eBay: What’s in Store

Describing eBay as a commerce website is like saying Elvis was a singer. The 11-year-old company that began as a virtual flea market similarly has become an international phenomenon, spurring the creation of cottage industries and sustaining thousands of small businesses.

And despite being one of the Internet’s forebears, the company is in many aspects just getting started. As eBay grows, so will the myriad of obvious and less-apparent methods that marketers can use to profit in, around and through eBay.

By economic standards, eBay is a medium- sized country. In 2005, the value of the sales through its marketplace ($44 billion) and financial transactions through its PayPal service ($27.5 billion) together were slightly more than the gross domestic product of Belarus, an Eastern European nation of 10.2 million people.

The eBay network includes much more than online auctions, encompassing vertical marketplaces (Motors, Rent.com), fixed-costs sites (Express and Stores) shopping sites (Half.com, Shopping.com), as well as a telephony company (Skype) and PayPal.

The San Jose, California, company’s revenues continue to grow at an unusually high rate for a mature company, jumping by 35 percent during the first quarter of 2006. “eBay has its own weather pattern,” analyst Greg Sterling of Sterling Market Intelligence, says. In addition to the many people who make a living selling goods on eBay, Sterling says the rapidly growing eBay economy also impacts “off-line eBay enablers, including packaging and shipping companies.”

INSIDE INFORMATION

While the auction service is eBay’s signature sales venue, it is only a fraction of the revenue opportunities available to marketers, many of which do not require selling goods. Publishers are leveraging the site’s considerable traffic to complement or as a portal to their own websites.

The eBay audience of active purchasers grew to 75.4 million users in the first quarter of 2006, up 25 percent from the previous year. The same strategies used to attract consumers on the greater Web, including search marketing, optimization and email advertising, can be used to capture traffic within the eBay universe, according to eBay Power Seller Skip McGrath.

“A lot of people use [eBay] as a marketing gateway, to market to them later,” says McGrath, who is the author of seven books on the company including “Titanium eBay, A Tactical Guide to Becoming a Millionaire Powerseller.”

Even if consumers don’t make a purchase, publishers can still profit by linking to their sites from within eBay, according to McGrath. “A substantial amount of people make more money from the advertising on their own sites through traffic from eBay than from actual [auction] sales,” he says. “I get 2,000 to 3,000 visitors per month just from people clicking through from eBay,” he says.

Publishers must be careful in promoting external sites, as eBay will ban anyone who violates the company’s linking guidelines, according to McGrath. For example, only the “About Me” page of an eBay Store can contain external links, and those must be at the bottom of the page. But McGrath has commandeered substantial traffic by including the URL of his business in the image he created for his About Me page, which he says is okay by eBay rules.

Maintaining an eBay Store not only provides the possibility of selling items for fixed prices, it also enables sellers to advertise to eBay’s massive audience. The company has one of the largest inventories of advertising positions to sell, as it is ranked as the fifth-most-trafficked website, according to comScore Media Metrix. In May of 2006, 77 million people visited the site, or 60 percent more than Amazon.com

eBay sellers can promote their wares by purchasing keywords on the site, but the ads can only link to eBay Stores. eBay Stores are promoted through Google’s Froogle shopping engine, and eBay spends about $250 million per year advertising with Google’s AdSense program to increase traffic, according to analyst Sterling.

eBay offers an email marketing program for contacting registered users. Power Seller McGrath says he increased the traffic to his website by including links in a newsletter that has 35,000 subscribers. “It’s a great platform to reach international markets, as it is hard to promote a website overseas [through search marketing],” McGrath says.

Marketers looking to improve the performance of their products on eBay or to identify the valuable keywords to promote in search marketing can license data from the company, says Greg Isaacs, the manager of eBay’s developer program. Publishers “can determine fair market value of items that are for sale” by analyzing data about sales at a fixed price versus at auction, Isaacs says, but eBay does not license personal data about its registered users.

To capitalize on the potential of the wildly popular social networking phenomenon, eBay recently launched two of its own Web 2.0 services. During the eBay Live users conference in June, the company unveiled Member Blogs, which enables members to promote their products and stores. Bloggers can expand their social network through posts in which they are not restricted from promoting and linking to their websites. The company automatically creates RSS feeds of the blogs to facilitate syndication and continually update readers.

