Ebay Inc. Business Information, Profile, and History

Company Perspectives:

eBay is The World's Online Marketplace. Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Through an array of services, such as its payment solution provider PayPal, eBay is enabling global e-commerce for an ever-growing online community.

History of E Bay Inc.

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 $15 billion. 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.

Looking for Pez Dispensers: 1995-96

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.

The Concept

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.

Fighting Fraud: 1997

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 registered 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.

Major Growth and Change: 1998

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. Among those selling shares in the $63 million initial public offering was the eBay Foundation, established by eBay several months before the initial public offering (IPO) with a grant of 100,000 shares.

According to the Community Foundation Silicon Valley, which administered the foundation, this was the first time a company had launched a charitable fund with pre-IPO stock. "It is fairly unusual, [and] it's a fairly effective way to do it because it doesn't cost them much," a Community Foundation official told the Business Journal-San Jose. The eBay Foundation sold just over 10,000 shares at the IPO, generating cash to make grants.

At the end of 1998 eBay was hosting nearly 1.8 million auctions and reported a profit of $2.4 million on revenues of $47.4 million, making it one of the few Internet retailers to return solid profits. At the same time, its growth and popularity were putting the spotlight on the company and user expectations became more sophisticated.

Ups and Downs: 1999

The first quarter of 1999 was again record-setting, with gross merchandise sales of $541 million and net revenues of $34 million. During the quarter eBay stopped selling guns and ammunition on its site, announced a second public offering, a four-year $75 million marketing alliance with AOL, and a 3-for-1 stock split. The day before the secondary offering, Amazon.com, the Web's leading "e-tailer," began hosting its own daily auctions.

In May the company made three acquisitions. Both Butterfield, a 135-year-old San Francisco auction house, and Kruse International, an automobile auctioneer in Indiana known for collector cars, helped eBay move into a higher-priced market. The third purchase, Billpoint Inc., was a California company specializing in credit card payments over the Internet. Sellers on eBay could now use Billpoint to instantly accept credit cards and buyers would be able to receive reference reports listing all their transactions. The company issued $275 million in common stock to finance the purchases.

Moving overseas, eBay next entered a joint venture with Australia-based PBL Online. In addition, to provide its members with more news and information about their collectibles, eBay signed an agreement with the Collecting Channel to provide "content" on the site. The first offering was information about Star Wars memorabilia.

In June 1999, however, eBay was shaken as its web site experienced numerous crashes. The company was a few days away from completing installation of a backup system when outages began, including one lasting 22 hours. eBay refunded from $3 to $5 million in waived listing fees, conducted free auctions, and moved to hire more computer network experts and senior technology managers. As other big Internet companies such as AOL and E*Trade had learned, site reliability was a critical factor in retaining customer loyalty. Competitors such as Amazon.com and Auction Universe reported increased traffic at their sites as a result of eBay's problems.

Within days of the outages, however, eBay gave journalists something else to write about: global expansion. It moved into Europe with the acquisition of Alando de AG, Germany's largest online trading site, and considered adding a Japanese-language corner to provide support for its 6,500 members in Japan. Yahoo, however, beat eBay to the punch and launched its own site in September 1999, a full five months before eBay officially added its Japanese site. This delay would prove a pivotal mistake in eBay's plans for global expansion.

Competition also moved to the high end of the auction market as 1999 drew to a close. Amazon.com, which had acquired a minority stake in Sotheby's Holding Inc., paired up with its new partner to launch a joint auction site. Christie's International indicated it would soon be adding an interactive section to its web site, and smaller companies handling decorative and fine art or antiques were also going online. Behind all the action was the tremendous potential for sales. Experts predicted the online auction field would grow to 17.5 million registered buyers and sales of $15.5 billion by 2001, up from 1.5 millions users and $1.5 billion in sales in 1998.

eBay had already recognized the opportunity to use online auctions for high-priced items, but noted such offerings needed to be presented in a different manner. After acquiring Butterfield and Butterfield, the world's third largest auction house for over $250 million, the company began structuring such a site. Great Collections (later renamed eBay Premier) was launched in October 1999, with partnering auction houses, galleries, and dealers having their own branded areas and offering the same authentication services they did in their brick-and-mortar locations.

A New Century, a New Frontier: 2000-01

By the new millennium eBay had become the Internet's top auction site with ten million registered users, selling around $10 million of merchandise a day. In the week of January 9, eBay set a new record for attracting just under 1.8 million users that week, prompting CEO Whitman to tell DSN Retailing Today (May 8, 2000): "Our unique community of passionate buyers and sellers continue to take eBay to new heights."

Some of the firm's more creative users, however, had learned how to rig bids and outcomes; buyers teamed up with bidding partners, while sellers had buddies submitting fake high bids. eBay, however, was not terribly concerned since by 2000 fraud occurred only once in every 25,000 transactions according to company spokesperson Kevin Pursglove. This was due in part to measures taken two years before when the subject of fraud was addressed by CEO Whitman and eBay's board. Though founder and Chairman Omidyar feared tighter controls might alienate some of eBay's diehard users, several measures had been implemented including the ban on weapons, placing adult-themed items in a secure area, offering buyers insurance from the esteemed Lloyds of London, and allowing sellers a discounted rate at Equifax to run credit checks.

The biggest news of early 2000 was not security but the possible merger between eBay and mega-portal Yahoo. Both firms owned pay-online businesses (Yahoo bought Arthas.com and eBay had acquired Billpoint.com) and each brought clout to the bargaining table: Yahoo had a customer base of 120 million users, while eBay had already established itself as the premier online auction house. Talks, however, fell apart.

