Auctions Are Not Easy Money

One of the most misleading “truths” about the Internet today is that it’s easy to make money in auctions, because the auctioneer never takes title to the merchandise.

The fact is that it is easy to steal money in auctions, especially online auctions.

You can “offer” merchandise you have no intention of delivering, then disappear. You can sell something that’s illegal to sell – unlicensed software, liquor, your kidneys, or your company. You can write a software program that sneaks into auctions just as they are about to close, posts a winning bid, and leaves honest punters on the losing side.

All these scams, and more, must be policed if the auction house is to prosper in the long run. Sotheby’s and Christie’s are still scammed at times by art forgers, but over the years they’ve spent plenty trying to authenticate their goods and police their auctions. We buy there because their auctions are credible.

Over the last year, eBay has gotten hit with every kind of scam, and frankly it hasn’t done enough to stop the rip-offs. It relies on community, on contacts with real police, and the media to police its millions of auction pits. It’s not good enough. If you’re thinking of finding a bargain on eBay you may succeed, but caveat emptor — buyer beware.

Despite eBay’s problems, it does have an Internet franchise. On the Internet action begets action, and since eBay has more action, it has an Internet business advantage. (This is not a big problem in the real world. If Sotheby’s has a Van Gogh and you want a Van Gogh, you go to Sotheby’s and don’t think about Christie’s having more merchandise that day.)

That’s why ten big merchants (Amazon wasn’t there, and Yahoo wasn’t there) grouped their auctions together under the umbrella of Fairmarket recently. If they pool their action they have more action, and can compete with eBay, Yahoo and Amazon.

To protect both its action and its legitimacy, eBay last week revised its user agreement, forbidding the use of “any robot, spider, other automatic devise or manual process to monitor or copy our web pages.” (Will someone please explain to me how eBay will enforce that – especially the “manual process” bit.)

As a follow-up, eBay officials this week contacted AuctionWatch President Rodrigo Sales and said that if he didn’t stop his “universal search” feature from telling users about eBay’s action, it would block AuctionWatch from accessing its site entirely. Since eBay holds most of the world’s online auction action, the letter tells AuctionWatch it can shut down or be shut down.

The result of all this is that some lawyers are going to make a ton of money in the next year. Remember that Microsoft-TicketMaster suit (later settled) in which TicketMaster tried to keep Microsoft (and anyone else) from linking into its public web database?

Remember how we all raised heck when Universal Studios sent a lawyer letter, along the same lines, to a site in Ottawa? That’s the legal issue in play here and eBay, the small seller’s friend, is now firmly on the side of the bullies.

It’s true that eBay might win in court, they might win with technology, and they might even stop fraud on their service. But eBay is going to spend a lot of money in the process, and that’s something investors need to be aware of before buying into eBay or any other auction service.

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