Also announced at eBay Live was the eBay Wiki, a user-created encyclopedia of insider marketing tips and best practices for participating in the eBay economy, which publishers can use to showcase their marketing savvy.

“The next level [for eBay promotions] will be social commerce,” says Robb Hecht, a business blogger who publishes the Media 2.0 site. He says getting the blogosphere to build a community around the company and its products will be an important factor in maintaining eBay’s growth.

In addition to promoting themselves within the eBay cloister, marketers have a plethora of opportunities to generate revenue by promoting eBay commerce throughout the Web. Through advertising, integrating eBay listings and affiliates, marketers are spreading the gospel according to eBay and earning commissions.

An advertising system under development by eBay will enable publishers to generate commissions by referring users. AdContext, which competes with Google’s AdSense, searches the content of a Web page and automatically generates links to relevant eBay categories.

“Contextual advertising allows us to leverage content on any website, and connect it with any transaction [on our site],” says Lily Shen, a senior manager who oversees eBay’s affiliate program. Or, publishers can manually match their content with eBay keywords using software available to eBay affiliates.

Affiliates interested in AdContext sign up through network partner Commission Junction, according to Shen, who says affiliates are prohibited from using AdContext to link to their own eBay Stores. Commission payouts are tiered based both on the volume of new eBay users referred and the dollar amount of the winning bids that referring consumers make, says Shen. While referrals to eBay Marketplaces (including eBay Motors and eBay Express) are aggregated toward reaching the tiered goals, affiliate referrals to other eBay companies (such as PayPal, Half.com or Shopping.com) are not, Shen says.

Affiliates who promote other eBay companies receive separate revenue and traffic reports and must sign up for each program individually as every eBay property has its own commission structure, according to Lisa Riolo, senior vice president of business development at Commission Junction. Riolo says the addition of AdContext could help eBay to reach new publishers, although “there aren’t too many publishers who aren’t aware of eBay.”

Would-be publishers looking to create their own Web identity can use an eBay commerce and content tool. ProStores.com is an eBay subsidiary that offers an email marketing system for sending permission-based newsletters and promotions.

BUY DON’T BUILD

While eBay provides an extensive list of application programming interfaces (APIs) that publishers can access to integrate content into their websites, a growing number of third-party programs provide the shortest route to assimilating with eBay. The roster of eBay’s developers doubled last year to 30,000, according to eBay’s Isaacs. Applications developed by independent programmers generated 25 percent of the listings on eBay, he says.

Specialty retailers can boost their inventory by incorporating eBay Marketplace listings into their stores. For example, by customizing an eBay API, ticket reseller FatLens.com displays eBay items alongside tickets from other vendors, says president Siva Kumar.

While Amazon.com has more mature software, eBay’s technology is straightforward to use, and Kumar is impressed with the quality of the listings. “eBay has many long tail items like Civil War uniforms, things you can’t find in a regular store,” he says.

Advertising company Scope Aware recently introduced SmartyAds, a program for companies that want to participate in search engine marketing with the leading engines but do not want to manage multiple programs. Scope Aware acts as an agent, managing the campaigns for marketing eBay Auctions, eBay Store, and eBay Express listings across MSN, Google, Yahoo and Ask.com, according to founder Ali Gungor.

Scope Aware’s software “automatically analyzes goods for sales and comes up with the keywords to buy,” says Gungor, who charges a setup fee and percentage of the value of the goods sold. SmartyAds creates the ad copy and suggests the language for landing pages, Gungor says. By acting as an agent and negotiating with the search engines, Scope Aware enables small advertisers to participate in paid search dominated by large companies, he says.

Even though eBay’s commerce business is more mature than search, the company and its partners continue to develop new services for marketing and selling products. But maintaining that growth in the face of competition from Google, which is just beginning to exploit commerce, and Amazon, which is adding content to its retail properties, will be a challenge according to analyst Sterling. “It’s unclear how broadly eBay can expand.”

JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, AlterNet.org and in MIT’s TechnologyReview.com.