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10 years ago, eBay changed the world

Popular wisdom, stoked by eBay press material, has long said that Pierre Omidyar started eBay 10 years ago so his girlfriend could have a way to trade Pez dispensers.

Well, like every creation myth, there's always an element of truth," eBay Chairman Omidyar says.

Myth? So it's not true? Even though a display filling a wall in the lobby pays homage to Pez dispensers?

And then CEO Meg Whitman — considered the most powerful woman in business; recently courted by Walt Disney to be its next CEO — says she agreed in 1997 to interview for eBay's top job ... why? "In order not to make the headhunter mad," she says.

She'd never even heard of eBay. She hoped the recruiter would call another time with something that looked more promising, she says.

This is what bubbles up from a conversation with three icons of eBay — Omidyar, Whitman, and Jim "Uncle Griff" Griffith, the conspicuous intermediary between eBay users and management. As one of history's fastest-growing companies nears its 10th anniversary, the trio agreed to be interviewed together for the first time.

And from this, we learn something that probably would confound a business school case study: EBay seems to be largely an accidental company, started and grown by trial and error .

The first version of what would become eBay went online in September 1995. Since then, the company has been on quite a run. It had $3.3 billion in revenue in 2004, getting to that mark faster than Dell, Microsoft or Cisco Systems. It has 135 million users worldwide — a cyber nation-state about as populated as Germany and France combined.

EBay's market capitalization is about four times that of's and 25% more than Yahoo's — two other Internet stars born around the same time.

In the meantime, eBay has become a phenomenon. It has changed how people think about the junk they once might've sold at garage sales. It has fostered the idea that trust between strangers can be established over the Internet. And it has been a source of amusement, whether about the grilled-cheese sandwich with the image of the Holy Mother that sold for $28,000 or the man who auctioned his forehead for advertising space for $37,375.

Almost all of it — the growth, the impact, the oddities — has come as a surprise. "I don't think any of us had any idea it would be so huge and encompass the whole world eventually," Griffith says.

"Things were so fast and dynamic, I don't think we ever sat down and said, 'Hey, one day we'll take over this whole business park!' " Omidyar jokes.

EBay, which started in Omidyar's apartment, has indeed taken over a sprawling business park.

Plain brick beginnings

On a sunny afternoon, Omidyar (pronounced "oh-MID-ee-ar"), Whitman and Griffith gather in a conference room that looks out over that business park — plain brick buildings perked up by eBay's primary-colors lettering.

The triumvirate seem to have an amiable, all-for-one relationship. CEO Whitman wears a retro checked jacket. Omidyar is dressed in jeans and a denim eBay shirt, his hair gelled skyward. Griffith, who might qualify as the patron saint of dot-com megamillionaires, looks Santa Claus-ish with his white beard and smiling eyes. He was a barely employed Vermont artist when he was hired in 1996 as eBay's second employee.

The conversation quickly turns to eBay's beginnings. It's become legend that Omidyar, while working at start-up General Magic in 1995, wrote software for a Web site that would help his girlfriend, Pam Wesley, trade with other Pez collectors. (Omidyar and Wesley are now married.)

"It's a very good story that at its core was true," Omidyar says.

In fact, as Omidyar explains, he got thinking that the Net could be used to create a perfect marketplace — where everyone was on equal footing and the marketplace set the price. He didn't have any particular love of auctions. But he thought they were a good "market mechanism" for reaching the right value of an item.

He wrote some software and put up AuctionWeb. It was only a section of a site he had built for some consulting work he did under the name Echo Bay Technology Group. When he'd gone to register that site name, was taken.

"There I was at the counter filling out the paperwork," he says. "This was back in days when you had to fill out paper to get a domain name. So I said, 'Hey, I'll just abbreviate it. What about eBay?' Turned out to be a lucky choice."

But what about Pez? Omidyar says that around that time, he and Pam went on a European vacation, where she bought a number of Pez dispensers. Coming back, she started selling and trading them on AuctionWeb. Omidyar saw "the passion that collectors have about ordinary objects," he says.

He later told that story to eBay's first PR person, Mary Lou Song, who latched onto it as an emotionally resonant version of eBay's beginnings. So she ran with it, creating the myth.

By a couple of years later, AuctionWeb was taking off, and Whitman got a call to interview as CEO. She was general manager of Hasbro's Preschool Division in Rhode Island, overseeing product lines such as Playskool and Mr. Potato Head. The same headhunter had tried to interest her in the CEO job at an Internet travel site, and she'd turned it down. "And at least I'd heard of the travel site," she jokes.

The wooing of Whitman

The headhunter begged Whitman to at least consider eBay. To appease him, she flew to see Omidyar in San Jose. The night before, she went on AuctionWeb for the first time. "It was still in black and white and was very basic," she says. "I remember sitting there thinking, 'Oh, this is just great.' "

But in San Jose, Whitman was impressed by Omidyar and Jeff Skoll, his business partner. She started to see the site's potential. "By the end of that first morning, I thought, 'Hmm, I'm glad I got on that plane,' " she says.

