Is it possible that ebay can ever be overthrown? Perhaps with a mashup of the smaller auction sites or a completely distributed auction site. You would think there would be more competition then there is today. ebay itself is a pretty horrible web application. Off the top of my head here are some features they could provide to me the auction shopper:
User tagging: I see an auction for a 1984 Transformers Optimus Prime with trailer, but it doesn't contain any of those words it it, instead it was titled (misspelled) "Transfomers lot 5". I would *love* to just slap a few tags on the auction to help out others (I already have him). The wiki editor in me just screams out to correct basic errors and missing information.
Price history: A bit of a stock ticker, but once you have tags why not provide a graph of previous auctions end price with the same (set or subset) of tags.
Find me good deals: You know my history so automatically highlight auctions that have really good buy it nows. Not wanting to miss out on a deal I will probably click the buy it now right then and there.
When to browse: There is plenty of time information that isn't presented. As a shopper: Tell me what time people post new auctions the most and I will look at the new auctions then for deals. As a seller: Tell me what time people visit the site the most and I will start my auctions then.
Help me spend my money: ebay provides its pulse pages, but they are crude and limiting. Why not show me: what auctions are people fighting over? Why not search for auctions that have bids already (probably interesting). Why not let me see what auctions people click on the most? When I am done looking for the one item that I thought to look up provide like to other auctions I might like. Use any basic recommendation engine and get what Amazon had ten years ago.
Images: Scanning through auctions if they don't have images I probably wont click on them which means everyone looses out. I don't get something I might have wanted. The buyer gets less viewers and ebay gets less money because fewer people fight over it. Sure images might earn ebay 5 cents from the seller (if it sells), but is it worth the lost revenue? (maybe it earns them a lot, but is sure makes me feel like I am not the customer, they are)
blog-embedding: Blogs like to embed youtube videos, so why can't they embed ebay auctions? Supposedly this is in the works, but it has been a hell of a time coming.
I can think of ten more and you can too probably. ebay has a monopoly so they don't have too much incentive to make all of these things happen. And on the flip side it is extreamly hard for anyone to enter the market because to make an auction work you needs buyers and to get buyers you need sellers. A nasty catch 22. The only way I can think of solving it is to first make a very nitch auction site, say for digital cameras or transformers or something small. Make it free and target that market until you are known and successful for it and then move on. Of course then we end up with just another ebay so I don't like that too much either.
Another route would be to create a mashup of all the auction sites. There are plenty of ebay copy cats (even the ugly layout) struggling to get by (why they don't go nitch I don't know) Combine their auctions with ebays and provide a lot of tools and features for users would actually want so that they will want to browse ebay on your site rather then ebay itself. But you are limited to what you can provide and it will still take a very long time (if ever) to take down ebay.
Stepping completely out of the box how about this:
Many of the sellers on ebay are full time people who have their own websites (but not so big as to be a yahoo store). Create a specification that can be use to list auctions hosted on any web site. This could be perhaps as simple as having them create an atom feed. Included in the feed would be a link to the auction house where you can bid on it. The auction house would be the place where you would have to actually log in to bid on the auction. A 3rd party non profit would hold the login information for all of the auction houses (think how google is to all the google apps for login) so users can log into any auction house (no pain for them). With the feeds any auction house could layer features on top such as tagging and history. Auction houses would complete to host the bidding. How would they compete? By drawing in users. How do you draw in users? Create good user interfaces and continue to come up with new features and services that provide value to shoppers. So now you have an easy way for stores to post auctions (even to ebay!) and a way for anyone to make an auction house and begin adding features that users want.