In an old cartoon, two owners of a brand-new roadside diner are standing at the window. Out in the parking lot, several plywood cutouts of tractor trailers and cars are propped up by stakes. A truck is pulling in. One owner looks to the other with a big grin and says, "It’s working!"

That cartoon neatly describes eBay’s strategy. The Internet phenomenon freely admits that it goes to great lengths to orchestrate its site to create the impression that there are many, many fanatical buyers and sellers for each on-line auction. And it’s working.

EBay is "Amazoning" even Amazon.com as it builds its on-line auction business—and its $18 billion stock-market value. The reason is that eBay understands more deeply than perhaps any other company, even Amazon, what an on-line community is—and what it is not.

What’s the secret? On-line communities don’t act like physical communities, and cardboard cutouts can be a very good idea.

"On-line communities tend to be small, an average of 30 to 40 people," says Brian Butler, a professor at the Katz Graduate School of Business, University of Pittsburgh, who studies the behavior of on-line groups. "They have a high turnover. In two years, you can expect everyone but a very dedicated core of people to be gone. So, on-line communities don’t behave like real communities at all. They more resemble a support group, where most people just drop in for a short period of time, then leave when they get what they need."

Kevin Ruggles, a regular contributor on eBay’s message boards, says: "It’s a funny thing—you get people participating a lot for a month, then you never see them again. Others last longer. There are always six or seven regulars, but they’re not the same people who were there last year."

EBay attacks the problem of transience cleverly. Its problem is that each of its 30 scrolling message boards is regularly inhabited by only a handful of eBay’s members. Probably fewer than a thousand of eBay’s 3.8 million registered users regularly trade information with others interested in a particular collectible, such as dolls, glassware, and antiques. And members change constantly, as people lose interest, find answers to their questions, or simply move on.

So, eBay creates traffic and the impression of great activity by recruiting community leaders who exhibit just the right kind of rabid enthusiasm. This year, the company will scour some 90 collectibles conferences, everything from the International Comix Convention to the American Numismatic Association Conference to scores of local Mary Beth’s Bean Bag World shows, to find leaders. EBay will then pay each community ambassador, who is never identified as an employee, $1,000 a month to keep on-line discussions lively and positive.

"EBay’s boards create the impression of lots of people," Butler says, "which motivates sellers to list their items on eBay, which in turn attracts even more buyers to the site. EBay has discovered a way to jump-start the process."

EBay also helps itself by making it extremely difficult to track usage on its boards. Its use of scrolling means old messages disappear from the bottom as soon as new ones are added to the top. This is very inconvenient for participants, who often want to flip back through old messages. Moreover, because the large-group discussions aren’t divided into threads, it’s impossible to carry on any kind of meaningful conversation. By contrast, Yahoo! has boards that are very user-friendly. They’re threaded, as well as time- and date-stamped. The drawback is that the Yahoo approach makes it easy for conversations to die out. More important, sellers can see at a glance when people aren’t participating very much. So, eBay, by being rather unfriendly to users of its boards, actually makes more effective use of its boards than Yahoo does.

In addition, eBay has learned that the total community is less important than the subgroups. "EBay is really a series of vertical markets," explains George Koster, senior manager of business development for eBay. "We experiment all the time on the site with promoting new vertical markets, to see if they take off. Last summer we did a promotion on Hawaiiana. You think, what’s that all about? People who collect Hawaiian shirts? Yeah, exactly! What we did is put a little text link at the top of the page, so collectors could get to their very own Hawaiiana section in just one click. We saw that when we focused some attention on the topic, and more importantly supported the Hawaiiana collectors who are out there, the section just took off, and we had hundreds of new items being listed."

Whenever eBay creates a message board on its site or sets up a unique category for a given collectible, it telegraphs to sellers (who provide 100% of eBay’s revenue) that there is a market on eBay for those goods. Butler says, "Sellers aren’t interested in the sheer number of people on your site, as much as knowing whether there are people who want to buy their particular items."

EBay’s strategy is to divide its communities into ever-smaller segments, each of which, the company hopes, will develop its own sense of community. New message boards and auction categories are being added constantly as eBay experiments with how to divide the market without confusing its users. If eBay succeeds, each new slice should enhance the feeling of personal interaction, which collectors crave.

Of course, the most obvious lesson eBay has learned is that there is great value in helping individuals sell things to each other. Most businesses still try to organize communities solely so they can sell things to members. The businesses say they’re in either the B-to-B (business-to-business) or B-to-C (business-to-consumer) markets. But eBay says it’s in the C-to-C market.

And what an idea that has proved to be! EBay revenue ballooned to $34 million in the first quarter of 1999, up fully 460% from the first quarter of 1998. The company simply dominates the on-line, person-to-person auction business, with 80% of a market that some experts believe will grow to as much as $300 billion by 2002. With more than two million items listed for auction on any given day, it has become the place to buy and trade just about everything from Barbie dolls to used tires.

Because the company has so greatly reduced the difficulty of finding buyers or sellers of particular items, and the hidden costs in dealing with them, the company has also created unusual loyalty. After the "Crash of ’99"—a 22-hour outage on June 10—Silicon Valley’s main newspaper, the San Jose Mercury News, managed to find one customer, a knife seller in Florida, who was unhappy. But the overwhelming majority of eBay’s customers were amazingly willing to forgive and forget.

Even the knife seller intended to keep listing his wares on eBay. Paul Campana, a sometime-seller of political memorabilia and other items on eBay, says: "The clincher for me was when they waived the listing fees and commissions. But, beyond that, there’s a community of people on eBay helping each other without expecting anything in return. I guess they have my loyalty."

