WASHINGTON, July 5 (UPI) -- eBay, the online merchandise mart, started as a friendly, open marketplace allowing small sellers and individual consumers to come together online for transactions through auctions and, later, direct, fixed price sales. Now that it is a big time, e-commerce enterprise worth billions, it's not so open and friendly anymore.
Sales on eBay are expected to exceed $11 billion this year, with a net profit for the company of close to $1 billion. About 46 million people are registered to use eBay, and the company accounts for 80-90 percent of the online auction market.
In the good old days, a friendly little company named PayPal came along with an easy way to process online payments for transactions like those on eBay. Registered sellers and buyers could have their payments processed instantaneously with just a few clicks and the service is today used for a broad range of online transactions including those on eBay.
Success in the marketplace makes companies attractice and, not surprisingly, eBay now covets little PayPal's business. Therein lies the makings of a classic Greek tragedy, for eBay's zealous, overaggressive assault on PayPal could result in its undoing.
First, eBay launched its own payment service. PayPal transactions were still permitted on eBay because excluding it altogether would be the antitrust equivalent of speeding through a red light and hitting a police car. But eBay restructured its website to grossly favor its own service over PayPal. Given its market power, eBay doesn't have to mind the preferences of buyers and sellers, who generally favor the less expensive and already widely used PayPal.
The favoritism starts when a seller first signs up to use eBay. The seller can sign up for the eBay payment system and be registered immediately. Or the seller can pay a fee and wait for processing.
Once signed up for eBay payment services, all of the seller's auctions and sales offer the buyer that payment system as the first choice. In fact, the eBay alternative appears at the top of the sale page with a big, multicolor logo, and the purchaser is encouraged to buy now with that payment system. If the buyer scrolls down to the bottom of a second page, the PayPal option appears there, at the very end.
eBay also sends an email to notify every auction winner of the win. The email helpfully explains, "Here is what to do next: PAY NOW WITH EBAY ONLINE PAYMENTS". The email then includes a link that takes the buyer to the eBay payment system to complete the sale.
PayPal is not mentioned in the email and, when they started to send it own emails to auction winners, eBay forced PayPal, under threat of exclusion from the eBay website, to do so only if it received specific permission from each individual seller.
Buyers can also monitor their auctions on their own, individual, "My eBay" pages. These pages only mention and link to the eBay payment system. In addition, sales of fixed price, non-auction items on eBay can only be completed through the eBay payment system. PayPal is completely excluded from those sales. eBay also runs promotions that allow payment only through it's own payment system.
Why is eBay so anxious to drive out PayPal out of the marketplace? Because eliminating this alternative would greatly enhance eBay's market power.
Without a ready and widely used PayPal payment system, it would be much more difficult for potential competitors to eBay to start up. Individual sellers would also be greatly hampered in selling outside eBay on their own websites. Of course, without the PayPal alternative, eBay could also increase its fees for its payment service much more.
But eBay CEO Meg Whitman needs to sit down for a power lunch with Microsoft Chairman Bill Gates. For what Microsoft did to raise the ire of the Justice Dept. looks like a run through for a Boy Scout merit badge compared to this eBay crowd.
Microsoft, remember, simply included a free Internet browser with its regular computer software. Moreover, that software was structured so that any customer could simply and easily install any other browser, just by popping in a CD and following up with a few clicks.
The Justice Dept. somehow found in this an abuse of market power to drive out competing browsers. So did a federal judge, who at one point ordered a breakup of Microsoft as just punishment. That didn't happen, but Microsoft was still dogged through the courts for years and subjected to onerous penalties and restrictions.
eBay's heavily discriminatory tactics against PayPal would seem to be far more egregious. If eBay is not careful, it may find the Justice Department and some federal judge ultimately redesigning its website, or giving pieces of it away to others.
* Peter Ferrara is executive director of the American Civil Rights Union and a former associate deputy attorney general of the United States in the administration of George H.W. Bush.
