Going once … going twice … gone! Silicon Valley online
trading community eBay redefines the way people bid for trinkets and treasures.
A year or so ago, Larry Horist,
who runs a government relations company on Michigan Avenue in Chicago,
discovered a Civil War-era note signed by Abraham Lincoln. A longtime Lincoln
enthusiast, he was high bidder for the piece with an offer of $5,101. But
Horist wasn’t at the kind of auction where people hold up signs on sticks to
signal bids, nor was he at a private auction. Rather, Horist is a registered
user of the online community eBay, and as
the clocked ticked off the final seconds of the auction, his office staff
huddled around a computer, repeatedly clicking the "reload" button to
see if he would be outbid. When the auction closed, a small cheer went up in
the room.
eBay, the world’s largest
person-to-person online trading community, was originally conceived after a
conversation between Pierre Omidyar and his girlfriend (now his fiancée), an
avid collector of Pez dispensers, the small contraptions with cartoon heads
whose tops tip back to dole out candy pellets. She commented to Omidyar about
how great it would be if she were able to collect the dispensers online and
interact with other collectors over the Internet.
As an early Internet enthusiast,
Omidyar knew that other people shared her desire for a central location to buy
and sell unique items and to meet other users with similar interests. In fact,
his career had already taken a sharp turn toward the evolution of e-commerce
and online shopping. After graduating in 1988 from Tufts University with a B.S.
in Computer Science, Omidyar went to work for several software-development
companies, including Claris. He then co-founded Ink Development Corp. in 1991
and two years later, led the company into the uncharted waters of Internet
shopping. (The company, which was renamed eShop, was purchased by Microsoft in
1996.)
With an acute vision of the
consumer demand for Internet shopping, Omidyar developed eBay in September 1995
to meet this need. When the reception for the idea was far greater than even he
imagined, he resigned from his full-time position for Internet-telephony
solution provider General Magic to further develop the eBay service.
Today, the San Jose, Calif.-based
eBay has created a whole new online market: efficient one-to-one trading in an
auction format on the Web. Individuals — not big businesses — use eBay to buy
and sell items in more than 1,000 categories, including collectibles, antiques,
sports memorabilia, computers, toys, beanie babies, dolls, figures, coins,
stamps, books, magazines, music, pottery, glass, photography, electronics,
jewelry, gemstones and much more.
As a pioneer of person-to-person
online trading, eBay has developed an efficient and entertaining trading site
in an auction format on the Web that is available 24 hours a day, 7 days a
week; the site has more than 1 million registered users. Currently, there are
more than 800,000 items listed for sale. Users can find the unique and the
interesting on eBay — everything from chintz china to chairs, teddy bears to trains,
and furniture to figurines. As the leading person-to-person trading site,
buyers are compelled to trade on eBay due to the large amount of content
available. Similarly, sellers are attracted to eBay to conduct business where
there are the most buyers.
And it works. In its first three years of operation, eBay was used to auction more than 5 million items.
In that period, one of the most expensive items
auctioned through eBay was a set of purple Princess Diana Beanie Baby bears by
the Ty company. They sold for $8,300. Still, the lion's share of items sold
through eBay are much more mundane: cordless drills, baby boomer collectibles,
glassware, books, perfume. At that time there were 12 clarinets on
the computer auction block, 16 Chatty Cathy dolls, 19 poison bottles and 96
thimbles. The items up for auction change daily, and well over 100,000 new items are
added each day. Every second, as one auction is ending, another is
beginning.
The way eBay works is simple:
Buyers and sellers register their personal information as well as a valid
e-mail address with the company, which e-mails back a verification and
password. A seller lists his item, places it in a specific category (such as
Older Disney Collectibles) and then types up a detailed description. He can
also add a photograph of the item. The seller sets a minimum bid price and
selects the length of the auction. The auction is then posted for anyone who
might be interested in bidding. Then users are free to bid on eBay's auctions,
which typically last three, five or seven days, or to set up their own auction
with just a few keystrokes (and, preferably, a scanned photograph). Revenue for
eBay is generated by the sellers, who pay a "success fee": 5 percent
of sales for the amount up to $25; 2.5 percent for the balance up to $1,000;
and 1.25 percent for higher amounts. Once the sale is complete, the seller and
buyer deal directly with each other; eBay is not involved.
According to Omidyar, some 99.9
percent of eBay transactions go off without a hitch. The key may be a
"feedback" area that allows both buyers and sellers to critique each
other publicly with positive, neutral or negative feedback. The better a
seller's feedback, the more confident bidders feel in dealing with him. The better
a buyer's feedback, the more comfortable sellers feel about his ability to
complete a deal. Registered users develop “online reputations,” and if a person
has a negative balance of feedback “points,” they are suspended from the site.
In a gutsy, strategic move, Omidyar
took a chance in September 1998 and completed an initial public offering (IPO) smack
in the middle of market conditions that were unstable at best. The results?
Terrific, according to Steve Westly, vice president of marketing and business
development. In fact, the company’s opening price of $18 per share shot up to
$48 and has stayed there or better, closing at 73-3/8 on October 26th 1998.
And third quarter revenues that year hit $12.9 million — a 787 percent increase
over the same period last year.
“Our IPO more than exceeded all of
eBay’s goals,” says Westly. “It was one of the more successful IPOs in history
in terms of percentage increase on the first day. There’s not a single thing we
would have done differently.”
