The Birth of EBay
By David Rapp
Pierre Omidyar in 2007.
Pierre Omidyar in 2007.
(Joichi Ito)
Did you know that eBay started as a place to sell Pez dispensers? The story goes like this: Pierre Omidyar, a French-born computer programmer living in California, was having dinner one night in 1995 with his girlfriend. She mentioned that she was having trouble finding fellow collectors to trade Pez dispensers with. This inspired Omidyar to bang out some computer code and start the website that would become eBay.
Only it’s not true. The story got the auction website much-needed exposure and attention in its early days and was repeated in countless magazine articles. But it was a public relations fabrication. Omidyar would later call it a “romantic” version of events. The real story of eBay’s birth—on September 3, 1995, just 12 years ago today—is no less interesting.
In the summer of 1995, Omidyar, who was 28, was working for a California mobile-communications startup called General Magic. He’d been fascinated by computers since his childhood and been a professional programmer since the mid-1980s. He was politically libertarian, and he saw in the Internet an arena for creating an ideally free and fair marketplace.
He decided to do so, using real-life auctions as a model, a market mechanism that he felt naturally yielded accurate and fair prices for a seller’s products. “Instead of posting a classified ad saying, ‘I have this object for sale, give me $100,’ you post it and say, ‘Here’s a minimum price,’” he later said. Internet users would bid, and when the bidding was over, “the seller would by definition get the market price for the item, whatever that might be on a particular day.” Over the 1995 Labor Day weekend, he hammered out code, and on September 3 what he called AuctionWeb went up on the website he had for his freelance consulting business, Echo Bay Technology Group—www.ebay.com. (He also posted pages on the site about other interests of his, including the Ebola virus.)
AuctionWeb was nothing like the eBay of today, particularly in its appearance. It was just black text on a gray background. And on its first day of operation it attracted not one visitor. But Omidyar publicized it to his fellow programmers and computer enthusiasts via Usenet newsgroups, and soon it was attracting buyers and sellers. Within a few weeks, AuctionWeb was holding dozens of auctions for computer equipment, autographed memorabilia, and even automobiles. It grew by word of mouth, and by the end of 1995 it had been host to thousands of successful auctions between strangers.
Omidyar has said that at one point during those early days he put up a broken laser pointer for auction, on a lark. He was shocked to see it go for more than $14. If a broken, relatively worthless item could sell, he realized, the possibilities were limitless.
By early 1996 the site had gotten so popular that he had to start charging commissions on sales in order to cover his Internet service provider’s fees. He took payment on the honor system, reasoning that people were basically honest. “Some people say, ‘Isn’t that trite, it’s like a Hallmark card,’” he said. “But I think those are just good basic values to have in a crowded world.” To that end, he created a feedback system so that buyers could give praise or register complaints against buyers or sellers; users who were consistently the focus of complaints would be banned. The system kept people honest and at the same time fostered a feeling of community that would become a key to the site’s growing success. AuctionWeb quickly became a magnet for collectors, as, for example, the leading marketplace for Beanie Babies.
By June 1996 Omidyar’s spare-time project was bringing in $10,000 a month, and he quit his programming job to work on it full-time. AuctionWeb ended up making $350,000 in commissions in 1996; the next year the figure rose to $4.3 million. He hired a Stanford M.B.A., Jeff Skoll, to handle the business side of things, including creating a business plan and attracting investors. In June 1997, the Silicon Valley-based venture capital firm Benchmark Capital was the first to put up money—$5 million for a 21.5 percent stake. Benchmark’s stake would eventually be worth more than $4 billion.
In September 1997 the company abandoned the AuctionWeb name and became simply eBay. Around the same time, it became distinctly more corporate. Meg Whitman, a former executive with Procter & Gamble and Disney, was hired in the spring of 1998 as CEO, and eBay began spending millions on marketing. On September 24, 1998—just three years after Omidyar had created the site on his home computer—eBay went public. The founder remains eBay’s chairman, and today he is worth $7.7 billion, according to the latest Forbes list of the 400 richest Americans. EBay brought in almost $6 billion in revenues last year.
The site’s quick and big success directly drove the success of other businesses, including the online payment service PayPal, which eBay bought in October 2002 for $1.5 billion. At least 100,000 small businesses use eBay exclusively as the marketplace in which they operate. And millions of people use Omidyar’s marketplace to bid on millions of items every day—including Pez dispensers.
—David Rapp has written about history for American Heritage, Technology Review, and Out.
Original link here.
http://www.americanheritage.com/events/articles/web/20070903-ebay-omidyar-meg-whitman-internet-e-commerce-consumer-to-consumer-c2c-disintermediation-world-wide-web.shtml
