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NEWS FLASH November 3, 1999

How eBay's Fate Is Tied (Sort Of) to Beanie Babies
The auction site could suffer if production of the stuffed creatures ends. To help compensate, eBay is moving to upscale collectibles

While the rest of the Internet industry is fretting about Y2K, eBay (EBAY) is suddenly focused on another issue: Ty2K. The online autioneer, which has prospered thanks in no small part to sales of Beanie Babies on its site, is facing what Ty Inc., the manufacturer of the diminutive stuffed animals, is calling the end of the line. Though not everyone believes it, Ty says it will cease Beanie Babies production on Dec. 31. And that could affect everything from eBay's visitor loyalty and brand awareness to its revenue.

Today, the auction site offers more than 300,000 Beanie-related items -- including collector coins, pins, trading cards, and, of course, Beanies themselves -- which together account for more than 8% of eBay's total listings. Ty's Aug. 31 announcement is already changing the dynamics of how these handfuls of fluff are sold. Merry Richter, eBay's plush toy category manager, says Beanie prices on the site have spiked 20% in the past three months. Once production stops, the number of Beanie Babies on eBay is likely to shrink, says Sean Kaldor, vice-president for e-commerce research at industry watcher International Data Corp. What will happen after that is anybody's guess. Conceivably, eBay could suffer a Beanie Baby drought. But if demand stays up, the size of each Beanie Baby transaction may rise -- and lessen the damage.

Kim Bennett, a collector from Roswell, Ga., is banking on the latter scenario. "There is always a new Beanie collector," she says. "People contact me daily." Bennett has more than 2,000 Beanie Babies and 40,000 trading cards available to be sold at auction. She says she's waiting for prices to rise further, but she'll have to time her move carefully. Indeed, she's one of the skeptics who doubts that Beanie Babies will go out with the New Year -- in which case prices might not rise much further. "I don't think that Ty is going to shut down the entire Beanie line," she says. "I think that it will retire the existing line and start fresh for the millennium." A Ty spokeswoman says the retirement plan is for real but doesn't rule out a new Beanie brand or line.

$80,000 TAPESTRIES. Meantime, eBay CEO Meg Whitman has decided not to tie her fate to a critter that could turn into the next Cabbage Patch Kid if collectors' tastes change. So among other initiatives, on Oct. 19 eBay launched Great Collections, which is a bit more upscale than a Beanie boutique. Great Collections' dealer-to-individual auctions will leverage eBay's $260 million March purchase of Butterfield & Butterfield by adding $80,000 tapestries and $700,000 16th century gold spoons to the lineup of Home Shopping Network-style jewelry, art, and sports memorabilia that eBay has traditionally sold. Presumably, the commission on a $700,000 spoon will offset the loss of a few thousand $50 Beanie Baby sales.

In fact, Whitman is limiting the number of dealers and auctions on Great Collections to guarantee that demand for big-ticket items is well stoked. The aim, she adds, is to avoid a saturated marketplace where such items go unsold.

Whitman also has one eye on eBay's outage policy, which was instituted in June after an string of embarrassing crashes on the site. Today, if eBay experiences an unscheduled outage that lasts for more than two hours, it doesn't charge fees on sales that were scheduled to end during the outage period. "There will be big-ticket items that sell for no commission on Great Collections, and that's O.K.," says Whitman. "That's our responsibility."

She just doesn't want that to happen often. With fewer Great Collections items than Beanie Babies, eBay can also offer a five-year guarantee of authenticity and a 30-day money-back guarantee, which should guard against the claims of fraud that have sometimes erupted in the Beanie Baby bazaar.

HUMPHREY THE CAMEL. Even so, positioning Great Collections as an extension of eBay -- instead of creating a separate brand with more cachet -- carries some risks. "Part of the challenge they face is having the company's roots in Pez dispensers and Beanie Babies," says Mike May, a digital-commerce analyst with Jupiter Communications. Can a Web site that sells used makeup, software, and tchotches really appeal to an upscale audience?

Whitman, of course, says yes: "We don't want eBay Great Collections to be positioned against the Sotheby's and Christies. We want to be far more inclusive and accessible and real, frankly. We want it to be upscale from eBay, but we want regular people who happen to have the means to feel comfortable buying from us."

And who knows? If the supply of Beanie Babies really does dry up, it might be a short leap from buying a Humphrey the Camel to grabbing one of those fancy flower pots called a Ming vase.

By Karen J. Bannan in Massapequa, N.Y.

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