EBAY in USA Today: eBay's volcanic success looks unstoppable
By Kevin Maney, USA TODAY
SAN JOSE, Calif. - The superhot Internet company of the moment is hidden inside an aging three-story complex that could easily be doctors' offices or garden apartments. To get here, scoot in the door of 2005 Hamilton Ave. Then hop on the excruciatingly slow elevator, which is lined with tacky wood veneer and announces each floor with a bell that clangs so loudly it makes visitors jump.
The reception area is no less low-budget. The walls are bare. The desk is 1960s metal. The woman behind it frantically punches buttons on a phone, saying, "Hello, eBay!" about once a second. After all, this is a day when the stock is shooting up more than 80 points.
It is a phenomenon, this eBay thing. Of course, it's a sizzling Internet stock, but you can pick those by the armload these days. EBay is held up as so much more. On a basic level, eBay is an online flea market, where everything is sold by auction. That's a brand-new kind of business, made possible only by the Internet. But eBay also has created a slice of life in late-1990s America. People go gonzo over eBay. They get hooked. They find mates while using the service. They quit good jobs to sell products full time on eBay.
"EBay is not only a business," says Ginger Willis, 41, of Pascagoula, Miss., who used eBay to find dolls to replace some she'd lost in a flash flood when she was 11. "It's a place for all of us to bring back a part of our past and regain the memories of our childhood."
Such enthusiasm for eBay explains why the company has been able to brush off recent embarrassments. Stories keep surfacing of rip-off schemes on eBay and New York City's Consumer Affairs Department is investigating a series of consumer complaints. (The complaints are almost always about sellers who list bogus products on eBay, not about eBay itself.) In December, the software running eBay's massive computer system had a seizure, bringing auctions to a halt and angering users.
Yet nothing, it seems, can slow eBay. A year ago, only the Internet underground knew what it was. In September, eBay offered its stock to the public at $18 a share, and it immediately went to $47. Today, the stock is at 239 after dropping 39 1/4 Thursday - a price swing that's almost humdrum for this company. EBay has more than 1 million registered users, processes 700,000 auctions a day and ranks as the No. 2 site in time spent on the service per month, according to Media Metrix. No. 1 is Yahoo. "The market opportunity is monstrous, the business model is much more profitable than almost any other on the Web, and the stock may reach unprecedented levels," says a report from Keith Benjamin, Internet analyst at BancBoston Robertson Stephens.
So eBay has hyper growth, controversy and the spotlight that comes with being THE stock of the moment. You might think the company would be manic, concerned only with keeping up with events. That would be wrong. Go into eBay's inner offices, and employees talk about how much room they still have to grow and how they're building a strong, unique culture that will guide the company to long-term success. Like almost everything about eBay, the culture and long-term plans are more than a wee bit quirky.
The stuff of legends
By now, the basic story of how a Pez dispenser collection led to the creation of eBay is practically Internet legend.
In 1995, Pierre Omidyar, a brilliant Zen kind of character, had already started and sold one software company. He was working at General Magic. He had a girlfriend. She had a Pez dispenser collection. She remarked to Omidyar that it would be neat if there were a place on the Net where she could buy and sell Pez dispensers with other like-minded people.
Omidyar whipped up a Web site, for fun. Remember, this was in the frontier days of the Web. Soon, collectors of non-Pez stuff found the site and started using it as a place to trade. At the time, listing an item for sale on the site was free. But as trading increased, maintaining the site became burdensome. Omidyar figured he'd charge 25 cents per listing to slow use of the site. Didn't work. Envelopes carrying checks started piling up at his home. He hired someone to open and tally them. Within six months of putting up the site, Omidyar realized he'd accidentally started a company and quit his job.
By 1997, eBay was a growing, profitable niche company. Omidyar wanted to turn it into a barn-burner. To do that, he sought venture capital, but not because he needed the cash. In fact, here's one of the all-time conversation stoppers in the Silicon Valley: eBay got $3 million in venture money from Benchmark Capital in June 1997 and never touched a cent. It's still in the bank. EBay has made enough money on operations to fund its own growth. Benchmark's stake, after an additional $2 million investment, is now worth $2.3 billion and is the best return on investment in the history of venture capital.
Omidyar took Benchmark's money for two reasons: the networking it could get from being a Benchmark company and the respectability that comes with landing a big venture check. Both have helped eBay bring in top talent and win over Wall Street when time rolled around for it to go public.
With Benchmark's support, new hires from the toy industry and Pepsi, and good word-of-mouth, eBay started doing some real marketing in 1998. That was all it took. "We blew on the embers that were there," says Brian Swette, senior vice president of marketing. "And it just exploded."
One of a kind
Nothing like eBay had existed before, and really nothing else like it exists yet. While there are other sites for auctions, analysts say nothing truly competes with eBay.