In mid-2000 eBay bought the Philadelphia-based Half.com, an auction site specializing in used goods, for $312 million. Half.com, which sold used goods for half their original retail price, already had four million registered users and earned 15 percent on every sale. While eBay finalized its acquisition of Half.com, its chairman founded the Omidyar Foundation to donate $20 million annually to worthy causes.

While eBay Chairman Omidyar spent time in Paris working on eBay's international expansion, Whitman continued to expand the company's domestic operations. At the end of 2000 a new service called BusinessExchange, a business-to-business marketplace for small companies to buy office products and equipment, was launched by eBay to maintain its lead as the world's top online auctioneer. According to Forrester Research, an Internet market research firm, eBay controlled 85 percent of the online auction action, which Forrester estimated would top $3.3 billion for the year (Fortune, June 26, 2000).

In January 2001 eBay suffered another outage, this time a crash lasting for 11 hours. While the company blamed the crash on a series of "glitches," IT analysts believed eBay's Sun Microsystems hardware and Oracle software were no longer up to the task of handling millions of transactions a day. The company denied such reports, claiming confidence in its systems. With eBay's difficulties, minor as they were, competitors were still unable to topple its reign. Yahoo, which had gained considerable ground and was the Web's third most visited firm, lost the majority of its online auction clients after starting to charge fees in the first quarter of 2001.

Not waiting for Yahoo to regain its footing, eBay inked a deal with Microsoft, the Internet's second most visited firm behind AOL, to be featured on a myriad of its web sites and to serve as its default auction provider. With online auctions growing at an exponential rate, eBay was determined to hang on to the lion's share of what Forrester Research claimed would rise to $6.4 billion in sales by 2003.

As 2001 ended, eBay earned the top slot on the Deloitte & Touche Technology Fast 500 as the fastest-growing technology company in North America, based on an average of its revenue growth over a five-year period. For the years in question, eBay had gone from $372,000 in 1996 to an astounding $431 million in revenues for 2000, with nearly 30 million registered users. Better yet were eBay's figures for the year 2001: revenues topped $748 million and registered users had climbed to more than 40 million.

Staving Off Competition: 2002 and Beyond

In early 2002 eBay signed an agreement with Priceline.com to dabble in the travel and leisure market, for which the company's 42 million registered users had already shown a keen interest. Next came a partnership with Sotheby's to market high-end collectibles. The new Sotheby's site would supersede both eBay's Premier site and Sotheby's own online auction site. Both the Priceline.com and Sotheby's deals spearheaded new frontiers, as eBay struggled with overseas competition. Rival Yahoo had gained control of Japan's lucrative online auctions, the globe's second largest online auction marketplace.

Yahoo's dominance was a stinging reminder of entering the Asian market with too little too late. Yahoo controlled 95 percent of the market by 2002 and eBay's dismal performance affected its hopes for worldwide dominion. Despite its problems in Japan, however, eBay remained the leading online auctioneer in Australia, Canada, Germany, and the United Kingdom and its year-end figures reflected its status as revenues topped the billion-dollar mark for the first time, reaching $1.1 billion on total auction sales of some $15 billion for 2002.

eBay's CEO Meg Whitman made news in early 2003 by following in the footsteps of Pierre and Pam Omidyar. Whitman donated $30 million to her alma mater, Princeton University, where she had graduated with a degree in economics in 1977. Whitman's contribution was earmarked for the New Jersey school's campus expansion and to increase student enrollment over the next ten years. On the corporate front, eBay paid a reported $1.5 billion for the Internet's premier online-pay service, PayPal, to replace its own Billpoint service. Both Billpoint and PayPal's online gambling service were phased out after the purchase.

As 2003 wound down, eBay still dominated the world's online auctions with close to 63 million registered users, revenues hitting $2.17 billion, and net income reaching $442 million. In 2004 the firm went on an acquisitions spree, buying Germany's mobile.de, India's Baazee.com, Korea's Internet Auction Company, Ltd., and a stake in online classifieds forum craigslist. Though eBay retained its status as the planet's favorite online auction host, the company had learned from its mistakes: Kruse International and Butterfields were sold; it withdrew from the Japanese market; Half.com was phased out; and Billpoint was shuttered in favor of PayPal. Despite or because of these missteps, eBay refocused on what it did best: providing a comfortable and competitive environment for online buyers and sellers in an ever increasing range of auctions.

Principal Subsidiaries: Baazee.com; Eachnet. Inc.; Internet Auction Company, Ltd.; MercadoLibre.com; mobile.de; PayPal Inc.

Principal Competitors: Amazon.com; Auction Universe; First Auction; OnSale Inc.; uBid.com; Yahoo.com.

Chronology

• Key Dates:
• 1995: Pierre Omidyar launches AuctionWeb.
• 1996: Omidyar incorporates the company as eBay Inc. in San Jose, California.
• 1998: eBay gets a new chief executive, reincorporates in Delaware, and goes public.
• 1999: The "Great Collections" auction site is launched for high ticket items.
• 2000: Firm buys into AutoTrader.com and brings Japan, Canada, and Austria into the fold.
• 2001: Registered users reach nearly 43 million.
• 2002: eBay revenues top the $1 billion mark.
• 2003: Revenues climb to a remarkable $2.17 billion.
• 2004: eBay buys three international dot.coms and a stake in classified ads provider craigslist.
• 2005: eBay auctions are available in 46,000 merchandise categories worldwide.