Overstock.com vs. eBay: online giants face off.

• Author: Horowitz, Alan S.
• Position: Techknowledge

FOR COMPUTER OPERATING SYSTEMS, THERE'S ONE BIG NAME: Microsoft. For Internet searches, there's Google. Likewise with online auctions--eBay. All of these market behemoths have pretenders to the throne, and in the case of eBay, one of these is Salt Lake City-based Overstock.com. The question being asked in the online auction world is: Can Overstock.com succeed in gaining a significant online auction presence?

Overstock's traditional business is buying items cheaply from manufacturers and retailers that need to get rid of extraneous inventory quickly, and then reselling the items (and passing on the savings) to consumers on its Web site.

A company like eBay, on the other hand, doesn't take ownership of the items on its site. It provides a place for buyers and sellers to get together, just as a traditional auction house does.

But now Overstock.com wants a piece of eBay's action. Adam Sarner, an ecommerce analyst with the Gartner Group, in Stamford, Conn., questions whether Overstock has much of a chance. He thinks eBay and Overstock.com shoppers are very different. "Overstock people go there because you can buy it right away and at a low price. Overstock is an outlet store. People who go to eBay like the gambling aspect of it. eBay is a flea market. I think they're two separate markets."

Another analyst, Paula Rosenblum, a Miami-based director of retail research at Aberdeen Group, is also skeptical. "I'm surprised [Overstock is] bothering. They have a whole other market going on, the everyday low price phenomenon. They've done a great job with that," she says.

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The online auction business may, in fact, be detrimental to Overstock.com, suggests Sarner, "I think it can hurt. You muddy the value proposition. You go to Overstock for X, Y and Z, and now you dilute that by offering X, Y and Z, and A, B and C. Switching from outlet store to flea market can dilute their brand."

But Patrick Byrne, chairman and president of Overstock.com, disagrees. "We have tremendous traffic overlap." he claims. "Seventy percent of our people also shop on eBay."

Byrne is realistic; he's not expecting to topple eBay, just take a piece of its action. He claims Overstock.com's online auction business is now more than one percent the size of eBay's, based on the number of items listed. He's aiming for about two percent by the end of this year and says. "I don't think we'll be 50 percent, but five or 10 percent in a couple of years would be great."

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