June 14, 1999 2:35 PM PDT

eBay outages nothing new

eBay's recent outages prove how vulnerable a big e-commerce site can be, and showcase the fragile state of a new and ever-evolving market.

As it addresses its technology problems, eBay for now has dropped its new site design, shut down its "My eBay" personalization feature, and taken advanced search options off line, said spokesman Kevin Pursglove.

"The first priority is to make the system stable, to make sure we don't have any more crashes," Pursglove said, noting that eBay is willing to live with slower performance for a time "Meg Whitman [eBay's chief executive] says something has got to change," he added. "We've been hearing a lot from our users telling us that the past two or three weeks they have seen one outage too many."

David Trossman, an analyst with brokerage firm Legg Mason Wood Walker who has a "buy" recommendation on eBay's stock, believes that as the Web becomes more mainstream, user expectations are much higher.

"eBay says, 'We won't let it happen again,' and when it does happen, it's that much more damaging," Trossman told Bloomberg News. In afternoon trading, eBay's stock was off nearly 30 points, closing at 136 a share, an 18 percent decline.

But analyst Gail Bronson of IPO Monitor, a veteran industry observer, thinks the idea of uninterrupted service is unrealistic.

"One should expect outages," Bronson said. "The cable goes out occasionally in my neighborhood, and not so long ago there used to be power outrages. Why should the Internet be any different?"

eBay's misfortune may be its rival's luck. eBay's chief competitors, Yahoo Auctions and Amazon.com Auctions, report their traffic volume has picked up since eBay's well-publicized problems over the past five days. Smaller rival Auction Universe reported that its traffic has grown 50 percent since last week.

Other online companies have suffered their own slew of technical problems and have proven they can endure--as analysts expect eBay will. In 1997, for example, America Online suffered widely reported outages, but it still dominates its category. E*Trade and Charles Schwab also experienced outages earlier this year but both are still growing rapidly. "Most of the damage won't be done with existing customers bolting," Corman Foster, analyst at Jupiter Communications, predicted. "The real danger is among new customers coming online."

Those newbies have been the target from the start for Yahoo Auctions, which isn't making specific efforts to pick up disgruntled eBay customers.

"We continue to market aggressively, and the quickest way is to capture new users," said Tim Brady, the Yahoo vice president who oversees its auction site. Yahoo, because of its brand name, sees lots of newcomers at its site, just as Amazon gets a lot of first-time buyers. Both are trying to leverage that advantage to boost their auction businesses.

Jupiter statistics on what Web users say they do after outages or performance problems at a favored site reflect a limited degree of patience.

Of consumers surveyed, 53 percent made no change in their behavior after experiencing technical problems at a site and only 9 percent stopped using the site altogether. Nearly a quarter, or 24 percent, found a new site and continued to use both, while 13 percent found a new site but only used it once.

"The big one is that 24 percent," said Jupiter's Foster. "They didn't leave for good, but [but the primary site] might have been able to hold on to them exclusively without the outage."

However, both Schwab and E*Trade think they've bounced back from performance problems earlier this year, E*Trade's being three outages in February and Schwab's at several times after that.

"We have not seen significant attrition by any measurable standard due to our outages," said Schwab spokesman Dan Hubbard, who said the broker's Web site has been down for about 200 market minutes this year, out of 40,000-plus minutes of market activity. "We don't think it has affected our growth, but we don't like to see these things happen."

E*Trade spokesman David Murray thinks Web customers are forgiving.

"In this emerging marketplace, where we are trying to serve a rapidly growing customer base, there is no such thing as flawless technology. There will always be problems," Murray said. "We found customers were sympathetic as long as we communicated forthrightly with them about what was going on our site, and what our plans were to continually improve customer service and uptime."

Although eBay has been criticized for having inadequate backup systems, analyst Carl Howe of Forrester Research notes that trading sites like eBay or E*Trade or Schwab differ markedly from e-commerce sites that simply sell things at fixed prices.

"eBay's value is all about the transactions they're doing," said Howe. "It's not like they can back up the transactions easily. That all has to be processed perfectly in real time, so if the back end is down, there's not much value there. It's sort of like the New York Stock Exchange going down. eBay is particularly vulnerable because it depends on real-time processing."

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