EBay exec. discusses the company's retail model

by Emily Fletcher | 11/12/09 11:00pm

In the online world of eBay, a grilled cheese sandwich emblazoned with the face of the Virgin Mary sold for $28,000, and four strands of hair purportedly belonging to George Washington went for $17,000. People put a lot of trust in strangers when they buy and sell on eBay, and for the most part that trust is well-placed, according to Neel Sundaresan, a senior director at eBay and head of eBay Research Labs.

In his lecture on Thursday in the Haldeman Center, Sundaresan discussed the "Long Tail" retail model selling a small quantity of a large variety of items and the importance of social networks and feedback for eBay's buyers and sellers.

Sundaresan said people's willingness to trust strangers has been crucial to eBay's success since the first product was sold on the site.

The company went public in 1998 and has grown rapidly ever since, with 10 million new items listed every day and about $1,400 worth of goods being traded on the site every second, Sundaresan said.

Sellers have adapted to the high volume of listed items and developed strategies to have their products listed first when a query is entered in the web site's search tool, Sundaresan said.

"People say previously enjoyed,'" he said. "That's just a glorified way of saying used.' There's this vocabulary that buyers and sellers have established that only they know, and we're learning from them."

Sundaresan discussed some of the difficulties that eBay faces as sellers become increasingly clever in the way they list their products.

"At eBay, we used to use the term serendipity very often," he said. "There's this constant struggle between relevance and serendipity, between relevance and what sellers are trying to do."

The power of the Long Tail retail principle, on which eBay is built, is that "you can provide customization for just about anyone," Sundaresan said.

The "Pareto" principle, which has dominated retail in the past, focuses on the "20 percent of the people who have 80 percent of the wealth," Sundaresan said. Based on this principle, companies sell a large number of a few specific items, while the Long Tail model focuses on selling a high volume of a wide variety of items. Even if only a few people are interested in each item, the large number of items makes the model profitable, Sundaresan said.

"You're moving away from this Pareto paradigm toward this Long Tail paradigm," he said. "EBay is in a way the pioneer of Long Tail."

The site's feedback feature is one of the company's key components because it allows users to place their trust in a buyer or seller, Sundaresan said. EBay now only allows positive feedback because retaliatory feedback became a large problem, he said.

Lamar Moss '07, who attended the lecture, said that eBay still needs to make improvements to ensure that people do not lie about what they are selling.

"His message was clear in terms of trying to ascertain the basic impulse that drives people to use eBay as a trading tool," Moss said. "There are some fundamental flaws in the eBay system that require more research and infrastructure development, but it's not absolute that these flaws can be eliminated. They're up against a major challenge."

Steve Nyman, the College's chief information security officer, said he was particularly interested in Sundaresan's discussion of eBay's feedback mechanisms.

"I used to sell, and it was interesting to hear how eBay models the statistics and how they approach determining what the right feedback system is," he said.

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