In September 1998, eBay announced
their ranking as the number-one commerce site in terms of time spent by
Internet users (119.5 minutes, says Westly). In 1998, eBay ranked sixth in the overall number of minutes spent on an
Internet site, behind Microsoft, Netscape and Hotmail.
"We attribute our
remarkable growth to the commitment of our users," says Omidyar. "No
other auction site provides the same level of service. We expect that the
number of eBay users and transaction volume will continue to grow as consumers
discover that eBay is the most complete and comprehensive place to trade on the
Internet, as well as a great place to have fun and meet people with similar
interests." Adds Westly: “Even
though there are over 150 other auction sites, people tend to make friends on
our site. At eBay, they’re all part of the community.”
To even further bind its
“community” ties, eBay recently launched “About Me.” This new feature provides
the eBay community — buyers and sellers — with step-by-step instructions on how
to create their own personal homepage free-of-charge on eBay. Thousands of registered users have already
created homepages using this new feature. “’About Me’ allows our community
members to further personalize their eBay experience,” says Westly. “The
increased user information enables people to find out more about the people
they're trading with and to more easily find people who share their interests.”
In September1998, eBay and America
Online (AOL), the world's leading Internet online service, announced a
three-year agreement that would allow AOL members to buy and sell merchandise
from one another online. Through the eBay service, AOL members interested in
selling items simply post the item for sale in the appropriate category within
the eBay area; eBay then facilitates the online auction for that item. Once the
auction is complete and the winning bid identified, the winning bidder and the
seller contact each other via email to complete the transaction.
In exchange, eBay will be the
exclusive person-to-person auction service in the general merchandise category
of the AOL Classifieds area and in several areas of the hobbies section of the
AOL Interest channel for a minimum of one year.
"More and more our members
are realizing the ease and convenience of buying and selling online," says
Barry Schuler, President of AOL Interactive Services of the deal. "Thanks
to our expanded relationship with eBay, AOL members now have even easier access
to their very own person-to-person trading community, ensuring they get the
best possible price for their items, and giving buyers a convenient way to
browse and shop."
Under the arrangement, AOL will
reportedly receive payments from eBay totaling $12 million.
In a move to increase awareness
and trial of the company’s brand, eBay also launched a national print
and broadcast advertising campaign. The national radio campaign aired on
more than 10,000 stations across the country, and the print campaign included
ads in Parade, People, Entertainment
Weekly, Newsweek and Sports
Illustrated. In addition, eBay has placed a dozen different ads in over 70
collecting publications, reaching people who have a passion for coins, stamps,
dolls and photography, among other things. Brian Swette, eBay's senior vice
president of marketing, says the primary goal of the ad campaign is to reach
consumers who aren't already familiar with eBay, and to educate them about the
service.
With an original business mission
to help people worldwide trade items that they cared about in a way that would
really develop a community, Westly says eBay has been “very successful” at
doing just that.
“People talk a lot about
competitors, and about the changing marketplace, but I feel that the real
challenge lies in maintaining the internal ethics of our staff,” he explains.
“We spend a lot of time making sure that everyone treats each other well, and
that they treat our users as number one.” The ethics that the eBay team lives
by — and recommends to other companies both off- and online — are staying close
to customers to find out exactly what they want and need, always having a clear
business model, and using marketing tactics to their advantage.
“If you have a great service that
will really help build the right community, you still have to let people know
about it,” Westly advises. “Word of mouth has been our best salesperson.
Partnerships — like the one recently signed with AOL — have also proven
valuable.”
Originally founded on the belief
that people are honest and trustworthy, eBay’s managers and employees believe
that each of their customers, buyers and sellers, is an individual who deserves
to be treated with respect. The company continues to enhance the online trading
experiences of all their constituents: collectors, hobbyists, small dealers,
unique item seekers, bargain hunters, opportunistic sellers and browsers.
“Everything we do here is oriented toward the customer,” says Westly.
“In fact, it’s kind of a religion or ethic throughout our company." In
fact, he says, many companies approach eBay about advertising on the site, but
since eBay’s site is for the users, "posting a lot of ads is not something
we want. Sure we might make money, and we do sell about 1 percent of our ad
inventory, but it’s clearly not our driving force. We’re pretty clear on who
the real customer is here.”
In addition to their unwavering commitment to satisfy customers, the
eBay team finds time to do their part for the community. In June 1998, the
company established a charitable fund called the eBay Foundation, which was
funded through a donation of 107,250 shares of eBay's common stock to the
Community Foundation Silicon Valley (CFSV), a tax-exempt public charity whose
mission is to promote philanthropy and build a strong community. CFSV helps
donors make effective charitable gifts and makes grants to a wide range of
nonprofit organizations nationally.
So, what does the future hold for
this innovative, young company? A concentration on improving current offerings
and expansions in the field the company knows best: person-to-person online
trading.
“Our future plans include doing
more of the same because we’re not like other companies that are diversifying
into new areas every 90 days,” says Westly. “We really love what we’re doing,
and we want to continue to expand while also providing great trading with new
features. We’re not interested in expanding into new areas just for the sake of
growth; we’re all about the customer here.”
Company: eBay
URL: www.ebay.com
Founder: Pierre Omidyar
Industry: online auction community
Location: San Jose, Calif.
Founded: 1995
Employees: 76
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© 2000 by Virtual Advisor, Inc. All rights reserved.