eBay Makes Billionaires

all started off as something of a hobby for him. Eventually, to offset the hosting charges he was getting from his provider, A midi Are instituted a small fee for successful auctions. If the closing price on an auction was less than twenty five dollars, he would put in a five percent fee for the final bid, and if it was more than twenty five dollars, it was a two point five percent fee. It didn't take long for the site to start pulling in more money than what it costs to run,

and suddenly this hobby had become an actual business. By mid nineteen, the auction site was earning a Midier enough money for him to quit his job and bring on Jeff's skull as the president of the company. In June, the net worth of all the goods sold over auction Web had hit seven point two million dollars. That's collectively across the history of the site, and this was when things were still pretty darn small. Every single month that went by, the company was growing by twenty to fift

some months, marking a seventy five percent growth rate. In no small part this was due to a media are creating tools that allowed the community of auction Web to form around the site. Users could rate one another and were encouraged to do so with a gentle reminder that praise is just as valid a form of feedback as a complaint, and soon people were using the rating system to great effect. A midier was gratified to see that

people were not immediately leaping to negative comments. A bulletin board helped community members get questions answered by other more experienced members of the community, and the community values were established. Those values are actually stated on the community site. I can cite them to you here. They are. We believe people are basically good. We believe everybody has something to contribute. We believe that an honest, open environment can bring out

the best in people. We recognize and respect everyone as a unique individual. We encourage you to treat others the way you want to be treated. Back to Jeff Skull, who was the new president of the company, had a few things he wanted to tackle to make business operations run more smoothly and professionally. One of those was to move auction Web and eBay out of a Midiers home.

Right now, the three people working for the company were meeting at his house and it just wasn't really working out the way Skull wanted it to, and it ended up being a harder thing to do than he had anticipated. The real estate market in San Francisco was pretty tight, especially for office space, and at first the team moved out of a Medier's house into Skulls home, which had more room but also had roommates. Then Skull, a Medier, and part time employee Chris Garpo moved into a very

small office space over at the NASA Ames Technology Center. Eventually, the team found an office space at the gray Lands Business Park in Campbell, California, and they moved in. Now I'm gonna flash forward for just a second here. That office Suite number two oh five at Hamilton Avenue Technically in San Jose, California, is still a part of eBay. The company eventually purchased the entire office park, and that

building is now called Music or Building number six. Each building on the eBay campus sports the name of a category of items you could list for auction on the site. Skull also wanted to update the look of the website.

A Medier had built a functional site, but it wasn't much to look at, and Skull hated that auction Web, the one element that was bringing in all the money, was sharing a general website space with a page about Tufts University's alumni association and another about a biotech startup company where a Medeo's wife worked, and a third page about the Ebola virus. He wanted a Midier to remove all those elements and have auction Web be the only thing at eBay dot com. Initially, a Medier put up

a defense. He said that Ebola information that page about the virus was highly ranked in search and likely drove a lot of traffic to eBay dot com. But Skull remained adamant, and eventually a Medier would give in pe we're already referring to auction Web just as eBay at that point, Skull argued, and to include it under an umbrella of such disjointed subjects was bound to cause confusion further down the road and to make it more challenging

to form strategic partnerships and to get funding. Skull also wanted someone to handle all the customer support questions that were coming in because a medier had been doing that and it was taking up a lot of his time. So he looked through the bulletin board community and he noticed that one user who went by the handle Uncle Griff,

was particularly helpful. But Uncle Griff hadn't posted much over the last couple of months, so Skull decided to reach out to this person and find out what was going on. That person turned out to be Jim Griffith, who had attempted to pursue a career as an actor but had not seen much success. He was then an artist for a while, and then he was in a really low

place in nine and had been battling depression. He was on something of an swing when he got the call from Skull, which shocked him, and he got an offer to become eBay's second part time employee, Griffith, accepted the job and took on the handle Dale as his customer service identity for the company, and he was paid the princely sum of one dollars per month to answer emails and do what he did best on the bulletin board,

