Metcalfe's column: From the ether

We are now often told that in the internet's New Economy market, dominance belongs to those with first mover advantages. But, of course, the people telling us this are mostly first movers, people whose surreal stock market capitalisations depend on it.

Economists will confirm -- duh -- that there are other than first mover advantages, such as scale, brand, distribution, technology and simple hard work. First movers can and often do squander their early dominance. IBM was not the first computer company. Intel was not the first semiconductor company. Oracle was not the first database company. Excel was not the first, or even the second, spreadsheet. America Online was not nearly the first online service. And, well, Ethernet was not the first local-area network.

And so Yahoo, Amazon.com and eBay, among others, are whistling in the dark about their first mover advantages.

In particular, there's poor eBay. eBay was first to hit it big in online auctions. But then, for some reason, Yahoo and Amazon didn't defer to the first auction mover. They branched into auctions from search and books, respectively.

And now there's a new startup, FairMarket, in Woburn, Massachusetts, with an even better auction idea.

Thanks to Yahoo and Amazon.com, eBay's stock is way down from its high, but still way up from its low. eBay has a long way to drop if its first mover advantages don't hold against FairMarket's network effects.

FairMarket CEO Scott Randall showed up in Tenerife, off the west coast of Africa, to tell his story to a hundred country managers of the International Data Group -- the parent company of Computerworld, Network World Today, and InfoWorld -- of which I am a director. Randall, formerly of the Internet Shopping Network and Yahoo MarketPlace, has quite a story to tell.

FairMarket was founded in 1997 to sell auction software to internet sites so they could be stickier, build community, and pick up transaction revenue. Why let your Web community drift off to eBay?

Next, FairMarket extended its software to support 'community' auctions -- person-to-person, such as eBay's, and 'merchant' auctions -- as well as business-to-person and business-to-business auctions. This is smart because most internet commerce is business-to-business.

Then, FairMarket decided not to sell its auction software but to offer outsourced auction services, making it even easier for FairMarket customers to start up and grow auction businesses.

And finally, get this, Randall created an auction network. Because all customer auctions are held at FairMarket, they can easily be networked. Buyers at a FairMarket site can have access to products at many other FairMarket sites. And vice versa. Thanks to network effects, FairMarket customers can be big in the auctions from day one and bigger ever after.

FairMarket customers' revenues come through listing fees and a percentage of transactions from auctions. Randall said the eventual auction network deal is 1 per cent for the buyer's site, 1 per cent for the site with the seller, and 1 per cent for FairMarket.

Dell Computer is using FairMarket not only to sell its computers but also to support auctions among its customers, sometimes selling non-Dell computers. Dell was recently joined at FairMarket by CitySearch, Excite@Home, Lycos, Microsoft Network, and TicketMaster -- which count 73 per cent of internet users among their customers. See http://www.fairmarket.com.

FairMarket's network effects are killer. eBay is still denying this, but I think it will eventually have to offer auction services to other sites, and network them, or die.

FairMarket is a great example of how we're moving away from personal computing toward Web services.

As I'll explain next week, we're moving to 'utility' computing, championed 30 years ago by MIT's Multics time-shared operating system. If you haven't heard of Multics, it's where Linux got its ideas and trailing X.

Technology pundit Bob Metcalfe wishes Yahoo, Amazon.com, eBay and now FairMarket luck with their first mover advantages. Find all his columns and e-mail address at http://www.infoworld.com/metcalfe.

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