Long-term I don’t think eBay is a viable way to dropship products with real success. You may always be able to make small profits from it but you wouldn’t be able to expand into a bigger, stronger and more profitable business. The competition, fees and product management required is too high to allow this. So finding eBay alternatives is important.
Here are 4 alternatives available.

Other Auction Sites
There are no other auction websites that have as many buyers and as much exposure as ebay. However there are a number of smaller UK auction sites, they are growing and have lots of regular sellers which means there must be buyers.

eBid - probably the most well-known auction site behind eBay and the best in my opinion, very nice site to use. Registering is free, basic listings are also free and you only have pay a 3% fee when an auction sale is made.

QXL -online since 1997, registration is free. Listing fees start from 10p (auction value: £0.01 - £4.99), all listing fees are considerbly cheaper than eBay. Final listing fees are 3.75% for final prices up to £15.00 and 2.00% for auctions upto £6.00. Buy-it-now listings are charged a flat 5% fee.

CQOut - basic listings are free, you are then charged a final bid fee which varies based on the the sale value, for sales upto £50 the fee is 5.29%. You do have to pay a £2.00 fee to register as a seller, they say it is for admin costs and to maintain a secure environment.

Classified Ads
Classifieds normally don’t allow you to complete deals like auction sites do, however they can be a good way to generate leads, you can make a listing with basic product info and then put details of how to buy the item; this is where you link to your auction listings or ecommerce shop or even leave an email adress for more details.

PreLoved -free to join and free to place as many ads as you want. They don’t provide a payment process so you have have to agree with the buyer how payment will be made. To place links on adverts (to your ecommerce shop, auction listings etc) you need to become a premium member which costs £5.00 per year.

Gumtree - a very popular free classified ad website, has local listings for all major areas of the UK. You can also put links in the listings. Free to post, no sign-up required. 

AdFlyer - a free classified ad website. The service is quite new (launched Sept 2007) but is showing good growth and is a very nice website to use. You may want to keep on eye on AdfFyer even if you don’t want to use the site yet.

Your Own Ecommerce Website
This is the big one! By far the best way to dropship products is from your own website. It helps your business to stand out, easier to get customers hooked, increase profit margins and can make running your business simpler.

Domain - this is your address online EG tomstoys.co.uk. Very low cost if registering a new domain, for the domain dropshipblog.co.uk I paid £5.88 and this registers it for 2 years so I have legal rights to the domain, when I come to renew it will be the same price again! If you want to buy a domain already registered by someone else you will have to be prepared to pay significantly more based on the quality of the domain. For registering domains I recommend either HeartInternet or Daily, they are both very reliable UK based companies.

Hosting - this is what puts your website online (like the land you would use to build a shop offline). The hosting industry is massive with thousands of providers. For niche websites like this one I use a UK host and pay £5.49 per month. US hosting is cheaper than UK hosting but if you trade in the UK then UK hosting does have SEO benefits and customer service benefits (in my experience). Once again I recommend either HeartInternet or Daily, however remember to research around for the company best suited to your needs.  

Other Options
There are a few other ways to also dropship products, here are a few ideas.

Mail-Order Service - You could create your own mail-order service by creating a catalogue and dispatching them in your local area as well as to friends and family. Asking targetted local businesses to have them in their shop may be another option. This would work best for small niche products where demand is low but your profit margins are very solid.

Forums - If you own a forum or are a moderator on a forum you could try dropshipping targetted products to members. You wont be able to do it if you are just a normal member as it may be considered spam and trust would be an issue. Maybe setting up a whole section on the forum with your product listings could be done, giving information on secure payments, delivery etc could also be easily communicated with every product listing. You could get members to post when they have bought and then other members could see who is buying and get feedback.

There are also other smaller auction and classified websites that I haven’t listed in this post. If you want to find even more resources keep searching and you might stumble across a gem! This post has certainly shown there is more to selling online than eBay, in fact there are many low-cost ebay alternatives that allow you to increase your potential customer base and make more sales!

Further Reading: Alternatives for those in the USA, 29 alternatives to eBay.