Elise Wetzel and iSold It in USA Today

Firms jump on the eBay wagon (article ran 5/2004)

By Matt Krantz, USA TODAY

PASADENA, Calif. — Mike James pocketed $3,000 in 10 days by selling loads of old stuff on eBay. He sold his battered cowboy boots. He unloaded some dust-collecting artwork. He even hooked a buyer for his Eddie Bauer fishing vest.

And he did it without turning on his computer.

Too busy to fuss with the multiple steps of listing goods on eBay — the online bazaar for regular folks — James, 43, instead dropped it off at the just-opened iSold It store. ISold It sweated all the annoying parts of selling on eBay: It took digital photos of the items, fielded questions from potential bidders, then shipped things to the eBayer with the highest offer. About all James did was wait for the check in the mail.

The rub for eBay is that iSold It isn't run by eBay. EBay hasn't even invested in it. Instead, iSold It is a business, started by a hot-pretzel chain co-founder who — like many others — is eager to ride the swelling success of eBay. Why munch on pretzels when there's an entire e-economy to feed on?

ISold It may be just the beginning. Scores of companies are springing up to do everything from helping computer neophytes sell the dusty Tonka trucks piled in their basements to assisting Best Buy auction its surplus DVD players and laptops. There are even companies whose only function is to help eBay buyers and sellers get better prices.

Hello, eBay economy.

EBay has become an immovable e-force in world business and culture. The value of items sold on eBay grew 60% last year and hit $24 billion — making it larger than the gross domestic products of Bulgaria or Jamaica. With that kind of commerce, it's no surprise that eBay is spawning schools of new companies that want to plug into it.

While these companies mostly view themselves as savvy marketers, it might seem as if eBay executives would be put off by them, considering them to be bloodsuckers.
Not at all. In fact, eBay has tried to help them.

"The entrepreneurial spirit of the eBay community has always been strong, so it isn't surprising that these businesses are being created around the eBay trading platform," says Jeff Jordan, senior vice president of eBay North America. "We encourage this kind of growth — anything that makes eBay more vibrant, easier to use or more fun is a good thing."

In fact, on Wednesday, eBay is sponsoring its first United States of eBay conference in Washington, D.C., which will include meeting with members of Congress. It is gathering 51 small-business owners, one from each state and the District of Columbia, who make at least part of their living by selling on eBay.

The rise of the eBay offshoots is a sign eBay, an invention of the dot-com era, is coming of age and becoming something even bigger.

EBay may be enjoying what Alvin Roth, professor of economics and business at Harvard University, refers to as the "network effect." In other words, "It gets more attractive to buyers the more sellers it attracts and more attractive to sellers the more buyers it attracts, and so it becomes a more attractive marketplace as it gets larger," he says.

This is what usually happens with most good business ideas. The invention of the automobile spawned industries such as oil, auto-parts stores, car washes and even drive-in theaters. Kodak's invention of low-cost photography gave rise to one-hour photo developers and even photos of the kids with Santa Claus at the mall. Each was a phenomenon in itself, but all were tied to the growth of the underlying industry.

EBay is proving to be the first invention of such importance in decades. More than $894 worth of goods were sold through eBay every second during the fourth quarter of 2003. There are about 95 million registered users, which is larger than the population of France, Italy or Germany.

The growth of the eBay economy is blooming from three key areas, including:
Trading posts.

For Elise Wetzel, the idea of starting iSold It came from her reluctance to sell "overpriced candy bars." Rather than a cheesy drive for her kids' preschool fundraiser, Wetzel and a group of other mothers cleaned out their garages and came up with goods they wanted to sell on eBay. There was one problem: They didn't know how to sell things on eBay.

So Wetzel, who co-founded the nation's No. 2 hot-pretzel chain, Wetzel's Pretzels, with her husband in 1994, started iSold It.

Think of the company as a cross between a pawnshop and a garage sale. Here's how it works. Sellers empty their garages and haul in their Franklin Mint coins and porcelain dolls to the iSold It store. Staffers take the items, photograph them and post them on eBay. When the items sell, iSold It takes a 28% cut and sends a check for the remainder to the seller.

ISold It's one store has been open only since Dec. 15, but the race is already on for a nationwide rollout. It has sold more than $100,000 worth of goods on eBay each of the past three months.
Los Angeles is proving to be the first battleground, as iSold It and a rival, San Carlos, Calif.-based AuctionDrop, plan to open more stores here to begin a nationwide push.

AuctionDrop, which was founded in 2002, has already plastered billboards in Los Angeles promising to open stores everywhere from Pasadena to Santa Monica.

Randy Adams, an admitted gadget freak who used eBay to sell his slightly old digital cameras, started the company in July 2002. AuctionDrop is already selling thousands of items a month and has even lined up venture-capital funding. The value of all the items it sold online the past three months has averaged $284,000 a month and reached $2.3 million over the past year.

Perhaps more than any company, eBay knows what stuff is worth. It has data on what G.I. Joe action figures were going for in 1998 and what they were going for an hour ago.

Now, other enterprising companies are realizing just how valuable that information is and are figuring out how to profit from it.

For instance, a company called 3balls has licensed pricing data eBay has on golf equipment. 3balls is now making that data available at the Professional Golfers' Association's Web site at PGA.com. Golfers can describe a club they have — and find exactly what the club is worth.
Now, 3balls is developing that into a business by teaming with pro shops. Golfers can bring their old gear to pro shops and get paid immediately. The pro shops can do this because they're confident, thanks to the data from 3balls, of the price for which they will be able to resell the equipment.

EBay data are even showing up on personal tax returns. Financial software maker Intuit licensed data last year from eBay to make its "It's Deductible" software that determines how much the old baseball gloves and shorts you donated to Salvation Army are worth. It calculates the amount and tells you how much you can report to the IRS.

While the number of eBay offshoots grows, there's always the daunting possibility that eBay could squash them if it took an interest in any of the businesses. There's always the chance, no matter how remote, that eBay could open hundreds of eBay stores around the country almost overnight.

Harvard's Roth points out that eBay has sued some companies that plugged into it before, including Bidder's Edge, which compiled eBay data. EBay accused it of trespassing and won an injunction.

"If you have a business that involves eBay, particularly one that involves providing services to eBay customers, you run a risk that eBay will change its business practices in a way that could harm you," he says.

But Wetzel and Adams say the chance of this happening isn't keeping them up at night. Adams says he got assurance from the top.

"One is always concerned when creating a business with a dependency on another company," Adams says. But he was comforted after Meg Whitman, CEO of eBay, toured the company's headquarters this year and sat down with AuctionDrop's management. "Meg looked me in the eye and said, 'I assure you we're not going to get into it.' "

Just don't bet your weathered cowboy boots on it.