Start-up hopes to outdo eBay with online market

Update 9:45 a.m. PDT: Added details about the company's venture capital funding.

Wigix Chief Executive James Chong is nothing if not ambitious: he thinks he's got the recipe for an Internet marketplace that will rival eBay.

Chong, who was the architect of Charles Schwab's online trading platform, believes eBay's design is best suited to auctions of collectible, one-off items. But for those buying Sony PlayStations, digital cameras, or other mass-manufactured items, he thinks Wigix--"Want It Got It Exchange"--has the better approach.

Wigix plans to launch the public beta of its online trading system on Tuesday and fully launch by the fall. It uses a Nasdaq-style price-matching mechanism: sellers and buyers can list their desired prices for a particular item, and the system will notify people when they have matching orders. Wigix also sells ads that can be targeted for the various categories and products on display.

Wigix CEO James Chong

(Credit: Lane Hartwell/fetching.net)

"Why is eBay bad? It uses an auction model (good for) collectible, unique items," Chong said. "For selling items like cell phones or iPods, it's not a good platform."

Ultimately, Chong hopes to encourage people to list all kinds of things they own, making a liquid market out of just about anything, complete with a ticker that shows recent transactions and charts to show historical prices. Maybe you don't have any particular plan to sell your first-generation iPod, but perhaps you'd reconsider if Wigix told you somebody would pay $50 for it, he said.

To lure users, the Oakland, Calif.-based start-up also has a community-building twist: the company offers revenue-sharing perks to users who, in effect, help run Wigix. In addition, there are no listing fees, and people's buy and sell orders don't expire unless explicitly set to.

Wigix has about 25 employees and a dozen or so contractors; seventeen of the employees are in China, Chong said. The company recently raised $5.34 million from Draper Fisher Jurvetson and other angel investors, including Bill Burnham of Inductive Capital, Wigix said.

Some of the community-building and revenue-sharing ideas are smart. But the company faces significant obstacles when it comes to dethroning eBay.

For one thing, eBay operates on a massive scale, and a marketplace's utility is tied to its quantity of buyers, sellers, and items for sale. For another, used goods may not always be the commodity-like products for which Wigix is adapted at the outset.

eBay didn't comment for this story.

How Wigix works
In contrast to eBay's system, Wigix charges no listing fee, and any transaction less than $25 is free. When the fees kick in, Wigix always charges the buyer $1.50, but the seller pays a variable amount: $1.50 for a sale between $25 and $100; $1.50 plus 2 percent of the amount above $100 for a sale between $100 and $1,000; and $21 plus 1 percent of the amount above $1,000 for a sale of more than $1,000.

For example, if somebody buys a digital camera for $200, Wigix charges the buyer $1.50 and the seller $3.50--$1.50 plus 2 percent of $100.

The ask/bid method is only one difference from eBay. Another is that the company provides community members ways to make money by helping to run the site.

When a member adds a product description into Wigix's inventory of SKUs--stock-keeping units--the member gets 5 percent of the transaction fees and advertising revenue derived from that site. In the camera example above, in which Wigix gets $5 in fees, that would be 25 cents.

Such a member is called a "homesteader," to indicate Wigix's hope for a land grab that will flesh out product categories, make it easier for other users to add inventory, and keep categories up to date with new products.

Another way to make money is to become a category expert, a person whom the company appoints to oversee a category such as "Rolex watches," for example, by accepting or rejecting homesteaders' SKU submissions. Category experts get 1 percent of Wigix's fee and ad revenue for that category, Chong said.

Homesteaders and category experts have to work for their money, though.

Homesteaders must be "active members" who, at least once a week, blog about products, write in forums, buy or sell something, refer friends, or take a variety of other actions. And category experts shouldn't expect much in the way of vacation: they "must review, approve, or reject item submissions made for their category at least every three days. They must respond to user queries, update their blogs and discussion boards, as well as manage the category taxonomy and item-level characteristics, one to three times per week."

One other community-building incentive: members who refer others also get a 4 percent cut of those members' homesteading revenue.

Although eBay is the target, Wigix is relying on what it's built: members must be members of its PayPal online payment system to join Wigix. Wigix plans to add other mechanisms later.

Chong also said eBay sellers can import their eBay catalogs. And the company plans to have customer storefronts for power sellers starting in July.

Challenges
Sounds good, right? Everything is for sale, and those who help out get a piece of the action.

There are some potential problems, though.

First is scale. Even with some incentives to join Wigix, the scale of eBay is formidable.

Here are some of its statistics from the last quarter of 2007, the last for which statistics were available: eBay has 82.3 million active members, processed sales of $2,039 in goods every second, and had about 115 million items listed for sale at any given moment.

Those numbers reflect not just the size of the marketplace, but also the scale of the computing infrastructure the company has constructed, along with corresponding infrastructure for fraud detection, dispute resolution, and international sales. And eBay benefits from transaction histories that let buyers and sellers judge each other by reputation.

Another issue for Wigix is just how "SKUable," as Chong says, everything is. When it comes to goods for sale, there are plenty that are easily described with a product name and a check mark next to "good," "new," or "poor." A 4GB 133X SanDisk CompactFlash card seems pretty straightforward, for example, and there aren't that many iPod models to pick from.

But what if you're buying a car, one of the areas for which Wigix has a category? There's a lot a buyer might want to know about repair history, windshield condition, or other details that don't easily fit into the handy taxonomies. And how often are sellers going to update their listings with the latest mileage?

When I was perusing the hottest area so far on the pre-beta Wigix, Nintendo Wiis, I didn't notice any easy way to distinguish why I should buy user birdie's for $500 rather than user kevinchung's for $700. Or, for that matter, why I should buy either over a $250 new one from a store?

There's a field for "additional info," but neither had filled it out. Even if they had--perhaps adding various games or controllers to the list to explain the price tag--it appears that a single SKU isn't necessarily the best way to represent a Wii for sale. Bundling accessories for sale doesn't match well with a single-SKU view of commerce.

Fundamentally, though, Wigix's style appeals to me.

I don't have to worry about many of eBay's hassles or about my Craigslist posting rapidly scrolling off into oblivion. As long as I'm not in a hurry and the site can attract some members, Wigix seems a good low-risk, low-cost way to handle buying or selling something like a book or CD, and wait until the right price comes along.