which was to help people out. Skull would actually do this again, and he reached out to an antique store operator from Indianapolis named Patty Ruby. Patty had adopted the handle Aunt Patty on the auction Web bulletin board, and so she was known to the community and had been helpful on numerous occasions, being both computer savvy and knowledgeable about antiques. She too accepted the offer to work part time for the company, though she soon moved to working

full time and she quit her normal job. Both Uncle griff and Aunt Patty are examples of how eBay would rely heavily on the community they've grown up around the service, rather than seeking professionals outside of the site. Skull followed his instinct and decided that the most passionate and helpful members of the community were the ones to tap. They would jump at the chance to come on board as employees. They already knew the auction web system backward and forward.

They didn't have to have any training on that, and it was a move that just made sense. In November, eBay made the first of many third party licensing deals, and this was with a company called Electronic Travel Auction or e t A. And e t A wanted to create a way to allow users to bid for travel related goods and services like airline tickets, hotel rooms, vacation packages,

and more. Now eBay still officially known as auction Web, though no one was calling it, that would host auctions not just from individuals or small business owners, but also from third parties, and that would continue throughout eBay's history. Now I've more to say about these middle days of eBay, but first let's take a quick break to thank our sponsor. The following year would be a big one for eBay. For one thing, it's the year that auction Web technically

went away. This must have been a great relief to Jeff Skull. The design of auction Web was pretty simple. The logo was just the name auction Web, and then there was a gray scale bar that was right next to it, and it would get darker along its length. Until it was black at the very end. Some folks would call it the death bar because it was kind of grim and black and white now and eBay, the parents site that hosted auction Web had the exact same

bar next to its name, not very inspired. By January nine, the site was hosting two million auctions a month. Throughout n the site had hosted two fifty thousand auctions total, so growth was truly explosive. One thing that fueled such crazy growth was Beanie Babies. And you may, Madrugis have forgotten about beanie babies, or or maybe you never were

around to experience that particular fad. And I know there was a Beanie Babies two point oh that came out sometime around two thousand and eight, but come on, those never achieved the fever pitch of that original run. Beanie Babies are a line of plush toys. They're kind of like bean bags, and they're cute little animals, and they caught on like gang busters, and collectors rushed stores to grab them as soon as they would hit store shelves. A few Beanie Babies were produced in limited runs, which

drove up their market value significantly. I remember even seeing roadside stands with beanie babies, which were probably counterfeits in retrospect, but those were being sold on the side of the road, and those were heavy days, my friend. Anyway, beanie babies were one of the most popular products moving across eBay

in nineteen seven. According to the company's own timeline, the sales of beanie babies hit about half a billion dollars and they represented more than six percent of the company's total volume of sales going across its site, which is a whole lot of beanie babies. And I also meant that there were a lot of of of listing fees that were coming into eBay as people were bidding on and winning these things. In May nine seven, eBay made its one millionth sale, or to be fair, users made

the one millionth sale. eBay profited off of it. Now, I know, you just heard me say just a short while ago that the company had hit two million auctions back in January nine, So how could they only hit their millionth sale in May seven. Well, keep in mind, not every auction results in an actual sale. So if we say that the company had two million auctions in January and the million item was sold in May, we see the success rate of auctions is less than fifty

which is kind of interesting. Oh that millionth item, by the way, in case you were curious, was a big Bird jack in the box toy, as in big Bird from Sesame Street, and it was to it's cute. In September nine, auction Web officially took its final bow and transformed metamorphosis like into eBay, so auction Web was no more. eBay was now the name of the service and the company, which everyone had pretty much been using since it launched.

But around that same time, the company received nearly seven million dollars in venture capital funding, and Skull decided that the logo needed a facelift two, as the death bar wasn't precisely appealing. For a very short while, eBay adopted a navy blue logo that had a stylized E and combined with each other. But this didn't last very long and in fact may have never shown up on an online site anywhere, and may never have appeared on a web page. My research didn't show any signs of it.

