eBay's Rhine Gold

Thousands of German startups are using the auction site to sell goods

In the U.S., ground zero of modern capitalism, it is almost an article of faith: Europeans have grown risk-averse and lack entrepreneurial zeal. But don't tell that to the thousands of folks who use eBay Inc. (EBAY) to do an end run around decades of state-imposed regulations and old ways of thinking. One of them is German businessman Norbert Otto, who recalls the exact moment he realized selling ski gear over eBay had become far more than a hobby for him.

When Otto printed out his checking account statement at a local bank's automated teller machine, the statement had so many pages that the branch manager scolded Otto for tying up the ATM for so long. Soon after, Otto opened a commercial account for Sport Otto, his online business, which last year sold $1.8 million worth of skates, skis, snowboards, and other sporting goods exclusively over eBay.

Not bad for an operation that began three years ago as a way for Otto's son to earn extra cash. Today, Sport Otto has 25 part-time employees, a large truck to haul merchandise from Dutch ports, and operations that occupy much of Rabenkirchen, a hamlet of just 60 inhabitants two hours north of Hamburg. In this region close to Denmark, where old-timers speak a dialect incomprehensible to outsiders and unemployment is 12%, Sport Otto is one of the few local employers creating new jobs. "We're very thankful that this online platform exists," says Otto, 58, a sports instructor by profession who manages the business with his 20-year-old son, Jan. "In this region, it's the only chance we have."

The Ottos' small-but-thriving operation provides a window into one of Europe's fastest growing entrepreneurial sectors: the eBay store. According to a survey by ACNielsen International Research, the Ottos are among 64,000 Germans who earn at least 25% of their income from eBay, selling all manner of collectibles, furniture, electronics, and more. Germans snatched up $6 billion in merchandise on eBay in 2004, the most recent year for which such data are available.

Germany's eBay market is second only to the U.S. A decade of slow growth and stagnant wages has turned Europe's largest economy into a nation of bargain hunters, with 20 million registered eBay users. That's close to 25% of the population, a greater share than in any other country in which eBay operates. With eBay gaining momentum, its success in Germany could portend a similar boom in France, Italy, and elsewhere in Europe.

In red tape-bound Germany, starting an eBay business is a relative snap for anyone with broadband and inventory and shipping software, which is readily available for a few thousand dollars. And logistics companies such as German post office Deutsche Post offer services tailored to small e-commerce operations. Compare that with the difficulties of finding startup financing in a country where banks are reluctant to lend and relatively few people own houses that can serve as collateral. Even those who scrape together funds are constrained by myriad regulations. Shops, for instance, must close on Sundays and by 8 p.m. on weekdays.

GIANT CUSTOMER
Some experienced businesspeople see eBay as a growth opportunity in an otherwise slack economy. In 2003, Sven Asböck and Frank Hoffmann, who had worked for a mail-order company that went bankrupt, launched DTG Dynamic-Trade in Neumünster, an hour north of Hamburg. The business snatches up all sorts of surplus merchandise, then sells the stuff on eBay. Sales have doubled every year, to $6 million in 2005, and the company employs 22 full-time workers. "We sell everything you can imagine," says Asböck. No kidding: Current offerings include bedroom sets, toasters, and telescopic rifle sights.

The business of supporting German e-merchants has also grown into a thriving industry. More package deliveries are generated by eBay for Deutsche Post and its DHL unit than the biggest catalog retailers. One customer is Bielefeld-based SE.LL Marketing, which helps customers such as toy train maker Brio unload excess merchandise on eBay. SE.LL rarely even sees the goods it auctions off, having outsourced the warehousing, packing, and shipping to DHL. "We want to focus on services. Fulfillment is not our core business," says SE.LL co-founder Christof Sander, 29, a former manager at German media company Bertelsmann.

In Rabenkirchen, eBay -- combined with the easy availability of logistics services and software -- has created a hotbed of e-commerce. For two decades Otto coached basketball, track, and other sports at municipal sports clubs and ran a ski shop on the side. But then the financially strapped local government cut his hours in half, and a recession devastated his shop's sales. In 2002, when son Jan, then 17, asked for money for driving lessons, Norbert told him he would have to earn it by selling off some of the ski shop's excess inventory. The skis sold quickly on eBay -- at twice their wholesale price.

Soon Jan found himself behind the wheel of a battered blue cargo van, ferrying Chinese-made parkas and plastic sleds from the port of Rotterdam. Sport Otto began hiring staff, using part-timers to avoid paying health and pension contributions that can nearly equal an employee's take-home pay. The fledgling company also took over a cluster of small buildings in Rabenkirchen that had been vacant ever since the former tenant, a construction company, shut down.

BUYING A BENZ
At first glance, the Ottos don't appear to run an especially tight ship. Swim goggles, baseball bats, and mosquito nets are arranged haphazardly on wooden shelves. Yet every item is bar-coded and scanned. From a desk equipped with two flat screens and littered with wholesale sporting goods catalogs, Jan knows when to redeploy snowboarding trousers from the barn to the packing shed. As customers bid, software tallies the average price and profit on each sale.

The business hasn't made the Ottos rich. Their one luxury is a Mercedes-Benz (DCX ) SUV. Jan lives in the same building used to pack orders, while Norbert occupies a modest apartment above Sport Otto's offices. Both start work at 7 a.m. and often don't finish until late in the evening. They dream of building a modern, computer-driven warehouse and buying products directly from Asian suppliers. For now, Norbert says, "we're investing everything back into the business." Spoken like a true entrepreneur.