eBay and the advantages of a many-to-many business model

I’ve started to read ‘the perfect store‘ by Adam Cohen, which is the story of eBay. I’ve wanted to read this particular story for a long time. I LOVE the eBay business model. It’s such a perfect online business. So simple. So well targeted. It appeals to an aspect of human nature, our desire to trade, and makes a profit doing it. Brilliant. I wish I thought of it!

I enjoy reading stories that start with some geek, sitting at a computer, probably in a dark room like a parent’s basement or a dorm at university. He has an idea, has the geek skills to code a website for it and builds a hobby site. The website goes huge, a few months later it’s a multimillion dollar business (or in eBay’s case, multi-billion dollar) and bam, Internet folklore. Love it.

I like these stories because I want it to happen to me. I want to have a business story worth telling and I want to create wealth from something I built. Maybe not quite on eBay’s scale, that’s a very unique situation and a stupid amount of money, way beyond my targets, but it’s very inspiring nonetheless. I feel a sense of empathy with these geeks, heck I am pretty much a geek too (or is that nerd…what’s the difference again?), but without the amazing coding skills. I’d like a little glory with financial independence thrown in, wouldn’t you?

Often I look at my financial figures and I realise how much work equals how much revenue and profit. I start to think about being really rich. I’m very down-to-earth and I am capable of being happy with an average income, but like most people, I dream of more. I think of business models that really have the capacity to skyrocket profits. Something that if it caught on, could grow without my labour growing proportionally with it.

My current business model is good and lends it self to growth without the need for ongoing expensive infrastructure or staffing costs. At a certain point in the (hopefully) near future I can pay someone to do my role and just keeping adding more freelance staff to handle workloads. Right at the start of the eBay story however I read something that hit the nail on the head in terms of what Internet business model should be implemented to create something special. And eBay’s founder got this right (in fact it was his objective) from the word go.

He created an entity which brought suppliers and customers together and where demand and supply determined price. A perfect market…almost. To make a profit eBay scrapped a little money from each transaction. It’s the oldest story in the book – the middle man reaping profits off the supply chain. Throw in the scalability of the Internet, first mover advantage and you have a damn good business.

Ebay’s founder noted that business models that work on the many-to-many (eBay’s buyers and sellers) concept are much more powerful than the one-to-many concept (Amazon.com’s one online centralised store selling to many customers). This statement really hit me hard. It’s something I’ve been aiming towards when I think about new business ideas. It was written so simply in the book while I had cloudy ideas in my mind. It was nice to have the clarity. As usual simplicity works.

Elance is another good example of a successful many-to-many business. It links freelancers with clients. Both suppliers (freelancers) and customers interact in a web community. It can grow virtually infinitely with technology handling the service framework. People bring in more people.

Ebay and Elance have gone on to create a business within a business. Apparently more than 100,000 people now run eBay businesses to make a living. Just last night I saw an infomercial selling a course to learn how to start an eBay business. How good is that. That infomercial is creating more sellers and more buyers for eBay. That’s free TV advertising for eBay. Nice.

The challenge is to come up with the next many-to-many business and be an eBay too.

Yaro Starak

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Yaro Starak is the author of the Blog Profits Blueprint, a report you can download instantly to learn how to make $10,000 a month, from only blogging 2 hours per day. You can find Yaro on Facebook, Twitter and .

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2 Comments

  • Yaro,

    This is my second post. I can’t agree more about what you have said about many-to-many business model. It’s interesting that you also mentioend eLance.

    Not meant to be a shameless plug, but my company Yabbyland.com was started exactly because we see problems with eLance’s LACK of many-to-many business model. eLance charges a very high per-transaction fee, and requires a subscription to join to be a freelancer. We at Yabbyland.com aims to challenge that and become a truly many-to-many business. It should be cheap enough such that people can just “buy anything” using this model, instead of buying only professional services.

    I am hoping that one day, you will be able to simply log onto Yabbyland.com, and request for people to help you post your posters. This way, you would be able to cover the entire USA relatively cheaply.

    Yaro, if you don’t mind, I would love to communicate with you via email. You have my email on this comment.

  • Hi Max,

    If I could use your service one day to find reliable and cheap postering staff (the holy grail!) then I will be very happy!

    I think the challenge you face, just as anyone who decided they want to compete with eBay, is that the established service(s) have the critical mass of users. Even if you offer a completely free service it may not work. A barrier to entry exists since no one wants to list a job on competitor’s site with no freelancers using it, and no freelancer is going to go to the site if there are no projects currently offered…they will just head back to Elance even with the higher prices.

    If you can get a critical mass of users and get past the “deadsite” problem then you are off. You really need to focus on getting members and job posts. I’d be offering the service for free and trying to really niche your angle and pick a very tight demographic (small business owners, students, whatever).

    I’m actually at this stage right now with my hobby site Yaz.com.au. I’m struggling to get new users and get a community going because the site is very “quiet”. Once we get a few regulars the momentum will take the site forward. But it takes persistence, patience and, promotion (my 3 P’s!)

    Anyway I’d be happy to have a chat sometime about it and swap stories.

    Cheers,

    Yaro

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