European Internet auctioneers are a new phenomenon, so it's best to treat QXL like a retailer, with the twist of variable pricing. QXL's surfers log on not for the fun of the auction, but to get a good deal.
QXL's revenues - pounds 370,000 in the second quarter - come from auctioning computer equipment which it buys from suppliers. Because buying stock creates the risk of holding unsold goods, QXL is shifting the emphasis to commission-based sales. It will be an intermediary between punters and suppliers, and punters and each other.
The model for punter-to-punter business is eBay in the US, which generated $47m (pounds 29m) of sales last year from selling "collectibles and memorabilia", unavailable in the shops. Replicating that in the heterogeneous European market could be tricky. Purchasers also face the disincentive of having to surrender personal details to strangers. Even so, bids in QXL auctions totalled $1.2m in the second quarter. QXL is unaware, however, of how many bids were actually realised.
QXL's real headache is the cut-throat retail sector. Is now really the time to set up as a general retailer competing on price? Wal-Mart's entry is set to force down further prices of non-food products. QXL will have the advantage on zero cost of sales if it makes a success of the commission structure. But to do that, it needs to get very many more suppliers on board.
Whether another retail distribution channel is needed, and therefore worth anything, is questionable. Boots' announcement of handbag.com failed to move its shares. Analysts do not take Tesco's already-profitable grocery Internet business seriously.
To increase the pressure on QXL, Freeserve has said it will move into the online auction business. That is competition QXL can well do without.
QXL's sales growth prospects hardly justify the pounds 200m-pounds 230m valuation indicated by its opening 180-205p price range.