Betting On eBay
Published for the Week Of October 4, 2004
ustin Nolte says the big bet he made selling custom systems on eBay has paid off beyond his wildest dreams.
“I never thought my business would be this big,” said Nolte, who founded Xotic PC, Lincoln, Neb., five years ago out of a spare bedroom and has built it into a $2 million enterprise. “It has completely blown my mind how far it has gone and how far we plan on taking it.”
Nolte says selling on eBay has made all the difference between success and failure for his custom-system business. At least 50 percent of Xotic’s sales come from selling systems on eBay, but it’s probably higher because many clients learn about Xotic from eBay and then purchase from Xotic’s own Web site at www.xoticpc.com.
“Our business would be a fraction of what it is without eBay,” Nolte said. “It was the key to us starting our business. Where we are at today is because of eBay.”
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Nolte isn’t alone. EBay, San Jose, Calif., estimates that 600 custom builders offer systems, with a desktop PC selling every 90 seconds and 1,990 laptops being sold every day. EBay says its computer and networking category is growing at a 24 percent annualized rate to $2.4 billion this year.
Nolte and other custom-system builders say the rewards of selling on eBay far outweigh the risks. The low cost of entry to get started (including the relatively low price for listing systems) and the broad reach to buyers of all kinds is unmatched, they add. Furthermore, those that do not take the plunge may find themselves left out of a growing and robust marketplace.
A new wave of tools is now available for custom-system builders, from credit card processing and order processing management to newer tools to increase sales, such as a PC configurator from Infobia. But there is also potential credit card fraud losses and the fact that builders must pay higher fees for a better position in searches and listings.
System builders that have been successful on the site caution first-timers to start slowly and make sure they do not overpromise and underdeliver.
Nolte, for his part, said the small fee for a listing a system on eBay (about $60 for a $1,000 system) and the small percentage of the sale taken by eBay (approximately 2.1 percent) allow Xotic to reach untold thousands around the world. “We have sold systems in Australia and China,” he said. On an average week, Xotic has 300 to 400 listings on eBay that draw as many as 20,000 Web clicks.
One of the keys to Xotic’s success has been its stellar feedback rating on the eBay site. Xotic, one of an estimated 20 custom-system builders that has achieved eBay’s Titanium power seller classification, has a 99 percent positive feedback rating. “That has a snowball effect,” said Nolte. “It’s a big selling point. Approximately 60 [percent] to 70 percent of all customers view the feedback. It gives people confidence.”
That confidence is particularly important for customers worried about giving out credit card numbers to online resellers. Nolte said eBay’s fraud-protection measures create an expense for sellers, but that the cost is small compared with the sales they help generate. It also helps protect sellers.
“We’ve got a lot of fraud protection including address verification and user ID,” he added. “We view it as the cost of doing business on eBay. We’re not troubled by it. All in all, it’s been a very good experience.”
Max Pikovskiy, sales manager at Magic Micro Computers, a $5 million Cleveland-based system builder with 15 employees, also has had a positive experience selling systems on eBay. The 10-year-old company began selling on eBay four years ago and now has at least 50 percent of its sales coming from the online auction site.
“We are happy with the experience,” said Pikovskiy, despite the increasing cost of being on eBay. “We used to pay $5,000 a month. Now it’s sometimes $17,000 per month. The fees are going up and our sales are going up at the same time. As long as they are both growing progressively, we are happy.”
Pikovskiy also advises businesses interested in joining to start slowly. Many companies underestimate the complexities of selling on eBay, he said. A number of them “blow it by taking orders they can’t fulfill. When you start selling more than you can produce, you can create a lot of problems,” he said.
Magic Micro has garnered an impressive 99.8 percent customer rating on eBay. A number of custom-system competitors have dropped off the site because they could not provide competitive pricing backed up with strong customer service, resulting in negative feedback, he said.
“It’s really easy to provide the best price,” Pikovskiy said. “It is really hard to provide the best service. Most of the time, the best price doesn’t come with the best service. You have to pay service people and you have to satisfy customers.”
One of the benefits to selling on eBay is the strong reach provided year-round without the seasonal patterns of a retail storefront business. “There are not as many ups and downs as a regular market,” Pikovskiy said.
One reason for that may be the astronomical growth in registered eBay users. The company claims to have 114 million users and says it is adding 100,000 users per day.
That growth has not meant that smaller sellers have taken a backseat, though. Pikovskiy said eBay is a fair marketplace that levels the playing field so that small sellers can compete against larger companies. “Unlike other places, where only the biggest and strongest survive and the little guy has no chance, here you can start from zero and be successful,” he said. “Of course, you have to be good at it.”
David Stern, senior category manager of systems at eBay, said larger companies competing on eBay have the same fee structure as smaller players and both have access to the same tools. “It’s the only marketplace in the world where the smaller guys are on level footing with the big guys,” he said.
Stern said that eBay is aggressively recruiting system builders and solution providers. EBay research has found that most solution providers have not taken the plunge because they “don’t have sufficient time to do so,” Stern said. “They feel it is something they haven’t gotten around to.”
The company has invested heavily in making it much easier for system builders to get started on the site, Stern said, pointing to the many system builder success stories.
Nolte, for example, is seeing strong sales growth in custom notebook systems and tablet PCs. And he sees no end to the opportunity for increasing sales on eBay.
“I don’t see any limits at all,” he said. “I only see it getting bigger and bigger and bigger and just growing, and growing and growing.”