Two groups of people come to eBay's site: sellers and buyers. People sell everything: shotguns, Elvis autographs, old G.I. Joe lunchboxes and rare stamps worth $2,000. The site has become a hotbed for the Beanie Baby trade. Many sellers are people who use eBay as an online garage sale. Others are pros. They turn eBay into online extensions of antique stores and music shops. Tales pop up of people such as Judy Williams of Atlanta, Texas. She is making $2,000 to $3,000 a month selling odds and ends on eBay - enough so she could finally move off welfare.
The sellers are eBay's source of revenue. The company charges a graduated fee for listing an item: 25 cents for items priced at up to $10, 50 cents for items priced at $10 to $20 and so on. Then there's a final transaction fee of 5% for the first $25 of an item's selling price, 2.5% of the next $975 and 1.25% of any amount over $1,000. In the past quarter, those fees added up to $19.5 million in revenue and earnings of 7 cents a share. Earnings are rare among Internet companies.
Buyers flock to the site for the eclectic selection and the chance to grab bargains. But the secret sauce of eBay goes beyond products and transactions. "A big part of it is that it's a game. It's fun," says David Ticoll of Alliance for Converging Technologies, which studies the Net's effect on business. "But it's not as hard as the online games your teen-age kids play."
Users also go to eBay's site for socializing. Elvis fans who bid for the same items find each other and chat in chat areas on eBay. The woman who runs eBay's Elvis area, Rockin' Robin Rosann, has become their leader. Rosann and a bunch of eBay users recently met in Las Vegas to play some new Elvis slot machines. Those people have bonds to eBay that go far deeper than products and auctions. "The site is alive," says Keith Antognini, a manager at eBay.
As Internet folks say, once a site comes alive, it takes off - and it can't easily be duplicated.
A growth business
The challenge for eBay is to prove its success is not just as fleeting and faddish as the Beanies and Furbys sold on its site.
Growth should not be a problem. EBay's market, as analyst Benjamin points out, is wide open.
If you put into one basket the U.S. market for auctions, garage sales, flea markets and purchases through classified ads -- all of which are in eBay territory - you get a $100 billion market. If eBay does nothing different, its growth opportunities exceed those of Amazon.com.
Ask around at eBay, and the company doesn't sound like it plans to do much different. "Our core business is helping people trade," says Michael Wilson, a vice president. "That's where we're going to look. We're not going to go into e-mail or news or anything like that."
For the near term, eBay will expand its product categories to lure new buyers and sellers. It has launched versions of its site for Canada and the United Kingdom and plans to continue an international push. And the company is stepping up marketing. It's running ads on radio for the first time and sending representatives to more than 100 collectibles trade shows.
The company has some rough areas to work on. It is missing a huge opportunity by failing to get into localized auctions, analysts say. For some products, such as furniture and cars, buyers want to be near sellers so they can pick up what they've bought. EBay has not announced plans to move into local auctions.
EBay also has to fix its fraud problem. The company says that only a tiny fraction of deals is fraudulent, but a reputation as a buyer-beware marketplace could scare potential users. EBay already has a number of clever mechanisms to catch bad guys or warn users away from them. It's introducing more, such as ways to certify that sellers have had background checks. In fact, eBay's safety mechanisms are becoming a strength. The company is amassing a huge database of users, which anyone can access to find out whether a buyer or seller is trustworthy. "That knowledge capital makes eBay a powerful force," Ticoll says.
Banking on trust
Inside eBay, the company's culture is focused on long-term success. This is not the generic Silicon Valley nerd culture. Many of the 138 employees come from outside the technology industry. CEO Meg Whitman had previously been at Hasbro, FTD and Walt Disney. Swette spent 17 years at Pepsi. Managers such as Rosann come out of the collectibles industry.
Omidyar ties the company together. He is the author and keeper of the only corporate mission statement that would be at home on a Hallmark card. "EBay was founded with the belief that people are honest and trustworthy," the statement says. "We believe that each of our customers, whether a buyer or a seller, is an individual who deserves to be treated with respect."
EBay operates that way, too. It's democratic and open. "I came in with my MBA and said, 'Where's the organizational chart?' But it's not like that," Vice President Steve Westly says.
Employees revel in the idea that they're helping people make a living or find old friends. It seems to drive them more than the stock price, which is making most of them rich. Omidyar is now worth $3.6 billion; Whitman, $574 million. Most employees have stock options. Yet on the day of the $80 stock surge, no one chattered about personal net worth. They did, though, talk about the eBay Foundation. Omidyar dumped 100,000 eBay shares into a fund to start the eBay Foundation before the IPO. The foundation, which plans to give money to communities, has stock worth more than $23.9 million.
Omidyar's cultural guidance even figures into why eBay is still here in this raggedy office complex. As eBay grew, the company looked for more expansive digs. An officer found a sleek office tower in San Jose that would be the perfect size. Omidyar squashed it. Too sterile. Too corporate. "It wasn't eBay enough," spokeswoman Jennifer Chu says.
EBay will move soon, but to a bigger area in the same complex. Just as funky. Just as eclectic. Definitely eBay enough.
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