My eBay MBA: a dozen business lessons from online auctions

As a DIY business school, there has never been anything like eBay - a place where animal spirits roam free and yet markets are transparent

As eBay clearly demonstrates, consumers are sometimes irrational. The data show auctions with an opening bid of 99p get buyers so excited they usually end up bidding the price up more than when the starting bid is higher. Photograph: Justin Sullivan/Getty Images

As eBay clearly demonstrates, consumers are sometimes irrational. The data show auctions with an opening bid of 99p get buyers so excited they usually end up bidding the price up more than when the starting bid is higher. Photograph: Justin Sullivan/Getty Images

Tue, Aug 26, 2014, 12:12

Matt is a 17-year-old schoolboy who in the past couple of months has spent more than £600 on tickets to Glastonbury, Reading and assorted other pop festivals. He has financed his summer of noise and sleeplessness by doing something else he enjoys: trading computer games on eBay.

Jane is a mother who quit her full- time job when she had her first baby, and then spent the next six months buying up Bugaboo pushchairs, taking them to pieces and selling the spare parts on eBay at a tidy profit.

Since the website was started nearly 20 years ago, millions of people have being using it to earn extra cash. Millions of others, like me, use it to stuff their houses full of things they don’t need – in my case including 10 pairs of Emma Hope boots, a Victorian armchair with broken springs and a mahogany gavel. For all of us the auction site is variously source of profit, distraction, exhilaration, disappointment, displacement – and education.

This last role is the least talked about, but may be the most important. The website has surreptitiously taught its users a good deal about business, markets and consumer behaviour. It is a place where animal spirits roam free and yet markets are transparent; where high- and low-tech meet and where the stakes are small but the data huge – as a DIY business school, there has never been anything like it.

During the past few weeks, in idle moments between unsuccessfully bidding for an Ercol table and buying some rather fancy Conran lights (£30 for four), I’ve constructed the essential eBay MBA – 12 lessons gleaned from the auction site that rival anything to be learned at business school.

1. Trust is vital . . .

…especially when you are expected to buy things from perfect strangers with user names such as mickey_boy69. It is built through feedback, something which other businesses deploy as a clumsy afterthought. EBay shows that there are three conditions for feedback to make a difference: it must be a) respected, b) universal and c) instant. On the site there is no role for politics, PR advisers or social media campaigns in shaping reputation; all is done by feedback alone. Buyers with 100 per cent scores know they can sell for higher prices – which means there is an overwhelming incentive to behave well every single time.

2. Consumers are sometimes irrational

Human desire for a bargain is such that it warps reason. The data show auctions with an opening bid of 99p get buyers so excited they usually end up bidding the price up more than when the starting bid is higher.

3 . . . and sometimes dead sensible

People don’t rate gimmicky sales techniques – all they want is to know exactly what they are buying. They like clear photographs taken from every possible angle so they can zoom in and out. Otherwise, they won’t pay. I have a nice summer jacket designed by Theory which I bought for £5 because the seller posted an upside-down picture of it crumpled on the floor.

4. Jargon and hyperbole subtract value

Fancy words and adjectives are pointless, as no one would ever use them as a search term. A sofa that I’m “watching” on eBay is described like this: “Comfy. Material is brown velvet. Very heavy, needs two strong people to lift.”

Here is how a similar item is described new at Heal’s, the furniture store: “Hand-crafted from the finest fabrics handpicked from the leading mills in Europe, the proportions offer a formal yet comfortable sit.”