But before writing them all off, try to recall what made the Web such an appealing investment in the first place. The dream was that the Net's low fixed costs would transform media and retailing, allowing start-ups to compete with established giants. What boosters forgot to consider is how the Web's nonexistent barriers to entry would inflate marketing costs and eviscerate profit margins. Now consider eBay. Auctions, like all markets, require liquidity to be effective.
Sellers attract buyers, who attract more sellers.
The more buyers and sellers a marketplace has, the more liquid that market is and the harder it is for a newcomer to break in. This is why the New York Stock Exchange has been so successful for so long. It's why eBay already controls 80 percent of online auctions and why its profit margins keep rising. It's also why eBay is the rare Internet company that's built to last. Already profitable, eBay grew earnings an incredible 1,200 percent in the third quarter of 2000.