TOPICS > Economy

eBay: Bidding for Success

August 15, 2002 at 12:00 AM EDT


SPENCER MICHELS: Thousands of employees lost their jobs, investors lost money, and landlords lost tenants with the collapse, about two years ago, of Internet-based companies, the so-called dot-coms. Many of these firms had sketchy business plans and never showed a profit. But one Internet company survived and prospered: eBay, the online auction site, which is headed by CEO Meg Whitman. Even before the dot-com debacle, she was steering a different course.

MEG WHITMAN, CEO, eBay: We didn’t subscribe to sort of the dot-com mania of spending any amount of money no matter what results you got for it. But secondarily, we don’t have a classic e-commerce model. We don’t take title to the inventory.

SPENCER MICHELS: eBay was started by computer programmer Pierre Omidyar as in 1995. It had three workers, and was envisioned as a modest Web site to facilitate auctions of such items as computer parts and collectibles. The site simply connected buyers with sellers, and originally there was no charge to use it.

That policy changed quickly, as did the name and the company itself. Today eBay says it has 47 million users who will buy and sell $12 billion worth of merchandise this year, everything from antiques, musical instruments, and pornography to hot new categories including cars and houses. Fees on those sales translate to revenue — this year $1 billion — and profit, for 12 quarters in a row.

SPOKESMAN: And this is eBay stock.

SPENCER MICHELS: Wall Street has been impressed since the day, in 1998, the stock went public, according to Aaron Task, who covers the Internet for, and interviews industry analysts.

AARON TASK: They’re bullish on it mainly because eBay is executing. eBay’s clients, or users, really love eBay. They have what some people call a cult following. And, you know, the company keeps making money, which is very rare in the dot-com world.

SPENCER MICHELS: The cult of eBay was very evident recently at eBay Live, an event in Anaheim, California, that attracted more than 5,000 buyers and sellers, many fascinated with eBay trivia.

SPOKESMAN: When did Pierre write the code for eBay? What weekend?

PERSON: Labor Day.

PERSON: Labor Day.

SPENCER MICHELS: More and more eBay users have built entire businesses on the Web site, and some have developed a kind of social life as well. Eric white has been using eBay since its first year.

ERIC WHITE, eBay User: I want to sit at home and make money. I have thousands of things to sell. I have so much stuff. I have collected carpets and Afghan fabrics and Indonesian batiks and stuff. It’s like having a flea market, like, in your bedroom every day. People are addicted to flea markets.

SPENCER MICHELS: Dan Sustar used to work for Ford Motors, but now he sells casino supplies, power tools, and jewelry online.

DAN SUSTAR, eBay User: It’s an American dream that they talk about in all those infomercials, you know, and we accomplished the American dream, and we actually do extremely well on eBay.

SPOKESMAN: I don’t know this guy.

SPENCER MICHELS: But eBay has become more than a commercial tool for some. Jim Griffith, who is called Uncle Griff by the eBay crowd, says the Web site saved his life.

JIM GRIFFITH, eBay Ambassador: I didn’t know what I was going to do with myself. I felt sort of useless. I’d had a string of failures; not feeling so well. I realized afterwards I’d been diagnosed as clinically depressed, and all this stuff sort of came to a head, and I was ready to do myself in, to be honest with you. And that summer I found eBay through a friend.

SPENCER MICHELS: Griffith got active on the site, participated in its chat rooms, gave advice to other users, and eventually got hired by eBay as an ambassador. Now he preaches the eBay gospel.

JIM GRIFFITH: Everyone needs money. “Why do you think they call it money?”, as the line goes. But, you know… and this is a great way of doing it. These are people… all of us, on some level, have to trade in order to survive. Money is involved now. It makes it a little bit more easier to trade, and making money is not necessarily a bad thing. It means your business is more successful.

SPENCER MICHELS: Making money for others as well as for itself is a key to eBay’s success, according to Rajiv Dutta, Chief Financial Officer.

RAJIV DUTTA, Chief Financial Officer, eBay: This was really a company that used some of the best elements of a brand-new technology, a brand-new infrastructure medium, which was the Internet, and applied it to business in a way that had not been possible before. And what it empowered was small business. And this was an entire generation of small business merchants, and enabled them to efficiently reach a mass market.

SPENCER MICHELS: While many users, like these at the Anaheim meeting, appear to love eBay, others have some very specific complaints. Richard Doporto collects stamps, and eBay is a key site for his stamp buying and selling. But he and others resent that eBay refuses to protect them by disciplining dishonest stamp sellers.

RICHARD DOPORTO, Stamp Collector: It seems like you really have to take a very close look at what you’re buying, because there’s a lot of dodgy sellers.

SPENCER MICHELS: What did eBay say when you complained?

RICHARD DOPORTO: That they’re not into the business of authenticating what is a real stamp or a fake stamp or an altered stamp. And they basically say they act as a venue just to bring a seller and a buyer together, and if there’s an issue, you have to work it out amongst yourselves. What it seems to us is that they’re protecting the seller and not the buyer.

SPENCER MICHELS: Doporto also asserts that when legitimate stamp collectors try, via chat rooms, to warn others about dishonest sellers, the complainers are censored by eBay and barred from the site. With stamps, sports memorabilia, antiques, and art, eBay has long maintained that it can’t be held responsible for fakes. Some criticism of eBay is more universal.

SPENCER MICHELS: For example, high-tech consultant and eBay user Amy Khehl thinks the fees are too high.

AMY KHEHL: You have fees for final value; there’s fees for special insertions like the highlight, and it really can add up.

SPENCER MICHELS: Those fees are increasing, and the feeling of community that eBay tries to promote doesn’t interest Khehl. In fact, she is disturbed by eBay’s size.

AMY KHEHL: It really just feels like a big, monopoly business that made it to the market at the right time, and you kind of have to use them because they have the most people using their site, so you get stuck into it whether you like it or not.

SPENCER MICHELS: Besides its rapid growth, several recent major developments have also begun to change eBay. One was the addition of fixed- price sales– so-called “buy it now” items that aren’t auctions at all, and that currently make up 20% of eBay’s business. Other changes: EBay’s decision to acquire the rival billing service Paypal for $1.5 billion, an admission that it’s own billing service, Billpoint, was losing ground. It will be phased out. And eBay plans to start a new daily TV show called “eBay Today” to promote itself.

SPOKESPERSON: We have built something truly amazing.

SPENCER MICHELS: Despite the fact that eBay has thrived, reporter Aaron Task says a few stock analysts are bearish on the company.

AARON TASK: People who are less optimistic about eBay point to mainly the fact that the stock is very richly valued. Right now it’s trading at about 75 times earnings for next year. They think that the stock could fall as much as 15-20% in a short period of time, if the market continues to go down, if eBay stumbles in its execution.

SPENCER MICHELS: But eBay sees an ever-expanding market for its services.

RAJIV DUTTA: We estimate that eBay’s addressable market is about $1.8 trillion. We actually believe that the overall size of the market is enormous. And in fact in some of our most penetrated categories, our market share is less than 2%. So we think we actually have a long way to go.

SPENCER MICHELS: As for eBay’s market size…

RAJIV DUTTA: Hopefully, every man, woman, and person in the world.

SPENCER MICHELS: eBay employs 2,600 people, whose challenge now is to keep the site growing without destroying the mom-and-pop feeling that led to its original success.