Millions of buyers and sellers have made eBay Inc. the world’s largest and most popular Internet site for individuals and businesses to exchange goods. By 1999 eBay had 5. 6 million registered users and listed over 3. 1 million items for sale; by 2004 there were an estimated 65 million registered users from 150 countries, 971 million items for sale, and gross merchandise sales hit $15billion. eBay owns local sites in 19 countries, has stakes in another eight foreign nations, and provides users with its own online pay service, PayPal Inc.
As eBay’s revenues continue to grow, the sky seems the limit despite competition from Yahoo! , Amazon. com, and an ever increasing number of imitators. Paris-born Pierre Omidyar, who immigrated with his family to the United States when he was six, graduated from Tufts University in 1988 with a degree in computer science. While at Tufts, Omidyar met his future wife, Pam, who had an unusual hobby: she collected and traded Pez candy dispensers.
When Pam complained it was hard to find people with similar interests, Omidyar decided to create a small online auction service.
AuctionWeb was launched Labor Day weekend in 1995. Set up as a sole proprietorship in San Jose, California, the online bazaar was considered a “grand experiment” by its creator. Little did he know the impact his brainchild would have on the Internet, auctions, and corporate history. At the time he launched AuctionWeb, Omidyar was working at the General Magic Corporation as a software developer. His background included cofounding Ink Development Corp. , which became eShop, a pioneer of online shopping before it was bought by Microsoft.
Omidyar also developed consumer applications for Claris, a subsidiary of Apple Computer, and had even written a software program for his high school library at the age of 14. For the first five months of AuctionWeb’s existence, Omidyar offered the new service for free, building a base of buyers and sellers through word of mouth. In May 1996 he incorporated eBay (which stood for “electronic Bay Area”), becoming its chief executive and quit his day job. By the end of 1996 the company had six employees, including Jerry Skoll, eBay’s original president.
Prior to AuctionWeb, online auctions were either business-to-business or business-to-consumer. There was nothing comparable to Omidyar’s concept either online or offline; flea markets and yard sales were the most similar kind of person-to-person interaction offered by the precursor of eBay. Unlike traditional auctions, there was no auctioneer. At AuctionWeb sellers posted information about their items, and buyers were able to browse the site and submit bids by electronic mail (e-mail). The actual auction for an item was held over three to four days, with bidders receiving e-mail notices when someone made a higher bid.
They could then counter the bid or drop out. The winning bidder made arrangements with the seller for payment and shipping. eBay served the role of a broker; the firm did not own any of the items being sold and was not responsible for distribution. Bidding was free, but it did cost between 25 cents and $2 to list an item for sale, plus a commission of between 2. 5 and 5 percent of the sale price. The site was profitable almost from the beginning, unlike the vast majority of e-commerce sites.
Much of the site’s success appeared due to Omidyar’s sense of what people wanted: a simple, central location to buy and sell items, and the ability to talk with (and perhaps eventually meet) people with similar interests. From the beginning, eBay’s auction service sought to create the sense of an old-fashioned marketplace and encouraged communication between hobbyists and collectors. During 1996 the site hosted more than 250,000 auctions in some 60 categories including Beanie Babies, stamps, coins, and computers. By the end of the year it was overseeing about 15,000 simultaneous auctions daily, with 2,000 of them new each day.
The site received over two million hits a week, and the amount of money exchanged for goods sold exceeded $6 million for the year. The site’s popularity continued to increase and in the first quarter of 1997 AuctionWeb saw over 330,000 completed auctions, with the total transaction value of goods sold worth more than $10. 25 million. Among these items was an original 1959 “Suburban Shopper” Barbie doll, which sold for $7,999. In a May 1997 press release, eBay President Jerry Skoll stated that the growth “clearly demonstrates the receptivity and the eagerness of the general public to participate in online commerce.
Our goal is to provide a fun, efficient, and reliable forum for both buyers and sellers. ” Omidyar and Skoll decided the company needed venture capital and a more experienced management team. In mid-1997 Benchmark Capital, a venture capital firm in Menlo Park, California, put $5 million into the company to acquire a 22 percent stake. With their advice, the company began targeted advertising, renamed itself eBay in September, and launched a second-generation service with a redesigned site. By the end of the year the company had about 340,000 egistered users and was hosting approximately 200,000 auctions at any given time. eBay had also established a relationship with America Online Inc. (AOL), and eBay became featured in AOL’s Hobby and Classifieds prompts. A year later, in 1998, eBay became the exclusive auctioneer in the Classifieds area, paying AOL a guaranteed $12 million over three years. Internet fraud soon became a growing concern, with buyers paying for goods that were never delivered. In November 1997 the U. S. Senate’s Permanent Subcommittee on Investigations conducted hearings into Internet commerce.
The National Consumers League found fraud reports had tripled after it created its Internet Fraud Watch project in March 1996. In addition to false promises for discounted services and charges for Internet services that were supposed to be free, people were experiencing problems at auction sites such as eBay as well. Between January and October 1997, Internet Fraud Watch received 141 complaints about auction sites. As Susan Grant of the National Consumers League told Internet World, “The problem basically is that auction sites really don’t take responsibility for the sales if they go bad.
They merely put the buyer together with the seller. ” In the same article, eBay reported it had only 27 disputes from over one million transactions between May and August 1997. To keep such disputes to a minimum, eBay instituted a feedback system for buyers to post reviews of their transactions. Sellers were then given a rating based on the number of their successful auctions: positive comments received one point, neutral responses a zero, and negative comments a minus one. Potential buyers were able to read the comments as well as view the rating.
A rating of minus four (-4) resulted in a seller being denied use of the service. eBay grew phenomenally, recording gross merchandise sales of $100 million and revenues of $6 million in the first quarter of 1998. The first quarter had become the company’s best, as eBay promoted the auctioning off of unwanted Christmas gifts. Some competition, however, was beginning to develop. Late 1997 saw the business-to-business auction service OnSale Inc. add person-to-person auctions and the launch of Auction Universe Inc. , a web auction firm owned by Los Angeles Times parent Times Mirror Company.
During 1998 Auction Universe began providing city-oriented auction sites through a group of affiliated newspapers, each offering its own local auction site (but run by Auction Universe). Such web sites, aimed primarily at the newspapers’ local areas, made it easier to auction large items, since it was expensive to ship a used car or a large piece of furniture across the country. It also offered newspapers a way to regain revenues lost when classified ads became too expensive for low cost items. eBay bought Jump, Inc. the developer and operator of Up4Sale, an advertising-supported trading/auction site, launched in 1997. Planning to use Up4Sale to introduce complementary future services, eBay operated the site as a separate service. In May, Meg Whitman was appointed president and CEO of eBay, with Pierre Omidyar becoming chairman. Whitman came from Hasbro Inc. ‘s preschool division, where she had been general manager. She had previously headed FTD Inc. , where she launched its web site and oversaw the transition of the organization from a network of individual florists to a private company.
Known for her experience in managing and marketing consumer brands, including Teletubbies and Playskool, Whitman concentrated on raising eBay’s profile through increased advertising aimed at hobbyists and groups of collectors. At the time Whitman came on board, eBay claimed more than 950,000 registered users, hosted more than two million auctions a month in 846 categories, and had a success rate of more than 70 percent (offered items actually being sold). Whitman and Omidyar reincorporated eBay in Delaware in September 1998 and took the company public, watching the price of their stock triple within a few days.