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Overstock.com Takes on eBay

Christopher Saunders

09/28/2004

E-commerce player Overstock.com is aiming to take a cut of the online auction pie with the launch of its own auctions site.

Salt Lake City-based Overstock.com is best known as a fixed-price liquidator of consumer wares, such as home & garden supplies, clothes, furniture, and electronics. By delving into the auctions marketplace, however, Overstock.com is delving into new territory while gunning for one of e-commerce's biggest success stories: eBay.

The Auction system differs from Overstock's core fixed-price model in that it will offer the opportunity for third-party sellers to make money using the company's e-commerce platform. Overstock.com will continue to sell at fixed-prices, while Overstock.com Auctions will enable sellers to move their own products in an auction format.

However, like eBay, Overstock Auctions will offer a means -- which it calls "Make it Mine" -- through which buyers participating in an auction can pay a flat fee for the item up for sale, ending the auction.

Also like eBay, Overstock.com charges listing fees and closing fees (from 20 cents to $3.17 for listings, and closing charges ranging from 3.25 percent down to 1 percent of the item's final value). Overstock.com Auctions likewise enable sellers to use reserve prices and to purchase boldfaced, "highlighted" or "featured" listings for additional exposure.

The similarities to eBay's winning formula are intentional, Overstock.com said.

"I am a deep admirer of eBay: It is a fantastic company and a worthy competitor," Overstock.com President Patrick Byrne wrote in a letter to shareholders.

But Byrne added that he believe Overstock.com could make a name for itself because it sees itself addressing shortcomings in eBay's system.

"We have designed our auction site to give precisely those things which eBay's community of power sellers has demanded and been denied," he wrote, adding that the site would offer lower listing fees, volume listing discounts and live customer service.

However, Overstock.com's play for auction dominance is most centered around integrating the popular trend of online social networking -- as popularized by sites like Friendster, MySpace, Orkut, Ryze, and a slew of others -- in which users rank each other and refer friends and contacts to others.

Like eBay, Overstock.com will use a feedback system to rate buyers and sellers. However, in connection with the referral concept inherent in social networking, Overstock.com Auctions will rely instead on what it calls "reputation networks."

"These 'reputation networks' will work particularly well for on-line auctions, where buyers, sellers, enthusiasts and experts are traditionally anonymous -- and opinions are often biased," Byrne wrote. He added that anonymous bias is responsible for "the declining value of ratings and the increasing tendency for retaliatory and spiteful ratings."

Specifically, users give each other a numeric rating (from -2 to +2) following a transaction indicating satisfaction with the deal. (Users can also enter comments alongside ratings.)

The sum of those ratings is a user's Business Rating, and users with whom a buyer or seller has done business become part of their Business Network. Meanwhile, Overstock.com Auctions will also feature a separate "Personal Rating," wherein social contacts can rank each other on a one- to five-star scale.

The upshot of all this is that users can see others' with relationships to their own Business and Personal Networks -- ideally making trading easier, less worrisome, and safer.

"This has been the missing piece in e-commerce: In the deafening cacophony of e-commerce, whom can people trust?" Byrne wrote. "Most people would say, above all others, they trust the opinions of friends, family, and perhaps even a few co-workers. They rely upon social networks to help make connections and guide decisions ... We sought a way to integrate the trust inherent in these networks into e-commerce."

To promote its new site to sellers, Overstock.com is offering a number of incentives, including credits toward listing fees, an additional 10 percent discount for high-volume sellers, and a $50,000 prize for the seller with the largest auction network by the end of October.

Whether sellers will find Overstock Auctions' formula compelling remains up in the air. In the meantime, however, not everything was going smoothly at press time for the new online auction site, as it intermittent outages hampered page loading. Overstock.com Auctions Web pages occasionally appeared with a message asking users to "Please try back in 5 minutes."

Christopher Saunders is managing editor of ECommerce-Guide.com.