Great article about the companies that inhabit the niches around eBay. Provocative. I bet this got the author a call from the eBay PR department.

“And the eBay economy doesn’t exactly work like a free market. It’s more like a Soviet-style planned economy, with eBay chief executive Meg Whitman serving as the head of the Politburo. EBay determines the prices that so-called “third-party” companies must pay to interact with its website, and it occasionally threatens or pursues litigation against companies that it believes are misusing information from its auctions.”

Isn’t there a variant of Goodwin’s law about that?

Then the author turns around and rains on the parade of the company that is the hero of the piece.

“In many ways, it’s the exact inverse of the business model that made eBay so successful. EBay operates a website, leases no retail locations, and never takes possession of merchandise. Its sellers handle the hassles of packaging items, shipping them, and communicating with buyers. AuctionDrop, on the other hand, is a labor-intensive model that requires retail and warehouse space and copious customer service. I’ll be astonished if it’s still in business this time next year.”

I hope the author’s got call waiting.

it’s very refreshing to see a business article that get’s it. EBay has a beautiful business model. They captured just the right amount of the transaction; the finding and the closing. Meanwhile it’s surrounded by complementary companies. Some of these will be quite marginal operations. Others like UPS or Paypal maybe quite large. Such is the power-law curve. Managing the ecology of complements around a big business is an art. The big complements tend to develop market power that constrains your flexiblity (which is why Microsoft had to acquire a word processor) while the little ones solve problems for you.