A piece in Monday’s WSJ indirectly makes the argument that online auctioneer eBay is too big to fail. While the piece cites various examples of smaller auctions that are making inroads on eBay by being focused, it concludes with the following quote, one that is Accepted eBay Punditry Wisdom:
“EBay got the biggest network fastest,” says Carrie Johnson, an analyst at Forrester Research, a Cambridge, Mass., market research firm. “Buyers don’t want to come somewhere where there isn’t a large number of goods.”
Fine words, but are they more than superficially true? Well, I have argued in the past that eBay — like Google — has a soft, exposed flank, and that is focused competitors. Whether it is a certain HR-centric search startup in Boston causing Google trouble, or Stubhub doing a better job than eBay is at pulling together a ticket market, both companies are good generalists but much less adept specialists.
But doesn’t size trump everything else? After all, as the above-mentioned Forrester analyst says — in a quote that can be heard in various forms at almost any technology/analyst conference — people don’t want to buy (sell) if most of the sellers (buyers) are somewhere else.
That is true, of course, but it also becomes meaningless in the limit. After all, whether there are a billion people on eBay or “merely” 10-million does it make any less likely my vintage Thor-style Pez dispenser will sell? Perhaps, but the difference is so smail as to be inconsequential.
Like so many things, both auction and search have asymptotically declining returns. The founding myth in search is that Google succeeds because it indexes more of the web than anyone else, and that eBay succeeds because it has the largest auction market online. C’est ne pas vrais.
There is, of course, a requisite size for effectiveness that a Google or an eBay must reach, but both long ago reached that size. Increasing an eBay’s (or a Google’s) size is not cheap, and the payoff for expending rapidly-increasing amounts of capital to reach that last 25% (8%/4%/2%) will not meet the return hurdle for a public company.
So is eBay too big to fail? No. Matter of fact, it is, cheerily enough, just about the right size.