In warning about the consequences of invading Iraq, Colin Powell offered what he called the Pottery Barn rule: "You break it, you own it." If, in a civilian context, someone coined an eBay rule, it might be this: "Satisfaction most emphatically not guaranteed. All sales final."
When Internet bulletin boards were first melded with auctions, there was little reason for buyers to pause in the absence of a guarantee. Bids were tiny, the risk small and the entertainment value of the novelty considerable. In the beginning, eBay's rise was anything but predictable; as late as 1997, it was but one funky site among 150 or so online auctions.
Today, of course, it is the behemoth, reporting quarterly results last month that its chief executive, Meg Whitman, says put it on track to reach merchandise sales of US$32 billion this year. Its 105 million registered users constitute a sprawling country without borders, which Whitman notes is equivalent to the 11th-most-populous nation in the world, just ahead of Mexico.
The character of eBay's business has changed no less than its scale. More than US$2 billion of its business in the last quarter involved fixed prices, not auctions. New, factory-fresh merchandise is crowding the used. For the first quarter of this year, sales of collectibles were exceeded by sales of automobiles, computers, consumer electronics, clothing and accessories, among other categories.
"EBay's business has evolved well beyond the neighborhood rummage sale," said Nancy Koehn, a professor at Harvard Business School.
The expanding eBay empire of the 21st century invites comparisons to its 19th-century predecessors, the mail-order houses. Their customers share a salient characteristic: their purchase decisions are wholly dependent upon the descriptions supplied by the vendor. Whether reading a page in a catalog or on the Web, there's no squeezing the Charmin.
Of course, eBay's computerized data centers had no counterpart in the messy headquarters of Sears, Roebuck, circa 1900. But Sears adopted one practice so modern, and so at variance with the eBay rule of no refunds, that it seems radical: a promise of "satisfaction guaranteed," to help it attract remote customers who couldn't examine the goods first.
Describing itself as merely an intermediary between two independent parties, eBay does not take responsibility if the outcome is disappointment. It even disavows the "auctioneer" label. If buyers are unhappy, that is their misfortune, not eBay's. In public postings, they can give sellers negative feedback, gird for retaliatory feedback in kind and hope for better luck next time.
At in-person auctions, the usual guarantee of buyer satisfaction does not apply -- and for good reasons. The products sold are unique; the sellers, transient. And prospective buyers can examine the goods closely.
On eBay, however, there is no prior examination, and goods are increasingly sold by the 430,000 sellers who are full-time merchants. And the company is working assiduously to capture sales of new goods that, it says, could total US$900 billion a year. Yet fixed-price, factory-new products are sold with the same irreversible finality as auctioned ones.
Early Sears, Roebuck catalogs offered customers the chance to look at their purchases at freight offices before paying COD. Or they could take products like musical instruments home for a trial period, with a token down payment of a dollar. If the goods were sent back, the freight was paid by Sears. EBay, by contrast, offers its customers no escrow protection. It merely recommends a third party -- Escrow.com -- which charges an additional fee for protection against nondelivery, yet honors the eBay rule of no returns. PayPal, an eBay subsidiary, has its own version of what it calls "buyer protection," but it is protection against fraud. It rules out protection from "disappointment."
Richard Warren Sears, the Sears founder, promised customers that "we add the smallest percentage of profit possible to the actual cost to us." EBay's customers get no such promise, but the company has good news for its investors: its gross margin has increased to 82 percent of revenue in the first quarter this year from 73 percent four years ago.
Gregory Smith, a computer services analyst at Merrill Lynch, marvels: "For eBay to be growing dramatically, and at the same time to still be increasing margins that are already high, is astounding."
EBay is not wholly consistent, however, in maintaining that it is merely the disinterested landlord of the auction shed. To coax leery buyers into purchasing used automobiles for prices that put at risk a bit more money than a Care Bear collectible, eBay Motors offers the buyer some service protection, gratis. It's only for one month or 1,000 miles, but the details are less important than the principle that eBay has quietly embraced in this one corner: it is willing to spend some of its own money to offer buyers the same protection that would be found in similar transactions elsewhere, though the company never holds legal title to the goods.
As eBay sells more new goods, the brand's lack of a money-back guarantee will become a hindrance.
"History suggests that in order to remain competitive, retailers must match the offerings of others," Harvard's Koehn said. "EBay is unlikely to be an exception."
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