In retrospect, Whitman was ideal for the job, Omidyar says. Running eBay has never been just about managing employees. It's also been about guiding and understanding the ever-exploding community of eBay sellers. Whitman figured that out early, Omidyar says.

"For a traditionally trained business person, it can be hard to strike the right balance between management leadership and letting the community lead you as well," he says. "This is a new way of thinking about business, and Meg intuitively understood this."

Whitman jumps in, saying that moving fast and staying flexible has been a key to her management.

"This is a completely new business, so there's only so much analysis you can do," she says. "It's better to put something out there and see the reaction and fix it on the fly. You could spend six months getting it perfect in the lab or six days in the lab, and we're better off spending six days, putting it out there, getting feedback and then evolving it.

"You can't predict what's going to happen," Whitman continues. "It's another way of saying 'perfect' is the enemy of 'good enough.' "

Crazy growth led to 'tough year'

EBay grew so quickly, did management ever feel the company was spinning out of control?

"Ohhh, yes!" Omidyar, Whitman and Griffith say in unison, and Omidyar exclaims: "1997!"

That was the year eBay moved from Web experiment to real company. It got venture funding. It officially changed its name to eBay. It started looking for a CEO — Whitman — and considered an IPO as the Internet turned red hot.

EBay's servers could barely keep up with the growth. "Mostly in 1997 and into 1998, everyone in the community understood the Web site would probably crash today sometime," Griffith says.

Omidyar tried to slow growth by boosting listing fees from 10 cents to 25 cents and limiting the number of items that could be listed each day to 10,000. But then a scarcity effect took over. Afraid of missing the 10,000-item cutoff, users got on eBay earlier and listed more than they otherwise might have. "It was a tough year," Omidyar says.

So was 1999. "The summer of 1999," Whitman says. "June 10, 1999," she says with a specificity that suggests the date is seared into her memory.

EBay's site crashed for 22 hours. Whitman insists it was both the worst and the best thing that ever happened to the company.

"It humbled the company," Whitman says. "We were on a rocket ship. It was the bubble in Silicon Valley. And that really stopped any idea of, 'Gee, aren't we special.' Which was really good culturally."

It was also Whitman's defining moment. She dug into the technical side of eBay and ordered the site overhauled and beefed up. She had each of eBay's 400 employees call lists of users to personally apologize, which won raves from the users. Coming out the other end, eBay became the kind of company that could — and did — turn into the world's biggest used car dealer and expand into Europe and Asia.

That's not to say that eBay left its challenges in the 1990s. It faces a different and maybe more complex set today.

Some have made news lately. EBay recently raised listing prices and faced an outcry from sellers. Its first-quarter profit fell short of Wall Street's expectations, the first time that's happened. Some analysts say its revenue growth, which has averaged 70% a year since 1998, threatens to slow. Whitman, who ultimately told Disney she wasn't interested, is likely to be courted by other companies.

Other challenges are more nuanced. Through the 1990s, eBay's sellers were mostly a motley collection of individuals. Now, sellers range from individuals to major corporations. All have different needs, but Whitman says she's resisted making a quilt of rules.

"We could end up with a Web site so complicated, a mortal can't understand it," she says.

Whitman adds that she leans on Omidyar when making fundamental decisions about rules for the site. "He's very gifted at this," she says. "When we're in a tough position on a big policy call, we talk to Pierre. It's not something that yields to traditional market research."

What's next

Where does eBay go from here?

Whitman shifts into her presentation persona. First, she says, eBay will keep expanding worldwide. Today, in about 15% of transactions, the buyer and seller are in different countries. "I'd be surprised if that's not 50% to 60% 10 years from now," Whitman says.

"And think about what that means for eBay and the world — about connecting the Third World with the industrialized world."

Second, eBay will find other means of selling beyond auctions and eBay Stores. It recently launched a classified ad-type service overseas, called Kijiji. (It means "village" in Swahili.)

Third, eBay will expand PayPal, the part of eBay that lets individual sellers take credit cards for purchases. Will PayPal someday become a finance company, making loans to buyers similar to General Motors' GMAC? "That is a long-term opportunity," Whitman says, but gets no more specific.

The growth of broadband Internet connections will also have a big impact on eBay's plans, Whitman says. That probably means that eBay listings — which are now static Web pages — will eventually have sound and video.

What's the most significant lesson learned from eBay?

"The remarkable fact that 135 million people have learned they can trust a complete stranger," Omidyar says. "That's had an incredible social impact. People have more in common than they think."

Omidyar, who spends much of his time in philanthropy, is looking at using the eBay model for microfinance — the idea of making small loans to impoverished individuals so they can start a business or plant a crop. Perhaps a Web site could link people who want to make loans to those who need to borrow.

And, finally, do the eBay icons buy and sell on the site?

All say that they do. Whitman points out that all employees are encouraged to buy and sell on eBay.

Whitman's assistant "may be making more money selling on eBay than being my assistant," Whitman jokes, getting knowing laughs from her colleagues. "Which is somewhat disconcerting."


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