Article 6 of 200
Features/FORTUNE's Information Technology Special Report
Meg Muscles eBay Uptown Meg Whitman is moving eBay away
from Beanie Baby swap meets toward big-ticket,
revenue-boosting auctions. There's no doubt Wall Street likes
what it sees. But what if, on the Internet, little people really
matter?
Daniel Roth
07/05/1999
Fortune Magazine
Time Inc.
Page 81+
(Copyright 1999)
On April 20, Meg Whitman, CEO of eBay, found herself in Washington
before a group of 210 journalists and guests in the ballroom of the National
Press Club. The moderator introduced her by quoting a recent New York
Times story about her wildly popular auction Website: "Millions of people
have begun embracing the online auction," he read, "an Internet phenomenon
that in a matter of months has captivated the nation's bargain hunters and
spawned a market for nostalgia."
It was the perfect setup for Whitman, who trotted out stories about how eBay
had changed customers' lives: the woman with diabetes and lupus who, after
being forced out of a job, reconnected with society by trading over eBay; the
struggling antique-shop owner who rescued her business by selling on eBay;
the couple in Curtis, Neb., who saved their entire town by persuading
neighbors to sell over eBay. The significance of eBay, Whitman explained,
goes far beyond commerce: "People are not only buying and selling,
they're...using the bulletin boards, the chat rooms, and the eBay Cafe to meet
new friends and establish new relationships.... As one eBay user put it, 'eBay
and its cyber-incredible world is bringing people together to do a lot more
than trading goods. We are trading our hearts.' "
Six days later Whitman traded something far less warm and fuzzy-- $260
million in eBay stock in exchange for Butterfield & Butterfield, a
134-year-old auction house in San Francisco. The deal made sense to Wall
Street: Though the diabetic woman and the Curtis couple make for great PR,
their average auction closes at only about $47, of which eBay's cut is about
$3; the average Butterfield & Butterfield auction closes at $1,400, of which
the house's cut is almost $400. Buying into the high-end auction business
might not add to the cyber- incredible chatter in the eBay Cafe, but it sure
promises to boost eBay's business.
On news of the Butterfield & Butterfield acquisition, reaction was split.
Stock traders applauded, sending eBay stock up 4%, but Internet message
boards lit up with protests. Referring to founder Pierre Omidyar, now
eBay's chairman, antique dealer Victoria Powers wrote, "It seems that the
'junk' that brought Pierre millions is just not good enough anymore!"
Another posting: "The Average Guy and Average Girl made this behemoth
what it is. This is the thanks you get, kids. You made it possible for eBay to
become what it wants to become."
Increasingly, it seems, eBay is a company at war with itself. The swap fest
that has been endlessly touted as the Internet's happiest marketplace ("People
go gonzo over eBay," declared USA Today) is fast evolving into something
rather different. While Whitman continues to hype eBay's touchy-feely
communitarianism, she's quietly and rapidly overhauling the company in
service of a goal the staunchest capitalist would understand: pleasing Wall
Street.
In the past three months, Whitman has systematically imposed control on
eBay's famously anarchic, free-form environment. She is gearing the site
increasingly to big-ticket items and big sellers (eBay takes an average 6% fee
on sales), even at the risk of alienating small ones. For example, Whitman is
encouraging real-world store owners to expand their sales via eBay. She has
introduced a PowerSeller program that gives extra customer support to big
vendors- -even as middling and smallish users complain loudly about the lack
of support available to them. And, in addition to the Butterfield purchase, in
mid-May Whitman bought automobile auctioneer Kruse International; the
two old-world auctioneers give eBay a steady supply of high-ticket goods and
an army of appraisers to perform a function eBay customers have long
performed on their own. All the while, Whitman has worked to sanitize
eBay's public image, going so far as to suspend some users for posting too
many messages trashing eBay. eBay insists the censoring is done strictly to
maintain decorum.
By the rules of the old economy, these are perfectly predictable-- and
seemingly sound--moves for a newly public company to make. What business
wouldn't like to attract people with deeper pockets or squelch disruptive
customers? Indeed, eBay's stock seems to tick up every time Whitman makes
an announcement. But eBay isn't an old- economy business; its growth has
come about through a kind of spontaneous generation unheard of in the
pre-Internet Age. In fact, eBay may provide an excellent test of just how
successfully management practices developed under the old rules can be
applied under the new.
By those old rules, eBay is going gangbusters: From 1995 until late 1998, the
company did no national marketing or advertising whatsoever. Nevertheless,
almost purely by word of mouth, it had 3.8 million registered users at the
end of March and grew from 289,000 items listed for sale at the end of 1996
to 2.2 million today. Fueled by the apparently infinite American desire to
buy, sell, and talk about Beanie Babies, old coins, and other cultural flotsam,
eBay has become one of the few profitable Internet companies, expected to
net $24 million this year on $170 million in revenue. In the first three
months of 1999, eBayers bought and sold $541 million of goods; by the end
of the year, $2.7 billion worth of goods should trade hands over eBay,
making it the largest consumer-commerce site on the Web. By comparison,
Amazon .com is expected to sell $1.4 billion in books, music, and auctioned
goods this year.
Wall Street loves eBay's numbers. With a $23 billion market cap, the
company is now worth more than the combined value of Kmart, Toys "R"
Us, Nordstrom, and Saks. But Richard Zandi, an analyst at Salomon Smith
Barney, calculates that by 2009 eBay will have to be selling $212 billion of
goods a year to live up to its current value. To put that in perspective, that's
almost 60% more than what the world's biggest retailer, Wal-Mart, sold in
1998.
For Whitman, that's some serious pressure. Which makes it, depending on
how you assess the situation, all the more inevitable or all the more
nerve-racking that she is moving eBay away from its roots. Whitman is fond
of attributing eBay's success to what she calls the "network effect,"
essentially an escalating cycle in which sellers attract buyers and vice versa.
The question is, By altering the size and composition of the network, is she
undermining it? Can she keep eBay faithful to its roots and still live up to
Wall Street's expectations? Do those roots even matter anymore?
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