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Last Updated: Friday, 25 February, 2005, 00:04 GMT
eBay: Money for Old Rope?
By Charles Miller
BBC Money Programme

Movie prop traders Paul and Elaine Harrison taking some of the stock for a walk
For Paul and Elaine Harrison, eBay has become a way of life
The online auction site eBay is ten years old - that's pensionable age in "internet time".

But this original star of Silicon Valley's dotcom boom is still growing at over 40%, and now earns half a billion pounds a year.

With its extraordinary range of goods for sale, from the original "collectors items" - like Elvis and Star Wars memorabilia - to cars and even property, eBay has expanded its reach to over 100 million registered users, with its own branded sites in more than 30 countries.

Today in the UK, according to eBay, 10,000 people earn all or some of their income from trading on the site.

They are people like Paul and Elaine Harrison from Berkhamsted, who make a living selling movie props.

If the company continues to grow at current rates, sooner or later it is going to impinge upon the consciousness of tax collectors and excise agents around the world
Investment manager Nick Train

They recently got 500 for the actual diary used in the first Bridget Jones film, after Paul had built a special presentation case for it - complete with lights, pictures and even a microphone to make the lights react to music.

Or there's George Crudgington from Derby whose garage is full of 100,000 of porcelain, ready to sell on eBay.

Having built a successful business with that, now he's moving into French antiques, taking advantage of prices in a country where eBay hasn't yet taken hold as it has here.

Shares jitters

Every eBay trade makes money for the company through a basic listing fee - which can be as low as 15p - together with a small percentage of the final sale price. With millions of users worldwide, it all adds up.

But yet eBay's very success makes it vulnerable.

Whilst past enthusiasm for eBay shares has pushed their value up, now the financial markets are alert to the slightest stumble in the company's performance.

British porcelain trader George Crudgington
Mr Crudgington started because he was out of work and short of money

EBay's shares have slid suddenly, by about a third since New Year. The fall was triggered by a company announcement of a miniscule shortfall in earnings compared with analysts' predictions.

As one commentator put it: "it's not often a company's quarterly sales and profits shoot up by 44% only to have its stock plummet by 19% the next day."

But future jitters are likely to be caused not by eBay's own performance, but by factors outside its control.

London investment manager Nick Train describes eBay as "part of the black economy" and warns that it will be government intervention, rather than the market, that will clip eBay's wings.

"If the company continues to grow at current rates, sooner or later it is going to impinge upon the consciousness of tax collectors and excise agents around the world."

'National economy'

EBay's business represents a massive growth in "person-to-person" trading, which governments have, until now, found hard to regulate.

But with the total value of trades on eBay now amounting to $34bn a year, it's an area which tax authorities are going to be increasingly keen to regulate.

Nick Train points out that if eBay's trading were the total economic activity of a nation state, it would represent the 59th largest economy in the world, just behind Kuwait.

eBay headquarters
For a person disposing of an unwanted personal possession, whether through the newspaper small ads or on the internet, his or her activities would not amount to trading
Inland Revenue

And, of course, most national governments would be delighted with a growth rate one-tenth of eBay's.

Last year the Inland Revenue visited eBay's UK headquarters in Richmond-upon-Thames, and eBay says it will be putting up a link to the Revenue's website to encourage traders to declare taxable earnings.

But to date, that link has not appeared, and if you search eBay's Help section for advice, you'll get the message "Sorry, no topics were found for "income tax".

But Doug McCallum, eBay UK's managing director insists that eBay traders "are paying their taxes", and that "Gordon Brown and the Treasury should be absolutely delighted that eBay has unleashed an astonishing army of entrepreneurs in this country".

EBAY'S HISTORY
1995 Set up in by Pierre Omidyar, although it is a myth that he did so because his wife, an avid Pez sweet dispenser collector, wanted to trade with other collectors over the net
1995 Mr Omidyar sells his first item - his own broken laser pointer - for $14
1997 Meg Whitman joins eBay
1999 Sets up in the UK, Germany
1999 Site crashes for 22 hours
2000 Sets up in Japan
2001 Overtakes Amazon as the most visited e-commerce site
2002 Moves into China
2002 Buys online payment service Paypal
2002 Pulls out of Japan
2004 moves into South Korea and India, giving it a foothold in 29 international markets

For its part, the Inland Revenue has refused to admit that there is a grey area for eBay traders, between those who are buying and selling privately, and those who are doing it "professionally'" or to supplement their income.

As the Revenue told the Money Programme: "There is usually no dispute that the activities carried on by a particular taxpayer do amount to a trade: the butcher, the baker and the candlestick maker all know, without getting into semantics, that they are carrying on a 'trade'.

"On the other hand, for a person disposing of an unwanted personal possession, whether through the newspaper small ads or on the internet, his or her activities would not amount to trading."

Some observers believe that the Inland Revenue will have to take further action over eBay and its traders.

Fees increase?

Hellen Omwando, market analyst at Forrester Research put it: "of course they're going to look at some way of taxing eBay, and eBay will carry that down to consumers."

If that happens, eBay will have to increase its fees to traders, which could trigger another bout of share price jitters.

Until then, eBay traders in Britain will continue to do well.

George Crudgington, having traded porcelain from his home in Derby for seven years, has just bought a house in the French countryside using the profits of seven years of eBay trading.

That's not bad, considering he only started because he was out of work and short of money. EBay has changed all that.

The Money Programme's EBay: Money for Old Rope? was broadcast on BBC Two on Friday, 25 February, at 1900 GMT.




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