A series of outages since the crash have likewise apparently done nothing to dissuade people from using eBay.

In other words, eBay can’t beat its customers away with a stick—and it has tried, again and again.

Certainly there are some problems shaping up:

The community message boards promote the idea of eBay as a place for individual collectors to gather, buy, and sell items. However, company policies are increasingly favoring what eBay calls its "Power Sellers"—owners of small or medium-size businesses that use eBay as a distribution channel for their goods. Often, Power Sellers sell tens of thousands of dollars of merchandise every month on the site. It isn’t clear whether Power Sellers can co-exist peacefully with eBay’s other members. Some Power Sellers complain of customers returning goods or refusing to honor bids, once they realize they are dealing with a business instead of an individual collector.

"Big sellers are important to our success," acknowledges Koster, the eBay business-development manager, who suggests such sellers may account for 80% of eBay’s total business. "We’re in the process of completely redoing our Power Seller programs to make them even more attractive [to small-business owners]. The biggest challenge we face is that, as our community grows up, there’s a core group of members who don’t want to see change."

Barry Goldberg, a collector of antique pocket watches, agrees. "What drew me to eBay in the first place was that it was all about people with unique items finding buyers with unique needs. That’s all changing now," he says. "EBay is giving people incentives to become retailers on the site, and to sell brand-new retail merchandise. It’s turning into a more impersonal site. When I do a search now I’ll get hundreds of identical retail items. It clutters things up."

EBay’s growing size is bringing other problems. For one, as Chief Executive Meg Whitman carefully put it at a conference last year, "As our community has grown from the size of a small village to a large city, we’ve needed to add the presence of a friendly police force to keep the community thriving." But Whitman’s "friendly police force" strikes some eBay community members as gagging free speech.

One member wrote on the eBay service message board: "I understand that I am not allowed to say anything that reflects badly on eBay here, or you will suspend me. Fine. But I sure don’t understand why [a threat of suspension after a negative posting] comes to me within seconds when the many e-mails I’ve sent to eBay throughout the day have been ignored. I am so angry at being treated this way that my hands are shaking. I do NOT deserve it!" (Since this posting, the service message board, which was the site of many angry e-mails, has itself been suspended.)

"We never censor people," says Jim Griffith, customer support manager for training. "Of course, we do have certain rules. Like, no vulgarity. Also, when we get people trying to dominate a board, where they’re just angry at us, and we have no real answer to give them, we’ll send them a polite e-mail. And then we may suspend their account. Some people aren’t going to be happy about it, but what are we supposed to do?"

Whether that is censorship or not, the policy has caused a steady migration of community members to sites such as AuctionWatch.com, which helps visitors find items for auction at any number of Web sites and which exercises much less control than eBay does.

John Suler, professor at Rider University in Lawrenceville, N.J., and expert on what he terms "the psychology of cyberspace," says eBay faces a fundamental conflict as it tries to build its business on the back of its member community. "The purpose of the company is to make money," he says. "But the purpose of a community is to exchange information and build relationships."

Because the success of eBay is showing rivals how to build communities, competition is likely to increase on all fronts. For instance, niche companies may be able to tap even more precisely than eBay into the needs of particular groups. Sites such as beanienation.com, which focuses solely on Beanie Babies, and rubylane.com, which highlights antiques alone, have learned from eBay’s community-building efforts and sometimes even improved on them.

Copycats, such as Auction Universe, are springing up. Auction Universe is making a concerted, successful effort to promote community by holding on-line chats with experts and by attending nearly as many conferences as eBay.

Still, in the grand scheme of things, eBay has been able to just sail along thus far, because the big names of the on-line world are mounting such meager challenges to eBay. Neither Yahoo Auctions nor Amazon.com Auctions is doing much to duplicate eBay’s community feel on its auction site. While Yahoo Auctions did recently introduce seven category-specific message boards, they’re buried several mouse clicks beneath other layers of the Web site, and the activity on each board is anemic. Amazon.com Auctions hasn’t bothered with message boards at all.

Both companies seem to regard on-line message boards as superfluous. "We’ll add message boards when our customers tell us they want them," says Joel Spiegel, vice president and general manager of Amazon.com Auctions. "Providing iron-clad service is our first priority."

Neither Yahoo’s nor Amazon’s auction site gives much evidence of who is there, or why, or what they’re interested in buying. Instead, both companies rely on a push from sellers to attract interested buyers, rather than providing evidence that buyers are present. That is a mistake that has kept Yahoo in the basement of on-line auction houses, with only about 5% of the market. While it’s too soon to predict the fate of Amazon.com Auctions, which opened for business in April, it, too, may suffer because it isn’t paying attention to how to create an impression of eager throngs of buyers.

If you like, you can criticize eBay as a Potemkin village. Potemkin villages were shiny places, erected on a moment’s notice in the 1800s when aides to the czar learned that he was going to visit a certain area. The czar was taken on tours of these villages and went home to his palace content in the certainty that his subjects were healthy and happy.

But think of the dynamics of the marketplace: If you just happen to have a neon Coors sign and want to sell it, you may know that Amazon has eight million registered users, but you don’t have a clue whether any one of them wants a beer sign. There’s nothing on the Amazon.com Auctions site that tells you what those eight million people are looking to buy. Ah, but over at eBay, there’s a whole discussion group for "Advertising Collectibles" that is populated by people looking for beer signs, along with a "Breweriana" auction category complete with subcategories including "Bottles," "Cans," "Coasters," and "Signs." All are accessible from the home page. After reading this article, you may wonder how strong the interest really is in bar memorabilia, but you’ll still list your sign on eBay.

Tristram is a free-lance writer based in San Jose, Calif. She can be reached at claire@tristram.com.