eBay's Bid To Conquer All

THOMAS FLUHARTY FOR TIME
EBay's Meg Whitman prevails where many others have failed

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eBay also experimented late last year with adding a fixed-price option to its auction listings. Items with a BUY IT now logo--as many as 25% of all listings--can be bought immediately for a set price. Buy It Now increased eBay's "velocity of trade," the critical measure of how quickly goods listed on the site are sold. Declared a success (last Christmas it stretched the holiday buying season by 10 days), the program has been extended through this year.

The easiest explanation for eBay's prevalence is that its managers haven't stopped to congratulate themselves. In many New Economy companies, the founders don't step aside easily. But it has now been proved, by billions of dollars in squandered fortunes, that while brilliance may ignite a start-up, it won't necessarily sustain it.

Pierre Omidyar, who founded eBay as a clunky website in his San Jose, Calif., living room, always knew he didn't have the company-building savvy to vault eBay into the corporate big leagues. So in 1998, he and co-founder Jeff Skoll brought in Whitman, who had learned the crucial importance of branding in the trenches of Old Economy powerhouses like Hasbro. Whitman, who combines an upbeat personality with a hard-driving focus on the bottom line, took the company public, grew it and proved adept at exceeding earnings predictions. She culled her senior staff from places like Pepsico and Disney. The kids aren't running this dotcom. The management team's average age is 44, with an average of 20 years of business experience and a strong vision for the company. They've had a knack for making the right calls--and have slain a stream of well-funded companies that tried to move into the online-auction space. And these top managers are relentless about something few dotcoms ever bothered with: pinching pennies.

Whitman and her crew are shedding their sentimental attachment to the stuffed animals and stamps that helped build eBay. Wall Street has long made clear that it is anything but misty-eyed about collectibles. After all, there are only so many coin or toy-soldier aficionados, and eBay was running the risk it might tap out the market. Moreover, the collectibles' average sale price (ASP), a key metric that helps determine eBay's fees on a transaction, is lower than for "practicals," like lawn mowers. The asp in eBay's computer category, which includes peripherals and software, is $80. The asp in "Toys, Bean Bag Plush" is $20.

To boost the ASP, eBay is pushing into an array of upscale markets--from autos to real estate to high-end business computers. Buyers were at first a little skeptical when Sun Microsystems started listing its servers on eBay. (Sun received e-mails warning that someone was using the company name to sell its servers.) But in the past year, Sun has sold $10 million worth of equipment, and it now lists between 20 and 150 items a day, making it one of eBay's biggest sellers. The ultimate sign it's working: Sun's competitors have started putting up items too.

Still, for all the good news, eBay has had a few stumbles lately. Great Collections, the high-end antiques-and-art category unveiled with great fanfare a year ago, has been a disappointment in traffic and sales. This month eBay scrapped it and unveiled eBay Premiere, a retooled attempt to capture this lucrative but elusive market. eBay's international strategy, which spans Europe, has yet to take hold in Japan, the world's second largest Internet market.

The company has benefited, though, from some key courtroom victories. It has established a critical legal principle: it is not liable for the sale of improper items on the site by third parties. eBay scored last July, when it extracted a $1.2 million settlement from ReverseAuction, a rival that copied e-mail addresses of eBay users and sent them messages urging them to switch sites. And earlier this month, the company won dismissal of a class action against it for allowing fake sports memorabilia to be sold. If eBay had lost, its entire hands-off business model might have been imperiled.

But preserving its hands-off status has come at a cost: the occasional p.r. black eye it sustains when cases of fraud or sales of offensive items hit the news. Last month a California man was charged with selling $110,000 in computers and consumer electronics on eBay but not delivering. And there was a minor dustup last fall when convicted serial killer Angel Resendez-Ramirez boasted in a television interview that his hair and shavings from calluses on his feet had been sold on eBay.

Given how well it is doing right now, eBay's greatest challenge may be meeting the wildly ambitious goals it has set for itself. Whitman maintains that the company is on track to grow 50% a year for each of the next five years. This means that a lot of things--from an expansive push into international markets to eBay Autos--will need to go right. If eBay does keep growing at its torrid pace, it will amount to more than just the world's leading marketplace. It will stand as convincing evidence that despite the recent spate of bad news, the Internet revolution has changed business once and for all.

Adam Cohen is at work on an independent book about the life and times of eBay