Online Auction Business: A River Runs Through It

Investors fret Amazon will sweep away competitors such as eBay when it starts running online auctions.
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SAN FRANCISCO -- eBay (EBAY) - Get Report shares slipped Monday on news Amazon.com (AMZN) - Get Report will enter the online auction business, threatening eBay's reign as the foremost online auction house.

According to published reports, Amazon will offer users a chance to buy or sell most anything and also has signed up businesses that will run auctions on the site. Amazon.com was up 11, or 8%, at 150 1/16. eBay was down 5 1/2, or 3.5%, at 149. Amazon's online auctioning foray was first rumored on

Friday.

News of the move pressured other stocks in the sector as well.

uBid

(UBID)

, which unlike eBay doesn't offer person-to-person auctions, was down 1 1/2, or 2%, at 72 1/4, and

OnSale

(ONSL)

, which sells computer products via auctions, was down 1, or 3%, at 34 3/8.

Derek Brown, an analyst with

Volpe Brown Whelan

, said he thought entering the auction business was "a pretty smart move," but he voiced a number of reservations. Brown says that Amazon prides itself on customer service and being an online auctioneer doesn't build on that strength.

"Person-to-person removes them from the equation, if not entirely almost entirely, and that is something they have not done in past," Brown said. "It could backfire by tarnishing the Amazon brand."

In an attempt to combat some of the problems associated with online auction transactions, Amazon is expected reimburse customers up to $250 if they did not receive an item or were victims of fraud.

Brown said he also has concerns about competition, saying that taking on eBay represents "the first time Amazon has tried to go head-to-head with an industry titan," but he adds that "they have a better chance than anybody to compete with eBay." Volpe Brown Whelan has no underwriting relationship with Amazon.com.

As for other competitors, Lauren Levitan, an analyst with

BancBoston Robertson Stephens

, said online auctions have the potential to be a $100 billion business, so there is "room for more than one player." Levitan said the first competitors will have an advantage, while "also-rans" will not have as much potential. BancBoston Robertson Stephens is participating in an offering from eBay.

Why They Call It Platinum Technology

Computer Associates

(CA) - Get Report

agreed to acquire

Platinum Technology

(PLAT) - Get Report

for $29.25 a share, or $3.5 billion, in cash, representing a hefty premium over Platinum's 9 7/8 close on Friday. Platinum shares were up 15 3/8, or 156%, at 25 1/4, while Computer Associates was off 1 3/8, or 4%, at 32 9/16.