Tuesday, August 7, 2007

Leveraging Facebook To Compete With eBay Won’t Work

Buy.com made a splash tonight with their announcement of a new Facebook application called Garage Sale.

Facebook users can use the application to sell thing directly to
others via their Facebook profile. Buy.com charges a flat 5% commission
on completed sales (the seller will also have to pay Paypal or other
payment fees. The application says “thanks to Garage Sale, Facebook
users don’t have to leave their profile page to advertise and sell
personal goods.”


There are other Facebook applications doing nearly the exact same thing. Mosoma, for example, is one that I tested a couple of weeks ago. It also allows users to sell items on their Facebook profile.


There is an argument that a closed network is a better way to sell
items because the people who view the listing know you and, presumably,
trust you. That gets you over a big hurdle - eBay’s feedback system
provides information on the buyer and seller which helps them get
comfortable transacting. Without that feedback system to encourage
sales, it’s important that something else takes its place. In the case
of Garage Sale and Mosoma, user familiarity is the key.


But in practice this doesn’t work so well. Sellers are looking for a
big base of buyers to sell into to leverage the network effect. eBay
obviously does an excellent job of this. Otherwise there is no reason
they would command a long term leadership position with their high
fees. Buyers and sellers put up with the fees because it is the place
to go to conduct p2p transactions. The network effect perpetuates their
success and newcomers have a very difficult time gaining market share.


With Garage Sale and Mosoma, sellers can’t access this large pool of
buyers because only their friends will see the listings. And sellers
who are looking for a specific item are still likely to hop on over to
eBay and do a quick search. They’ll only buy from friends if they
serendipitously happen to catch site of an item in a friend’s news feed
that they were already looking for.


Microsoft experimented in this area in late 2005/early 2006 with their Live Expo product. Originally Expo was a way to buy and sell items to your MSN IM buddies, or coworkers at a company,
which is very similar to the Facebook experiments now being conducted.
But over time they seem to have expanded Expo to become a more generic
listing service. People want deep listings when they are looking for
something.


Closed networks work for some things, but they don’t seem to work
for trading physical goods. My bet is that Garage Sale and Mosoma fall
short of expectations, and that eBay is looking on with, at best,
bemused interest.

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