Pierre Omidyar was just 28 when he sat down over a long holidayMarketing Research and Data Analysis weekend to write the original computer code for what eventually became an Internet super brand—the auction site eBay. Omidyar viewed auctions as a fair mechanism for Internet commerce where sellers could set their minimum prices, and buyers could then determine an item’s market value by bidding up to what they were willingly to pay. A novel feedback system could allow buyers and sellers to rate each other, helping minimize fraud by enabling the community to police itself. “I really wanted to give the individual the power to be a producer as well. It was letting the users take responsibility for building the community,” Omidyar would later explain. The site launched on Labor Day, September 4, 1995, under the title of Auction Web, soon to be renamed after the site’s domain name—ebay.com (a shortening of Echo Bay, Omidyar’s consulting firm). The service was free at first, but started charging to cover Internet service provider costs.

A NATIONAL MARKETPLACE

Omidyar’s auction Web site, eBay.com, took off. It provided something novel that its users craved: an efficient national marketplace with a strong community built on fairness and trust. A photography student looking for a used camera could choose from models across the nation and trust the timely delivery of the product. The owner of a vintage clothing store could sell to collectors nationwide. The community would expose a deceptive or fraudulent user and ban them from the marketplace. Entrepreneurs in record numbers began setting up shop on eBay. According to a new survey conducted for eBay by ACNielsen International Research, in 2005 more than 724,000 people supported themselves by selling items on eBay, up from 75,000 in 2002. In addition to these professional eBay sellers, another 1.5 million individuals supplement their income by selling on eBay. In the first six months of 2005, Americans sold merchandise worth about $10.6 billion through eBay. The stock market value of Omidyar’s innovative company grew to $2 billion in just three years, and his site’s staying power as an economic engine was evident. Jeffrey Skoll, a Stanford MBA, joined the company in 1996 after the site was already profitable. In March 1998, Meg Whitman took over as president and CEO. In September 1998, eBay launched a successful public offering, making both Omidyar and Skoll billionaires—three years after Omidyar created eBay. As of 2005, Omidyar’s 214 million eBay shares were worth about $8 billion

COLLABORATING WITH EBAY

This e-business is collaborating with marketplace, payment, and communication companies that add value for its customers.

Marketplace—The U.S. Postal Service People who sell items on eBay all have one thing in common: They need to ship their goods to their customers. To support this growing economic force, eBay and the U.S. Postal Service created an innovative economic and educational opportunity. The Postal Service’s bread and butter—first-class mail—is beset by rising costs and falling use. E-mail and faxes have reduced the amount of mail sent each day, but the Postal Service still bears the cost of delivering to every business and home, six days a week. Package shipping, however, remains a profitable and booming business, as evidenced by the number and earnings of private shippers in the market. The Postal Service offers free boxes and heavy-duty envelopes for shippers using overnight or priority mail. To make it easier for those in the vanguard of the new, digital economy, the Postal Service will pick up shipments from the sender, and its Web site sells mailing labels with postage included that can be printed out from a home computer. Over 20 million shipping labels with postage were printed via the eBay/Postal Service link in 2005. Customers can also link to the United Parcel Service site, but eBay does not have a formal relationship with Federal Express. Payment—PayPal Founded in 1998, PayPal, an eBay company, enables any individual or business with an e-mail address to securely, easily, and quickly send and receive payments online. PayPal’s service builds on the existing financial infrastructure of bank accounts and credit cards and utilizes the world’s most advanced proprietary fraud prevention systems to create a safe, global, real-time payment solution. PayPal has quickly become a global leader in online payment solutions with 96 million account members worldwide. Buyers and sellers on eBay, online retailers, online businesses, as well as traditional off-line businesses are transacting with PayPal, available in 55 countries. Communication—Skype Skype, a global Internet communications company, allows people everywhere to make free, unlimited, superior quality voice calls via its innovative peer-to-peer software. Since its launch in August 2003, Skype has been downloaded more than 163 million times in 225 countries and territories. Fifty-four million people are registered to use Skype’s free services, with over 3 million simultaneous users on the network at any one time. Skype adds about 150,000 users a day. In September 2005, eBay acquired Skype for approximately $2.6 billion, anticipating that Skype will streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. Buyers will gain an easy way to talk to sellers quickly and get the information they need, and sellers can more easily build relationships. The auction company hopes the acquisition will strengthen its global marketplace and payments platform, while opening several new lines of business and creating significant new opportunities for the company. Unforeseen Dangers of Collaboration “Communications is at the heart of e-commerce and community,” said Meg Whitman. “By combining the two leading e-commerce franchises, eBay and PayPal, with the leader in Internet voice communications, Skype, we will create an extraordinarily powerful environment for business on the Net.” In October 2005, one month after eBay’s acquisition of Skype, a press release discussed two critical flaws in Skype’s software, one of which could allow malicious hackers to take control of compromised systems and another that could allow attackers to crash the client software. While fixes for the issues were being addressed, businesses asked their users to refrain from using voice services based on proprietary protocols like Skype while on corporate networks because of network security issues. Perhaps Skype might not be the collaborative tool of choice for eBay.

Questions
1. eBay is one of the only major Internet “pure plays” to consistently make a profit from its inception. What is eBay’s e-business model and why has it been so successful?

2. Other major Web sites, like Amazon.com and Yahoo!, have entered the e-marketplace with far less success than eBay. How has eBay been able to maintain its dominant position?

3. eBay has long been an e-marketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set up shop on eBay?

4. What are the three different types of online auctions and which one is eBay using?

5. What are the different forms of online payment methods for consumers and business? How might eBay’s customer benefit from the different payment methods?

6. Which metrics would you use if you were hired to assess the efficiency and effectiveness of eBay’s Web site?