EBay Partners Plug Into Internet's Biggest Marketplace

The Internet auction Goliath now counts 30,000 members in its developer program, and a quarter of its listings come through third-party tools tapping into its Web services interfaces. But eBay wasn't always so eager to open its platform and build a channel.

Just ask Vendio. The first time that the eBay Certified Solution Provider tried to build tools to tap into the eBay marketplace, it nearly got sued.

"There was a fair amount of saber-rattling," Vendio CEO and co-founder Rodrigo Sales said, reflecting on Vendio's early days in 1999. Then doing business as AuctionWatch, Vendio created a site that scraped listings from various auction Web sites, including eBay, and offered a universal search. EBay called the service an illegal infringement on its platform and ordered AuctionWatch to stay away from its listings. The two companies exchanged legal threats.

Two years later, Vendio signed on as eBay's first partner in its "preferred solution" program. The about-face came when eBay realized that outside partners would generate more business for its auctions than they pulled away.

"Anything that helps accelerate trading is good for our users and good for our market," said Greg Isaacs, who joined eBay in 2001 and now serves as director of its developers' program. "We want to be an online trading platform where anyone can trade anything, and our developer program is a critical part of that."

EBay's epiphany came in 2000, when it surveyed the growing landscape of startups scraping its listings and cobbling together tools for eBay sellers. It decided to join the throng rather than fight it. EBay released its first open API beta test in 2000 and soon after created a formal program to encourage outside application development around its platform.

The program has since snowballed. In 2002, eBay processed about 1 billion calls to its Web services interfaces. In the first quarter of this year alone, it processed nearly ten times as many.

EBay is like a gravity well in the world of e-commerce. The total value of items sold through its Web site reached $44.3 billion last year, a 30 percent increase over the previous year's total. A sales stream that large offers plenty of opportunities to operate profitably in eBay's orbit, partners say.

"The ability to turn your infrastructure on and plug into that marketplace, that's a siren song," said Eric Smith, founder and president of UnWired Buyer, an Austin, Texas-based mobile bidding software maker. "To date, 100 percent of our focus is on eBay."

UnWired Buyer was the winner of eBay's first "developer challenge," a competition to create a killer app. Its service allows users to bid by mobile phone in the final minutes of an eBay auction.

"I can't tell you how many auctions I've won using [UnWired Buyer's] application," said eBay's Isaacs, who confesses to doing much of his shopping for household goods on eBay. His recent purchases include an air mattress for his visiting in-laws. UnWired Buyer, which is privately held and doesn't disclose its revenue, recently closed a $6-million round of venture-capital funding on the strength of its eBay business. UnWired Buyer's service is free to users and its revenue stream is drawn from the commissions eBay offers participants in its affiliate program. UnWired Buyer will soon start cashing in on a new OEM agreement with eBay, which is licensing technology from UnWired Buyer for use in its upcoming mobile alerts service.

Vendio, too, has built its entire business around eBay. Employing 75 people, the San Mateo, Calif.-based company targets the seller side of eBay's economy. It offers image hosting, inventory management, listing design tools and other services for eBay sellers.

The fees from those services have made Vendio profitable for the last 13 consecutive quarters, according to Sales. A private firm, Vendio declined to disclose its revenue. Yet the company estimates that its tools are used to sell $50 million in products each month.

Partners say eBay is generally responsive to their needs. Take the case of Fatlens.com, a fledgling shopping search site. When Fatlens.com realized eBay's APIs aren't easily scaled to support third-party calls on the site's entire inventory, Fatlens.com's developers were easily able to escalate the issue and set up a meeting with Isaacs' team to discuss solutions.

"They've been very easy to work with and enthusiastic about our application," said Fatlens.com CEO Siva Kumar.

eBay continually tweaks its developer program, adding new APIs and tools and sweetening the program's financial structure to lure ISVs. One major change came in November, when eBay eliminated the fees it had charged for access to its APIs.

Vendio's Sales said that change illustrates the positive and the challenging aspects of building a business around eBay. The API fee elimination spared Vendio a significant annual expense, but it also attracted a swarm of new ISVs to eBay, increasing competition. "We've seen some impact on our margins," Sales said.

It's a partners' version of the classic dilemma of eBay's longtime sellers. EBay's growth--now 203 million registered users--helps them by widening the pool of potential buyers, yet it also hinders them by expanding the pool of sellers.

E Bay partners say the key to staying afloat is flexibility. Vendio and UnWired Buyer began life with different business models--the former as AuctionWatch, the latter as a mobile phone firewall developer. Both adapted on the fly to shifting customer demands.

" 'Roll with the punches' sounds too reactive, but our strategy certainly places a great deal of emphasis on evolving with the market," Sales said.

eBay now counts 2,300 applications in its Solutions Directory, twice the number it had a year ago. Isaacs said his aim is to continue that rapid growth. EBay's bet is that its partners' rainmaking will lift its boat, as well as theirs.