August 9, 2001 10:05 AM PDT

eBay opens new chapter in Amazon rivalry

BOSTON--Having pushed rival Amazon into capitulation on the auction front, eBay has plans to challenge the company at its dominant category.

"We're the No. 1 in all of the categories (we cover) except books, movies and music. And we hope to be a leader in that category," said Chief Operating Officer Brian Swette, speaking at a U.S. Bancorp Piper Jaffray conference here.

Swette elaborated that eBay would take on the category, currently dominated online by Amazon, by focusing on a relatively new pricing strategy for eBay: retail.

"The No. 1 factor to accelerate that (category) is to leverage the fixed-price format," he said. "Right now we're at the first stages with that. It's dramatically different than where we are today."

eBay has been on a major expansion push, announcing earlier this week it would also offer online real estate auctions with the purchase of HomesDirect.com.

eBay, known for its auctions, has been dipping its feet into traditional retail waters. Last year, it bought Half.com, a marketplace for used goods, and began offering a "buy now" feature on its auctions. And in June, it opened up its own storefronts, to allow consumers to make purchases in a more traditional manner.

Amazon, meanwhile, has suffered setbacks in its attempt to take on eBay in the auction world.

Books and music are part of what eBay terms the "practicals" market, one that has overtaken the company's former mainstay, collectible items.

It's also an area where the company sees much of its future growth coming from. Swette said that eBay sees its target potential markets growing only slightly over the next few years, from $1.7 trillion in 2001 to $2 trillion by 2005. But eBay hopes to see it's portion of that market go from 0.5 percent in 2001 to 1.5 to 2 percent in 2005.

And the extra revenues should help the company in its goals to boost margins. Swette said the plan is to increase operating margins of 25 percent in the second quarter to 30 percent to 35 percent over the long-term.

To do that eBay also needs to work on trimming expenses. Investors at the conference took Swette to task for its high general and administrative expense category, which were 14 percent in the second quarter. The company hopes to maintain them at 10 to 15 percent long term.

"I get that same question from my CEO," Swette joked. "We're an early stage company, but we made the decision to run the company (as if it were already a much larger business.) We build the systems at every level like that."

eBay is one of the few Internet companies to consistently deliver profits. In its second quarter, the company reported earnings of $24.6 million, or 9 cents a share, on revenue of $180.9 million. The company also raised its outlook for future quarters.

 

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