It did show up on some stationary and letterhead, but that was about it. They contacted an ad agency called c K S group, and they hired them to come up with a new design for the logo. According to Bill Cleary, who worked at c k S, the team felt that eBay's new logo had to appeal to a broad base of people because folks from all different walks

of life were actually making use of the site. Ultimately, the team came up with a new design in which eBay has a colorful logo with a red E, a blue be, a yellow A, and a green y. The letters slightly overlap one another, and the baseline shifted from letter to letters so they were slightly offset vertically. The team felt the new logo was friendly and accessible, and the logo rolled out in the fall of n along

with a complete redesign of the page. Meanwhile, Jeff Skull and Pierre A. Midier were looking for someone to lead eBay moving forward with the goal of transforming the company into a publicly traded company. By now, we're talking n and era in which the sky was the limit for Internet companies. Things were just starting to really take off, and the dot com bubble was poised to expand dramatically

before it would ultimately collapse. A few years later, eBay was on the verge of transitioning from a startup into a much larger entity, and Skull in a midi Are needed someone with experience to take the helm. The two reached out to Meg Whitman. Whitman says she got a call from a headhunter about working for eBay and being its new president and CEO, but she wasn't eager to take the company up on the offer because it would mean traveling across the country to take a new job.

She was worried about the impact this would have on her husband and their kids, and when she visited the site, she said she saw the stuff about the biotech company that Pamela worked for and the Ebola virus, and she wondered what the heck was going on, So she must have seen the site before omdi Are shifted all those pages away. But she did agree to meet with Omdiar and he convinced her to sign on with the company as the new CEO after she spent about a day

in the company's offices. When Whitman joined, eBay was a thirty person operation and it was pulling in about four million dollars in revenue. Whitman had extensive experience in business. She had worked as a brand manager for Procter and Gamble and rose to the role of senior vice president there. Then she worked for other companies like the Walt Disney Company and Hasbro. Whitman began work by reorganizing the company.

She created business divisions focused on specific verticals and formed executive teams by pulling people from some of the very companies she used to work for to head up those new divisions. She also continued work on eBay's redesign, and she demanded the site create a walled off age restricted offshoot for sales of items that were not appropriate for families, things like pornography or firearms. Now eventually eBay would form policies that would ban such stuff from their sites. That

you can't sell firearms that auction on eBay. You also can't sell things like drugs or alcohol, oh and body parts yikes. In May, the site launched a new feature called my eBay, which allowed users to customize their eBay experience, making it easier for them to find things they were most interested in and to keep up to speed with auctions. And in June, eBay acquired another company called Jump Incorporated.

Jump Incorporated developed a trading service supported by ads, and that service was called up for sale before being the number four. It would be the first of several acquisitions led by Meg Whitman. Not all of them would turn out to necessarily be great moves for eBay. Spoiler alert, I guess, but Whitman was working hard to prepare eBay for that initial public offering, and when it happened, it would turn all those who had a significant share in

eBay into billionaires. I'll tell you more about that in just a second, but first let's take another quick break to thank our sponsor. In late September, eBay held its initial public offering. The opening price for eBay was listed at eighteen dollars per share. The stock price behaved a bit like an eBay auction. It climbed higher and higher. It peaked at fifty three dollars fifty cents per share, but were closing a little lower at forty seven and

three eights. That would be an increase of one hundred sixty three percent over its opening price. There were three point five million shares offered, which gave the company a market capitalization of one point oh five billion dollars. The IBO raised some sixty three million dollars in cash. It was the fifth most successful I p O ever, and

this humble hobby turned a metier into a billionaire. Whitman jokingly issued a warning to eBay employees that she would fire them if they kept their eyes on the stock price day after day. They were understandably excited at their new found wealth, and people were frequently having the stock price up on their web pages and staring at them at the screen instead of actually doing their work. So Whitman said, hey, guys, if you wanna remain millionaires, turn

