EBay Tightens Security for Net Auctions
Stung by several recent incidents of fraud and abuse within its freewheeling online auction empire, EBay Inc. moved to shore up security on its site Friday with measures aimed at improving identity checks, transaction insurance and escrow arrangements.
The San Jose-based company has been one of the fastest growing enterprises on the Internet in recent years, fueled by the surging popularity of its site’s ability to connect buyers and sellers of almost everything, from computers to Beanie Babies to Mark McGwire baseballs.
But analysts said that the company’s breakneck growth might have stalled eventually if new Internet arrivals, who are presumed to be more cautious than early Net adopters, had any doubts about the security of doing business with complete strangers under EBay’s digital awning.
“If EBay hadn’t beefed up their security they would have eventually hit a wall,” said Vernon Keenan, an Internet analyst at Keenan Vision Inc. in San Francisco. “Any negative perception of safety on EBay would have turned off new users, especially as the demographics of the Internet move closer to the regular population.”
EBay has emerged as one of the few profitable electronic commerce businesses by taking a small percentage of the proceeds on the millions of auctions that take place at its site. The company never handles merchandise, just connects buyers and sellers. EBay reported net income of $878,000 on revenue of $28 million through the first three quarters of 1998. The value of merchandise that changed hands during that period topped $439 million.
EBay executives point out that fewer than one in 10,000 transactions on the site result in a fraud complaint, and said that Friday’s steps were merely part of an ongoing effort to stay well ahead of online auction rivals in both popularity and security.
“Our intent is to make this the most secure, safest environment it can be,” said Brian Swette, senior vice president of marketing. But even EBay executives acknowledge that some buyers and sellers inevitably get burned, and the company has been publicly embarrassed by a number of recent software glitches and scams.
One particularly humiliating example came last month when Katie Couric and other employees of NBC’s “Today” show autographed a jacket for an EBay charity drive. Bidding reached a stratospheric $200,000--a sum touted on “Today”--but it turned out most of the offers were phony. In the end, the jacket went for $11,400.
Undelivered goods, artificially inflated bids and other breaches of e-etiquette are ongoing annoyances for a small minority of EBay’s 1.2 million registered users.
For starters, EBay is combining with Lloyd’s of London to insure all auctions up to $200, with no cost to users except a $25 deductible when they file a claim. Analysts said the only other online auctioneer to have taken a similar step is Auction Universe Inc., which allows users to purchase transaction insurance for about $20 a year.
To stamp out phony bidders and sellers, EBay also unveiled a voluntary program in which users can supply additional information, including Social Security and driver’s license numbers, to qualify for status as a “Verified User.” The data will be cross-checked with Equifax Secure Inc.
EBay’s stock closed at $223.38 per share Friday, down $1.94 in Nasdaq trading. The firm’s stock sold for just $18 per share in its initial public offering last September.
