I’ve been thinking a lot about eBay for the last couple of days. Not that I have anything to buy or sell, but I’ve been perversely intrigued about the auction site’s dramatic fall in 2008. Sure, last year was rough for everyone, but for this former giant, it was especially bad. This week it was announced that eBay’s Q4 profits had fallen 31 percent, the San Jose, Calif., company’s first decline since 1995, when many – if not most – people weren’t even on the Web. The major reason given for this is eBay’s shift of focus to fixed-price sales. Auction sales are declining and fixed-price sales are losing to Amazon and niche retailers. The Internet accelerates the changes in consumer behavior, and part of eBay’s difficulty lies in this. Online auctions, once a novelty, are now a hassle; not only that, they’re not even sure to offer the best prices anymore.

EBay still gets the most retail traffic on the Web, but its growth has flatlined. Some believe that eBay’s failings are part of a well-established cycle.

Sarah Lacey, author of “Once You’re Lucky, Twice You’re Good: The Rebirth of Silicon Valley and the Rise of Web 2.0,” discusses this “Valley truism” in a recent article.

“No publicly traded Internet company stays on top for more than four years,” says Lacey.

“We saw it with Netscape, Yahoo, eBay, and I think we started seeing the beginnings of it with Google at the end of 2008.”

Lacey cites VC and Pay-Pal co-founder Peter Thiel, saying there are two reasons for this “Darwinian Web Cycle.” Companies begin to lose their best employees the further they get from their “big IPO (initial public offering) moment,” and hubris sets in: companies start to believe that their initial success will lead them to do well in any new venture and business model.

And as any reader of Greek tragedy or Hollywood gossip knows, hubris often leads to fatal downfalls.
eBay Inc. Reports Fourth Quarter and Full Year 2008 Results

By Mark Alvarez