EBAY

	September 25 , 2000
	Spencer Michels reports on the world of online auctions.

SPENCER MICHELS: All this is sort of antique things that you could buy or sell on ebay. DIANE HAMILL: Yeah. SPENCER MICHELS: In every room of her suburban California home, Diane Hamill displays her antique treasures-- items she has picked up at garage sales and shows, and intends to sell over the Internet. SPENCER MICHELS: And what are these? DIANE HAMILL: I bought that at a garage sale on Saturday, and I'm going to sell them on ebay. SPENCER MICHELS: So you think you can make a profit on them? DIANE HAMILL: I should be able to get about $40 or $50 for them. They're called flo-blue. They're about 100 years old. SPENCER MICHELS: Oh really? And you paid about? DIANE HAMILL: About $2 apiece. SPENCER MICHELS: Wow. Hamill is one of 16 million people who are registered to buy and sell on ebay, an Internet site based in San Jose, California, that facilitates auctions of antiques, sports memorabilia, fine arts, pornography, music, electronics and 4,300 other categories. Ebay was founded by software developer Pierre Omidyar as a place where his girlfriend could buy and sell toy candy dispensers. The idea took off as millions of people became devotees. DIANE HAMILL: I am going to list this swan. It's made out of glass, so I am going to choose the glass and pottery category. SPENCER MICHELS: 2.2 million buyers and sellers use ebay on any given day. The process is fairly simple. Hamill wants to sell this glass swan for a minimum of $9.50. She fills out an online form, describes the swan, posts digital photos, and decides how long the auction will last. Buyers search online to find an item, then bid on it as often as they wish. The highest bidder receives it after paying by check or credit card, usually including shipping costs. Ebay, the middleman, collects 5% of the first $25 of the price, 2.5% up to $1,000, and less after that. There are millions of people who go on ebay, and they all seem to learn this. DIANE HAMILL: That's what I kept telling myself when I would came up against something that I just didn't think I could solve. I kept saying millions of people have done this; I can learn it too. And I did. SPENCER MICHELS: Like a lot of ebay users, Hamill used to sell at antique shows, where she'd set up card tables to display her wares and then bring home the unsold items. She prefers the Internet, and believes from her own experience that it is changing the way people buy and sell antiques. DIANE HAMILL: My stuff is exposed to collectors all over the United States and the world. And they bid against each other, and I get higher prices. SPENCER MICHELS: You would that think that if a lot of people went online with these auctions, that the antique shows would dry up to some extent. DIANE HAMILL: They're starting to. SPENCER MICHELS: The Antiques and Collectibles Association confirms the cutback in antique shows nationwide. At company headquarters, 1,300 employees keep the site operating technically, answer a torrent of e-mail from users, manage auction sites in German and Japanese, and deal with an ever-growing customer base. Occasionally ebay finds someone selling something illegal, like marijuana or cocaine, or something absurd like human kidneys, or something unbelievable like a roomful of small children from Japan. It removes those items when they're discovered. Employees are encouraged to use the site themselves. One full-time employee concentrates solely on Elvis Presley collectibles, a hobby of hers that landed her a job here. ROBIN ROSAAAEN, eBay: I paid $4,000 for Elvis' dental records from the old Palm Springs dentist that had those. And I happened to see them on ebay, and thought, I've got to have that. That's something nobody else would have in their collection. SPENCER MICHELS: ebay recently invited a dozen users from around the country, including Diane Hamill, to spend a day at headquarters so company officials could pick their brains about the service. DIANE HAMILL: I thought it was very important for the company to really understand that there are real people on the other side of these transactions. SPENCER MICHELS: They heard from CEO Margaret Whitman, who is trying to cope with ebay's phenomenal growth since its founding less than five years ago. MARGARET WHITMAN, ebay President & CEO: We've gone from, you know, two people in 1996 to over 1,300 people. And so it's really important for all the new people every day who come to work at ebay that they understand who our customers are. SPENCER MICHELS: Mostly, these customers said they like the site, which many of them have started to use to run their businesses. Increasingly, ebay sales are made by small- or medium-sized operators whose whole income may depend on Internet transactions. SPOKESMAN: If we started with... SPENCER MICHELS: Patt Grethmann, for example, closed her gift shop, where she sold dolls and miniatures, to work exclusively using ebay. Despite their enthusiasm for ebay, the focus group members had some complaints. PATT GRETHMANN: We need a better way to address the deadbeat bidder situation. Personally, I usually try and give people two or three weeks before I get upset about not receiving payment. REY BARRY: I'd like to see ebay get into some sort of arbitration, mediation service staffed by volunteers. DIANE HAMILL: I think one of the major problems that seems to be growing is the sale of reproductions and fakes -- in other words, fraud. SPENCER MICHELS: Fraud has occupied a lot of ebay's time lately. In August, the FBI said online auctions were the number- one source of fraud nationally, and said it gets 1,000 consumer complaints a week. Last spring, police in Upton, Massachusetts, broke up an alleged burglary ring where stolen goods were put up for sale on ebay-- everything from cameras to coins, baseball cards, jewelry, and silverware. It was not the first time stolen goods