pile to find what you're looking for anyway. I believe that there is a "critical mass" of buyers and sellers where an auction site offers a sufficiently large and varied selection of goods that it can compete effectively with any other player. EBAY is the only company that offers this critical mass today. There will be others. Given a situation with 2 auction sites capable of quickly selling goods at high prices, and one offers better service and/or lower prices, it will force some sort of response out the other player. The competition either chooses to compete or slowly lose market share, no matter how "reasonable" their prices are today. If the auction market is not forced to lower fees (which could be something as simple as an ever lowering fee cap), it will be forced instead to increase expensive services. In either event, lowering prices or increasing services (or both), margins will get squeezed. It happens in every market - why should this market be immune to these market dynamics? There is no free lunch in a competitive market. EBAY's auction count is only up 7.5% in the last 6 weeks. 6 weeks is not a significant measure of time, but it does demonstrate a declining growth rate. The 6 weeks before that were up more than 20%. As a reference point, Yahoo's auction count is up 27% over the last 6 weeks. I've yet to see a yahoo auction ad outside of Yahoo. Maybe I'm not looking hard enough. I see Ebay's ads all the time. If you read my message, you see that I haven't claimed that any company will overtake ebay now or 5 years from now. My argument is that real competition will take hold in the future - I believe in less than 5 years. Once it does, prices go down, services go up, and margins narrow, and this "license to print money" will face competitive reality.