eBay Thoughts


Over the past couple days I've been reading The Perfect Store about eBay's rise and near complete domination of the auction and consumer to consumer space. There's *a lot* in there to think about. If you haven't read it, I would definitely recommend it. I suck at doing book reviews, and I didn't realize this book was going to be this informative so I didn't highlight anything or have a notebook handy. But here's some thoughts anyways.

First, it's interesting to read a story where my current employer is the sworn enemy. :-) It's actually kind of fun to see the opposite side of the story, actually. Yahoo's been a big dog in Silicon Valley for many years, and I'm sure they steam-rolled over more than a few companies in the process. (Also Softbank - who owned 30% of Yahoo - wasn't exactly known for subtlety.) In the book, eBay is constantly worried that Yahoo will swoop in and take their business, and in fact in early 2000, they were in talks to have Yahoo buy them out. Also, after I read Startup years ago, I had a great impression of Jerry Kaplan. It turns out that his company OnSale was pretty slimy in a variety of ways in their competition with eBay. Actually, everyone it seemed at one point tried to scrape eBay and snag customers and ratings: Yahoo, Amazon, eBay, Newspaper conglomerates, etc. Everyone it seems except AOL who eBay had formed an early relationship with.

Hey, is Meg Whitman really a great CEO? I had this impression of her as being one of the things that helped eBay grow to dominance. But when reading the book it seems that she was the beneficiary of Pierre Omidyar's original invention, but then made a variety of really bad calls herself: The day she arrived, eBay already had a 9 month plan to go public, so she didn't really contribut there. 18 months after she started, with a company that's 100% about keeping servers up and running, the site went down for 24 hours and no one could get it back up again. No redundancy, no organization, etc. It was only after this disaster that eBay started to get their technical house in order. She also misread the market for payments and let PayPal get way ahead of eBay (they eventually bought them) and eBay completely blew it in Asia where Yahoo now dominates the auction market (well, as of the book's writing. I'm not sure about now). Since I seem to have been sucked into the Silicon Valley Vortex where everyone knows everyone, I might actually bump into Meg some day so I don't want to completely trash her. But still, the book highlights many more of her mistakes than it does anything else. Did anyone else notice this?

Beyond the history of eBay, the book also talks quite a bit about the stuff that makes it such a force, including something I've *never* realized in the what? 6 years of using the site. The community forums are actually a really important part of eBay! I just looked at them now for the first time. First mover advantage and network effects both played an obviously huge role in their success, but it also seems that the forum (which the book focuses on quite a bit) was also a huge hit. In fact, when competitors to eBay were launched back when it only had a few hundred thousand members, their weaknesses were mostly that they didn't have any sort of community aspect to it. It makes me realize how important community is to any venture - even one as seemingly mercenary as online auctions. I've bought and sold a few things on eBay (most notibly my PowerMac) and it never dawned on me to visit the "eBay Community" section.

Learning about PayPal's early days and Half.com's were also very interesting (and covered briefly in the book). I thought PayPal had been X.com, but it turns out that they were separate and merged. Also, I remember quite clearly the $5 that PayPal used to give out to sign up and thought it was sort of gimmicky. Turns out that it was a huge success in getting people to sign up. They were growing from 7% to 10% *a day*. Half.com was also huge as well. I only remember them as well from their dot-com gimmick of getting a town to rename itself Half.com, and knew nothing else about the business. It turns out that Half.com was another consumer-to-consumer site for mass-market products. All you had to do was enter in the SKU number of the item you wanted to sell, and Half.com would list it. They then took payment for you (no PayPal needed) and told you where to send the item when it was purchased. In 2000 they were the number three eCommerce site behind eBay and Amazon. I had no idea.

It seems every year around this time, I read an article slamming Amazon for not being completely virtual and I have to agree a little, especially when you see how huge eBay and Half.com were able to get by not messing with all those warehouses, etc. Amazon.com has proven itself by innovating in the technology arena as well by encouraging community and Web Services, affiliates, etc. and is one of those other companies I'd love to work for. But still, all that real world stuff must be a drag to have to manage! By the way, Amazon wanted to buy eBay as well before their IPO, but the talks never got anywhere since Meg felt the same way.

The story of eBay reminded me how important it is to have a business model which works from day one. If you've come up with a new technology or form of business, it should naturally work right from the beginning. eBay, PayPal and Half.com show how this is true. The competing companies, like aggregators, etc. which forced themselves into the marketplace with contrived and complex services have only shown a relatively small success in comparision.

Here's what I'm talking about when I say "natural." Once eBay had grown, it definitely prosperred from network effects. If you wanted to sell, you went where the buyers were and vice versa. But at the very beginning, eBay was "naturally" viral. Unlike Hotmail which forced its way onto your email account to encourage signups, or Plaxo which deputizes its users into pressuring others to sign up, eBay's viralness was completely outside its system. If you were a seller of stamps - you would do what you could to encourage potential buyers to go to eBay by posting on news groups or by word of mouth. If you were an enthusiastic colletor, you would love to tell your collector friends about this great place to find interesting new items. It just happened because the service was good, and telling others about the service was beneficial to everyone involved.

With all the hype around later startups, it's actually nice to go back a step and take a look at what made one of the other monster successes of Silicon Valley so great. For one, it reminded me how important community is to any new endeavor. The first thing any new online service should do is install a BBS or Forum. Period. Hmmmm. Wait a second. I stopped posting to forums years ago. As soon as I discovered blogging, I've been putting my thoughts here instead of locking them up in someone else's system, under their control. It makes me wonder if there's a way of tapping into weblogs in a commercial sense. I guess the numbers probably won't ever make sense, but imagine if every weblog was also an open stall, ready to offer up goods?

In other words, eBay disintermediated many of the middle-men that had developed generations before the Internet came along. Weblogs and some interesting XML, could disintermediate eBay. Search engines would allow users to find the goods for sale (and make their money, as they do now, from the index of the goods for sale, not from the sale itself - look at Froogle). There would no longer need to be an arbitrary "virtual marketplace." Think of a weblog where the comments aren't for comments, but for bids instead? I'm sure someone else has thought along these lines, but it's an interesting idea.

So back to my daily obsession: mobiles. It's nice to get another reminder of what makes virtual communities work and not work, and to get beaten over the head with the power of network effects. One of the things I was amused at early on in the book were the numbers of people using the internet back when eBay was starting. In Spring 1996, less than 19 million people in the U.S. and Canada were using the internet. By the end of the year it was at 50 million. Interesting, but when I compare that to the numbers of mobile phone users out there now, it seems relatively quaint. If eBay can grow a multi-billion dollar business in a market just a few hundred million customers, what sort of business can you build with billions of custopmers?


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