were sold on the site. Ebay has hired former federal prosecutor Rob Chestnut to keep the site a law-abiding place. ROB CHESTNUT, eBay Attorney: Ebay has got to be the dumbest place in the world for some crook to try to sell a stolen item, because it's so public. Any victim who has lost an item to theft, all they've got to do is to sit at their desk in their home and try to look it up at the Web site. And if they find it, ebay's got a great track record of getting law enforcement quickly and catching people who do it. SPENCER MICHELS: San Diego attorney James Krause is suing ebay on behalf of clients who say they paid for baseballs and basketballs signed by stars that they found on the Web site. Those signatures turned out to be fraudulent. JAMES KRAUSE, San Diego Attorney: There is this statute that a warranty must be given to purchasers by dealers selling sports memorabilia. And in the definition of dealer, it says auctioneers are considered to be dealers. How expensive it is or how difficult it is to comply, that's ebay's responsibility if they want to be in this business. All this is coming from ebay. SPENCER MICHELS: Krause says that because its Web listings make clear it is the equivalent of a bricks and mortar auction house, ebay is liable for ten times actual damages under California law for dealing in fakes. But ebay's Chestnut argues authenticity is the seller's responsibility; that ebay is only a facilitator. ROB CHESTNUT: You know, the traditional auctioneer can take a look at the item, they can evaluate it, and then they are the ones that are describing the item and promoting it to the public. And ebay isn't an auctioneer in that sense. Ebay is really a lot more like a newspaper classified ad, or a big bulletin board on the Internet. SPENCER MICHELS: Ebay claims it spends a lot of money educating the public, policing its site, and trying to catch fraud, even though that's not a legal responsibility. Officials say it's just good business, even though only one out of 40,000 listings results in a confirmed case of fraud. Last May, a painting on ebay that looked like one by famed abstract artist Richard Diebenkorn, was bid up from 25 cents to $135,000 after the seller placed bids himself to increase the price. That's called shill bidding. The painting was not a Diebenkorn, and was eventually removed from ebay, as was the seller. But shill bidding, an old practice, is a worry for the company. ROB CHESTNUT: There are some technology tools that can help detect if the same person or the same computer is bidding on an item. We developed the first shill hunting tool in the industry last year. We're working on the next step now, and that is trying to figure it out before the listing is done, catch it in the act. SPENCER MICHELS: CEO Whitman says ebay has initiated several safeguards to protect buyers and sellers. MARGARET WHITMAN: While we don't assume the responsibility for the transaction between the buyer and seller, the reason that we have escrow, and insurance, and a trust and safety customer support team, and a legal team that works really closely with law enforcement is to make this a safe place to trade. SPENCER MICHELS: Last year, ebay experienced serious technical problems that made the site unusable for a total of 31 hours. This year outages have been reduced. MARGARET WHITMAN: We invested a lot of money after last summer's outage to make this site what we call utility-like stability. SPENCER MICHELS: Whitman says 99.9% of transactions go off perfectly. That kind of record, and ebay's efforts to keep it that way, impress Lauren Cooks Levitan, a stock analyst with Robertson Stephens. LAUREN COOKS LEVITAN, Robertson Stephens: It certainly is amazing that the company has been able to not only maintain their profitability, but actually been able to do so even as many competitors have tried to come in and take a piece of the auction pie. People like Yahoo! and Amazon have tried very aggressively to get into this market. SPENCER MICHELS: Why do you think that is? LAUREN COOKS LEVITAN: Well, the real reason is that they have the biggest base of buyers and the biggest base of sellers, and that's what each constituency wants. SPENCER MICHELS: Beyond its buyers and sellers, the company is profiting too. The small fees it takes from thousands of Diane Hamills means it does not have to rely on selling advertising like many Internet companies. Last quarter this guaranteed revenue stream brought in $88 million, up 130% from the previous year. Profits for last year were nearly $11 million. LAUREN COOKS LEVITAN: Well, ebay is the classic middle man. They are absolutely unique in that they are driving a huge portion of online commerce, several billion dollars in gross proceeds, but they're not having to take on any of the ugly aspects of it in terms of making the merchandising selection, holding the inventory, making sure it gets to the consumer. They're simply standing in the middle, making a platform that is viable for buyers and sellers to do good business, and they're taking a piece of that. SPENCER MICHELS: CEO Whitman says rejects criticism that an online auction house is not the intended use of the information highway. MARGARET WHITMAN: I actually it's the perfect application for the Web. What the Web enabled was a connection of many to many. And that's exactly what ebay enables is many, many buyers and many, many sellers, 2.2 million a day, who connect in a way they could not without the Internet. DIANE HAMILL: It does look old to me, so it's probably not a fake or a reproduction. SPENCER MICHELS: Despite lawsuits and charges of fraud on the Internet, ebay's success is changing the way many Americans run their hobbies, and making it tougher, especially for antique and collectible dealers not using the Internet, to compete. DIANE HAMILL: This is their home page. SPENCER MICHELS: Okay, what do you do now? DIANE HAMILL: If I'm selling...