Ebay’s Tenth Birthday

Lynne Kiesling

Everyone’s talking about eBay’s 10th anniversary. NPR is running a series of stories on Morning Edition. The Economist’s print edition this week has a cover article on eBay, with clever art:

Much of the analysis focuses on the lessons to learn from eBay’s success. The Economist article put it succinctly:

To succeed, firms need agility, an open mind and the ability to reinvent themselves repeatedly. Most of all, they need to listen carefully to their customers, paying close attention to what they do and don’t want. …

It is not impossible that some kind of monopoly might emerge, wielding true pricing power, but right now it looks unlikely. eBay’s managers, for example, admit that customers are shaping its business more than they are, and seem acutely aware that groups of customers could easily depart together to set up their own specialist auction or sales sites if eBay charges too much for its services or lets them down.

When I give talks about dynamism and competitive electricity markets, I draw inspiration from eBay frequently, on precisely these two points. Market processes reward the agile, the flexible, the adaptable suppliers, creating value for them and for their customers beyond those imaginable in any alternative way of structuring transactions. eBay illustrates that potential in spades.

It also illustrates what happens when you empower consumers, even when you empower them in transactions that you aren’t sure are that valuable to them. Given the platform, customers tell you which transactions are valuable to them and which aren’t. 30% of eBay’s volume is now from used car sales, which eBay employees didn’t envision. Customer input and choice through their decisions provided the valuable information to potential suppliers that has led to the increase in used cars brought to market on the eBay platform.

But the second pull quote illustrates the value of platform contestability, the Schumpeterian dynamic on which we thrive. eBay can’t rest on its laurels or start extracting rents, because these buyers and sellers could split off and start a speciality car auction site. That discipline keeps eBay innovating. And it illustrates why, in the same way that government-granted monopoly firms are a bad idea, government-granted monopoly market platforms are also a bad idea. This is my biggest criticism of the RTO/ISO regionalization in electric power — RTOs/ISOs run the danger of becoming monopoly market platforms, because of the bundling of their system operation coordination function and their market platform function.

John Berlau made similar arguments about SEC regulation and competing market platforms back in January. The main point is that Schumpeterian dynamics, the competition for platform dominance, is as valid in market platforms as it is in technology platforms, in product features, in almost everything. eBay is a beautiful example of market platform Schumpeterian dynamics in action.