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Publication: Reader's Digest
Article Title: World's Biggest Tag Sale
Date: July, 2000
By: Adam Cohen
When Sharon Balkowitsch sold antiques from a stall in Bismarck, N.D., she was a victim
of geography. There were few buyers in her hometown of 55,000, and prices were low. She
started putting her wares up for auction on eBay last year and suddenly found herself part
of the global marketplace. An Art Deco ashtray she bought for $20 was bid up quickly--and
sold for $290. A vase she got for $5 went to a California buyer--for $585. She even sold
an old tractor online--for $2,499, to a priest from New York. Checks have been pouring in
from as far away as Iceland, Egypt and China. "The top month I ever had in the stall
I sold 15 items," she says. "Now I can sell 15 items in an hour."
Welcome to the eBay revolution. Auction sites are one of the hottest corners of cyberspace. Online bidders are eagerly competing for new ovens (ubid.com). There are niche auctions for movie memorabilia (auctionnewline.com), express auctions that wrap up in an hour (egghead.com), even sites where proceeds go to charity (webcharity.com).
For an industry that's only about five years old, the dollar amounts are staggering: an estimated $8.5 billion in revenue for 2000, and more than $12 billion in 2001. With about ten million registered users bidding on more than four million items, eBay is the dominant player in the online auction world. It has also defied the 11th Commandment: Internet Start-Ups Shall Bleed Red Ink. It's made money from its first month. After five years, eBay stock is worth more than Kmart, JCPenney and Neiman Marcus combined.
Others are trying to break off some of the market. Amazon.com and Yahoo! introduced auctions recently, and Microsoft, Dell and more than 100 other companies have linked their websites to the FairMarket Network, a new auction consortium.
Online auctions are shaking up the way America does business. People are quitting day jobs and supporting themselves by selling on the Internet. Traditional retailers are using online auctions to augment revenue, and some are shutting down stores entirely. The full effects of eBay's hyper-efficient, banish-the-middleman revolution haven't been felt yet, but one thing is clear; the pre-Internet model of buying and selling is going, going ...
The Pez Dilemma
It all began with PEZ and a man named Pierre Omidyar (photo above right). Born in Paris in 1967, he came to the United States at age six. A computer buff in high school and a computer-science major at Tufts University, he fit all the stereo-types. "I was the typical nerd or geek." he says. "I forget which one is the good one now." After his junior year, he moved to the San Francisco Bay Area for a programming internship and never looked back.
In the summer of 1995, Omidyar's future wife, Pam, who collected Pez dispensers, was bemoaning how hard it was to find people to trade with in the Bay area. An e-commerce pioneer (he co-founded eShop, which Microsoft bought), Omidyar noticed that "institutions and large investors had all the inside information." He was wrestling with how the Internet could be used to create fairer markets. The Pez dilemma gave him an insight: an Internet auction site could function as the ultimate efficient market, where everyone could access the same information.
In the fall of 1995, Omidyar launched Auction Web, supported on his $30-a-month home Internet service. (The site's domain name was www.ebay.com, and the name stuck.) It started out free, but it quickly attracted s o much traffic that Omidyar's Internet service upped his monthly bill to $250. So he started charging a nominal fee for listing an item (ten cents back then, as little as 25 cents now) and a percentage of the final sale price.
The payments arriving with Omidyar's daily mail were small---in some cases dimes and nickels taped to index cards. But those payments were coming in piles. He took in $1000 the first month, more than it cost to run. Omidyar knew he was on to something when he listed a $30 laser pointer--fully disclosed as broken--for $1. A bidding war ensued, and someone ended up paying $14. Meanwhile, the site's revenues kept doubling: $2500 the second month, then $5000, then $10,000.
Tactful Treatment
Soon Omidyar found himself in the unwanted role of grievance officer. Buyers and sellers with complaints were asking him to step in. He urged them to work things out amicably. But if eBayers really had to gripe, he decided, they should do it publicly on the site. His other proviso: if traders complain about people they don't like, they should say something nice about people they do.
That was the genesis of the Feedback Forum, one of eBay's most popular features. Its guiding philosophy: people are basically good, they make mistakes and should be given the benefit of the doubt. "I was afraid it would turn into a gripe forum, but I was amazed to realize that people enjoy giving praise," he says.
Soon Omidyar brought in Jeff Skoll, a Stanford University M.B.A., and together they hired techies, customer-support staff and finance people. In those days, eBay--operating out of a bland San Jose, Calif., office park--was goofily informal. Decor rant to Star Wars figures and giant papier-mache Pez dispensers. Employees assembled their own desks and sat on beach chairs. Work halted at 3 p.m. for Nerf soccer games.
By 1997 Omidyar had lined up a venture-capital firm, Benchmark Capital (whose initial $6.5 million is now worth more than $1 billion). Then, months before eBay's initial public offering, he stepped aside from his CEO role in favor of onetime Hasbro exec Meg Whitman. When the IPO took place on September 24, 1998, shares offered at $18 bounded to $47. The eBay staff was suddenly rich. (Omidyar's 30-percent ownership now adds up to about $4 billion.)
Since then, eBay has hit a few speed bumps. The site has been troubled with headline-grabbing crashes, among them a 21-hour outage in June 1999. And late-night talk-show hosts have had fun with occasional embarrassments (and probable hoaxes): the seller who put a kidney up for sale (bidding was at $5.7 million before eBay called it off); listings for a bazooka (also yanked); the 1 7-year-old who put his virginity up for auction.
Cyberspace Glue
Still, Ebay is one of the most dazzling sites on the Internet. Log on and feast your eyes on a global garage sale. That art deco clock you always wanted? Nineteen of them were auctioned. That Partridge Family lunch box? The bidding starts at $5. Sure there's kitsch (Elvis snow globes), but there's also luxe (a few Rolls-Royces). You'll come across the impressively old (dinosaur teeth!) and the just plain weird (anyone for a Beware of Attack Rats sign?).
Why has eBay succeeded so wildly? A big factor is that it was one of the first of its kind, locking in buyers and sellers early. But the real genius is its success in building "maybe the most real community on the entire Web," Whitman says. The site gets 1.2-billion page visits a month. At a time when the Internet mantra is "stickiness" --how long users stay on a website--eBay is cyberspace superglue. Each visitor's monthly average is one hour, 45 minutes, compared with 13 minutes on Amazon.com.
Last October the company announced eBay Great Collections for antiques and fine collectibles. It also began rolling out regional eBays to provide a local market for items like cars and concert tickets. But its most ambitious undertaking is the drive to go international, targeting Germany, the United Kingdom, Canada, Australia and Japan.
The company's refrain, "eBay everywhere," seems destined to become a reality. For Pierre Omidyar it's all part of "empowering people and helping them be the best they can be."