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eBay struggles to repair image after big crash

Will eBay Inc.'s customers stay loyal? That's the question confronting the online auction company as its stock continues to fall in the wake of a day-long computer crash last week.

At first glance, the company's predicament keeps getting worse. Investors slashed $4 billion from its market value yesterday, betting the company has done lasting damage to its reputation with its 3.8 million users. In Nasdaq Stock Market trading yesterday, eBay stock skidded $29.875 a share, or 18 percent, to $136.Although its auction site was trouble-free most of yesterday, its total items for auction sagged to only 1.8 million. That is down nearly 500,000 from the pace just before a 22-hour, systemwide outage that began Thursday evening. Meanwhile, online-auction competitors such as Inc. and the Auction Universe unit of Classified Ventures Inc. said their traffic was on the rise.

But by some of eBay's most closely watched measures, customer loyalty may be holding up better than most outsiders think. EBay officials said they got 300,000 new listings on Sunday, a brisk pace that was in line with business before the crash. Several of eBay's top sellers say they are sticking with the site for the vast bulk of their business -- though they had some harsh or sorrowful words about the outage itself.

"I'm still really optimistic about eBay, although they need to do better with their reliability," said Tod Wilson, a Holman, Wis., seller of Disney figurines and other items on eBay. Mr. Wilson said he used Friday's outage to explore a competing auction site run by Yahoo! Inc., and to list about 30 items there. But he said last evening he was resuming his usual 40-item nightly listings on eBay, having found that it brought him more bidders than any other site.

Although the Internet economy is only a few years old, one of the industry's other leading companies already has weathered its own service-reliability crisis. In 1996, America Online Inc. suffered repeated outages, including one day-long episode in August that brought a firestorm of criticism and caused investors to bail out of its stock. AOL subsequently repaired its image and went on to add millions more subscribers as it stepped up spending on its infrastructure and made round-the-clock reliability a top priority. It also gave considerable free service to users, amid extensive apologies for the system failures.

So far, eBay is emulating the AOL approach every step of the way. Margaret Whitman, eBay's chief executive officer, has said the company will aggressively hire more computer-network experts and bring in senior managers to help run that entire area. EBay has also said it will offer some free auctions later this summer, in addition to having waived fees during the outage. Ms. Whitman, during the weekend, said every new project within eBay will be re-examined in terms of its impact on Web site reliability.

But eBay can't yet match the most important part of AOL's repair program: a drastic improvement in site performance during the next year. For all the short-term, image-mending steps that AOL took, its standing with investors and users didn't perk up markedly until it became clear that the company's service had genuinely become more reliable. As far back as December, eBay officials were saying that site reliability was a top priority, without fully achieving that goal.

By deciding to waive all listing fees during the outage, eBay said it will be forgoing $3 million to $5 million of revenue. That's a significant amount for a company that had just $34 million in first-quarter revenue. As a result, Wall Street analysts yesterday cut earnings estimates for eBay's second quarter.

Of all the rivals hoping to snatch business from eBay, Yahoo is the furthest along. It has 330,000 listings, equivalent to about 18 percent of eBay's current total. "We've been seeing higher than usual growth the past week," a Yahoo spokesman said, though he wouldn't disclose precise figures. "We've certainly seen some frustrated eBay users looking at our site," he added. doesn't disclose its total auction listings, but analysts have recently estimated them at 125,000. At Auction Universe, a spokeswoman said bidding volume rose 45 percent Friday, when eBay was down, but she declined to specify total listings. She said Auction Universe added 600 new members that day, double its usual pace. That is a pittance, though, compared with the 18,000 people a day that typically sign up for eBay for the first time.

The outage "gives competitors an opening that I wish didn't exist," said eBay's Ms. Whitman. Still, she said, buyers generally don't like to visit smaller sites because the selection is less, while sellers don't like to list on lesser sites because there are fewer buyers.

Steve Westly, eBay's vice president for marketing, said it is reasonable to expect his company's items for auction will remain steady at 1.7 million to 1.8 million until Friday. Most listings run for seven days, he explained, meaning that the utter lack of listings last Friday will continue to hurt the overall total for a few more days. After that, he suggested, eBay's listings should rebound above two million.