Why eBay (Mostly) Rules the Auction Game
Two decades after its creation, the popular auction website eBay has taken the online auction world by storm. For a website that largely relies on its users to perpetuate the content, it is no surprise why eBay is the leading auction website. eBay was one of the first of these auction sites to be created, and without competition eBay flourished. As of last February, eBay held 85% of internet auction traffic in the United States. Maintaining this large section of the auction pie provides a substantial challenge to possible competition. A large reason of why people use eBay is that it is in their direct benefit to use eBay with the high volume of both buyers and sellers. If a new auction website were to come along, it would have a hard time getting past eBay’s already existing popularity, even if it tried to provide special offers such as lower costs. The need to establish a reputation would also impede a new auction site. Auction sites rely heavily on the reviews and reputation of its users, and people to the new auction site would suffer from the ambiguity of its users, keeping eBay at the top.
While eBay is the domineering auction site in the United States, it does not have the same position in other parts of the world. In Japan, eBay is essentially nonexistent. Japan instead has Yahoo! as their main auction site. One may wonder why eBay, if so popular in the U.S, is not as popular in other countries. The reason for this is similar to why an another auction site could not displace eBay in the U.S, Yahoo! was in Japan first. Yahoo!’s auction services were launched 5 months before eBay, and Yahoo! had the foresight to advertise heavily and not charge initial fees, allowing its critical mass to grow and thus network effect to increase rapidly. This made it difficult for eBay to cut out a sphere of influence, preventing them from taking over the market. Even if eBay is considered the superior auction site, the network effect makes it extremely difficult for eBay to take over. Thus it is important when evaluating websites that thrive on social interaction in not only their actual content and ability to do the job, but also what kind of competition and to what extent the competition has taken over the contested network.
Source: https://hurricanecapital.wordpress.com/2015/02/26/eBays-holy-grail-network-effects/