eBay's Traffic Could Be Going, Going, Gone

But its recent outage troubles could be boosting the bidding business at new auction sites, such as Yahoo! Auctions.
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SAN FRANCISCO -- Online auctioneer eBay (EBAY) - Get Report may have more than technological troubles to worry about.

Data from

Nielsen/NetRatings

show that eBay's traffic has declined 8% from where it was about eight weeks ago.

Yahoo!'s

(YHOO)

auction site grew by about 42% over the same period. Other entrants also aren't faring so well.

Classifieds2000

declined about 25%. Traffic at

Amazon.com's

(AMZN) - Get Report

auctions, which came on the research firm's radar screen just four weeks ago, is down 16% in four weeks.

Granted, at 2.5 million unique users, eBay attracts about five times as many users as Yahoo! Auctions, the next-largest Internet person-to-person auction site as of the week ended July 4 with 515,000 unique users. But just six weeks ago, eBay's world of 2.5 million users was eight times larger than Yahoo!'s 303,000 users.

eBay may not be growing because it's "losing incremental new users" to new auction options, says

Warburg Dillon Read

analyst Sara Zeilstra. And that may be happening because eBay's

glitches are scaring people away, she says. Zeilstra, whose firm hasn't done any underwriting for eBay, rates the stock hold.

Yahoo! has noticed a boost in its auction traffic when the competition crashes, says Susan Carls, senior producer of Yahoo! Auctions. But she attributed Yahoo!'s growth to more than just its competitor's technological snafus. "Growth has been strong before that point and after," she says, attributing much of the growth to new features such as Yahoo! Auction Express, which lets sellers automatically relist items if they aren't sold.

Amazon.com also saw "significant increases in bidding and on items being listed" for auction about the time eBay was experiencing troubles, says company spokesman Bill Curry. But he wasn't ready to say eBay was the sole reason. "

We don't know if it was recurring problems at eBay or things we're doing here." Curry says Amazon.com also has been adding features and enhanced tools to make its auctions easier to use.

Classifieds2000, run by

Excite@Home

(ATHM) - Get Report

, wasn't available for comment.

For its part, eBay acknowledges the risks of site crashes. "We think outages can be enough to scare people away," says eBay spokesman Kevin Pursglove. But he doesn't believe the numbers back that up. Rather than looking at eight weeks of traffic data, which Pursglove says is too short a time, he points to the number of simultaneous auctions, a number eBay posts on its Web site. On Thursday, 2.35 million items were available for auction at eBay's site. That's up from about 2.1 million before the June 10 outage problems, says Pursglove.

The jump in that figure isn't clear-cut good news, however. Since the outages, some eBay customers are hosting their personal auctions for longer periods of time. Alan Harris, who says he was posting his auctions for seven days each before the outages occurred, is now posting them for 10 days. If Harris isn't alone, the auctions' increased length lowers the turnover, giving the appearance that the number of simultaneous auctions is growing.

Pursglove says the company hopes to have a redundant system, one that aims to reduce the chance of outages, up and running in a couple of weeks. Meanwhile, eBay continues to suffer outages. Much of the auction site was down for several hours again Monday, according to its announcement page, and that followed another outage Saturday.

Analysts realize that competition is in the wings as well. After lowering eBay's revenue estimates for the second quarter to $37 million from $41 million,

Deutsche Banc Alex. Brown

analyst Shaun Andrikopoulos said in a research report released last week that eBay will likely need to spend more aggressively on sales and marketing to be competitive with Amazon.com. Andrikopoulos estimated that Amazon will spend about $90 million in 1999 on auction advertising and promotions, compared with eBay's $65 million.

Those extra expenses, coupled with a system upgrade to prevent future outages, lead to a "low likelihood" of higher revenue guidance on the core business, he said. Andrikopoulos, whose firm has underwritten for eBay, rates the stock buy.

Even if eBay's glitches drove some of its regular customers to shop around, the ensuing publicity from the company's troubles has been a boost for the whole group, says Allen Weiner, vice president of NetRatings' analytical services. eBay's troubles "promoted the entire category," says Weiner. "The only thing worse than bad publicity is no publicity at all."