Jeff Bezos, Jack Ma, and the Quest to Kill eBay

The right — and wrong — way to compete with a locked market

Illustration: erhui1979/Getty Images

The Birth of Mr. Tooth

I’m going to venture a guess that you’ve never heard of Mr. Tooth. He looks like this:

Start looking for another related market to enter, and you can then sneak up on the original market from the side.

At the time, Jeff had never been wrong about anything. Certainly not in any big, meaningful way. Everything he launched was pure gold. First he launched Books, and who the hell would have ever guessed that an internet bookstore would catch fire like that? Then, he successfully launched Music, taking aim at record stores, and then DVD/Video, taking aim at Blockbuster.

Even the best marketing isn’t strong enough to beat an entrenched network effect.

In eBay’s network, the buyers go where the sellers are (for variety), and the sellers go where the buyers are (for reach), and it becomes self-reinforcing. Buyers are busy people, so they would visit Amazon’s Auctions site, not find what they wanted, and head straight back to eBay. Sellers have more time on their hands, and some of them tried Amazon Auctions. But they weren’t getting bites, so they started decorating their sites to point back to eBay, where all the buyers were.

Amazon Launches zShops

If you’re trying to choose a direction for your business and you’re up against a network effect, you should consider that market to be locked up. Instead, start looking for another related market to enter. Then, you can then sneak up on the original market from the side. And there is always a related market.

Bezos’ C2C Triumph

I’ve buried the lede pretty deep at this point, but it’s time for the big reveal: Jeff eventually succeeded wildly in C2C. It just didn’t look anything like Amazon Auctions.

The leading signal that you’ve finally got your innovation right is that it shows continuous incremental growth without much effort.

My memory is hazy, but there may have been another round of innovation after zShops before Jeff hit on something that worked. That eventual thing was Single Detail Page, which is when you look at an item on Amazon’s retail site and it says “new and used,” giving you the option of buying from a third-party seller. Heck, it’s not even C2C anymore, although that line blurs even in eBay, with big sellers being real businesses in their own right, making them more B2C than C2C.

Jack Ma Does It Differently

Alibaba’s story is interesting, too, because a few years later, Jack Ma did beat eBay at their own game. I wasn’t there for it, so I don’t have colorful anecdotes—just the basic facts. Also, unlike Mr. Tooth, Alibaba vs. eBay is a story that has been told plenty of times. Search for “eBay in China” to find some great write-ups of how eBay lost there.

Networks Can Still Be Beaten

The overall takeaway here is that even though you can’t compete directly with a network effect, you can still beat them by flanking. The mighty eBay was toppled in China. Facebook has failed in many countries, usually because someone else beat them to market during the expansion phase. And for decades, Microsoft had a three-way network effect between Windows (the OS), Windows app developers, and OEMs bundling Windows. But Linux has snuck in through the related server-side computing market, and has made enough headway that some 40 percent of Azure customers run Linux.

Steve Yegge is ex-Geoworks, ex-Amazon, ex-Google, and ex-Grab, with nearly 30 years of tech industry experience. Nowadays he’s pretty much retired.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store