www.aspnews.com/analysis/analyst_cols/article.php/895191

Back to Article

Weekly Review: eBay And Yahoo! Not Just Consumer Sites By Phil Wainewright October 1, 2001 When people hear the term ASP, they normally think of high-end, enterprise ASPs that deliver top-tier software from the likes of Oracle, Siebel and Microsoft to larger businesses. Speak Out Do companies like eBay and Yahoo! hold the key for small business success in the ASP sector? Sound off in the ASPnews Discussion Forum That perception overlooks probably the most prosperous and fastest-growing segment of the ASP industry. Large numbers of smaller businesses are using hosted services to drive their online activities, some of them generating substantial revenues in the process. All this business activity is often overlooked by mainstream industry observers because it's not happening in the obvious places where business is supposed to get done on the Internet. Instead, it's happening at sites that are more typically associated with consumers and home users, such as eBay and Yahoo!. The Business Side of Online Auctions The popular image of eBay as a place where individual collectors and householders can buy and sell unusual items belies its more serious side. For many companies, eBay represents a significant channel to market. So much so, in fact, that a small ecosystem of complementary providers has grown up that helps traders and businesses make the most of their eBay presence. Some of those complementary providers are themselves substantial operations in their own right. Online person-to-person payment service PayPal, for instance, has just filed papers for a NASDAQ IPO, which show that its revenues came to nearly $20 million in the quarter ended June 20th. As much as 70 percent of those revenues were earned from eBay transactions. One of Paypal's partners is Andale (pronounced 'an-duh-lay), which provides tools and services to help small businesses automate and integrate all aspects of online selling across multiple outlets, including eBay and Yahoo!. Andale claims that its small business customers drive more than 75 percent of all listings on eBay each week, and that last year they collectively made online sales totaling more than $3 billion. This is not a niche market. Yahoo!'s Well-Kept Secret Then there's Yahoo!, which barely promotes its online store service, but which, according to its quarterly filing to the SEC, nevertheless had 13,200 hosted stores in March this year, each paying Yahoo! a minimum of $100 a month. Yahoo!'s total business services revenues in Q1 this year came to $30.3 million, of which store hosting revenues were the "most significant portion." In other words, if Yahoo! Stores were an independent company, it would be one of the world's largest ASPs by revenue. It's all too easy to dismiss the user base of these highly popular sites as consumers, hobbyists and home users, but such a verdict is not borne out by the subscription revenues they and their partners are managing to collect. There is a large, prosperous and growing business community using these services. This, of course, is something that both eBay and Yahoo! are well aware of, and both are working hard to expand their business offerings. eBay Plays it Safe It came as no surprise therefore to find eBay on the list of companies supporting Sun's announcement of the Liberty Alliance, an intended rival to Microsoft's Passport authentication service. eBay is also working closely with Microsoft on Passport, but it does not want to be caught out backing the wrong horse when it comes to such a vital component of online service infrastructure. With the backing of a diverse set of partners including heavyweights such as Bank of America, Dun & Bradstreet, General Motors, Sabre, Sony and United Airlines, the Liberty Alliance announcement was a welcome endorsement in favor of a neutral authentication service for Web services — a need that I discussed in more detail in last week's review (see Weekly Review: One Small Step for Microsoft ....). This is something that is too big to be left in the hands of any one company, least of all Microsoft. Exodus Makes Its Exit? The reality that even the largest companies can fail was underlined by last week's collapse of both Exodus and Excite@Home into Chapter 11 bankruptcy protection. The discredited philosophy of "build it big enough and we will make it pay eventually" is a disease that has afflicted victims far beyond the ASP and dot-com sectors. Indeed, its largest victims have been in the telecoms, ISP and hosting sectors. The case of Exodus in particular demonstrates that size and market presence are never enough on their own. As we noted almost exactly one year ago in a previous review, Exodus could have either invested in delivering its services cheaper than anybody else, or in making those services better than all of its competitors. Instead, it relied just on getting bigger and bigger. When customers started either going out of business or scrutinising exactly what they were getting for their money, revenue growth went into reverse and its business plan self-destructed. Only a fluke recovery in the dot-com economy will rescue Exodus now. This review of the week's news highlights is by ASPnews.com founder and consulting analyst Phil Wainewright. A comprehensive news digest is published every month in the ASP News Review newsletter, available exclusively to subscribers.