off those screens. In December, the company founded the eBay Foundation, and organization that uses pre i p O stock to fund nonprofit organizations and entrepreneur ideas around the world. Pierre and Pamela have spent much of their time and money dedicated to charitable endeavors, and the company has sort of followed suit today. The eBay Foundation's mission statement is to quote unleash the power of entrepreneurship to build economically vibrant

and sustainable communities. We develop strategic partnerships with nonprofit organizations using our financial resources, platform and people to foster networks of support for entrepreneurs and small businesses. Our programs focus on vulnerable populations and underserved communities. We also empower eBay employees to make a greater impact and communities around the globe by matching their donations and making cash donations when they volunteer. End quote. Now let's skip ahead a little bit.

We're gonna skip ahead to these some are of there's a lot of things that were happening at this company, but we're already getting pretty bogged down in my nusha, so I want to hit some of the big, big stories of eBay. The company was growing rapidly. We're still in the dot com bubble phase. New employees were brought on, revenues were up. The stock price had continued to climb,

hitting more than a hundred fifty dollars per share. At this point, the dot com bubble was getting pretty darn big, and there were only a few signs the dark times were ahead for the industry as a whole. But eBay suffered an early setback that got a lot of attention. The site started having some serious connection issues. The stability of the site was in question. In June nine, the site went down for twenty two hours. This was huge news at the time, buyers and sellers were angry and distraught.

Imagine that you're sitting there ready to snipe an auction for a signed copy of Weird Old yank of Vic's first album, and then the site crashes and it doesn't come back for nearly a full day. So what was going on? According to eBay, the software powering the site was at fault, and that software came from two outside vendors, Sun Microsystems and Oracle. Now. I covered Oracle in some recent episodes. You can go back and listen to those

and learn all about that company. It's also a fascinating story. But other people were suggesting that perhaps the site had stability issues due to scaling up to a larger platform, the issue being that more and more people were using eBay and the company just wasn't prepared to handle the increase in traffic. Meg Whitman and Pierre a medi Are

issued a letter of apology to eBay users. They explained that the company was working hard on creating a backup system that could keep the site running in case of a failure, and that sadly, this backup system just wasn't quite ready before the crowd actually happened. So essentially they were saying, we anticipated that this could be a problem, and we were working on the solution. The problem was

the solution wasn't ready before the problem happened. They also said that they had contacted not just their own experts, but people at these vendors like Sun Microsystems to work tirelessly to get the site back up and running, and they said they would institute a new policy moving forward.

If the site were to crash for less than two hours, any auction that was scheduled to end during those two hours would automatically get a twenty four hour extension to allow for additional bids unless the seller wished to end the auction, and for any outage lasting more than two hours, eBay would refund the fee it charged for a successful auction, so in other words, there would be no listing price that would be charged to a seller if the if the site had been down for more than two hours,

and according to estimates, that twenty two hour crash cost eBay about two million bucks in revenue, and while some users were motivated to leave the platform for other places

like Amazon, many people chose to stay. The site had a few more allegies that same summer, including a nine hour outage that happened in August nine, and while this wasn't a pleasant experience, it did have a positive outcome, according to Jim Griffith, a k a. Uncle griff He said it caused eBay to realize that their work affected real people in a very tangible way. People were relying on eBay as a storefront, and when that storefront is down,

they can't make their living. He said. This realization motivated eBay to step up and work on creating a reliable service that was more robust and resistant to outages. In July nine, not even a year after the I p O, eBay expanded internationally, launching sites in Germany, the UK, and Australia. Women demanded that each country of its own tailored version of eBay that would appeal to the people of those countries, and in January two thousand, eBay would purchase several buildings

in the business park it occupied. This is when they created eBay Park, and as I said, earlier buildings took on the names of the various categories eBay offered, and in April two thousand, eBay introduced a new company called eBay Motors, At the time, it was a pretty wild idea to purchase a new or used car from an online storefront. But it worked, and it works so well that others began to follow suit, and suddenly eBay Motors

had some pretty stiff competition. Like the normal auction site, eBay Motors would only charge users if a transaction completed across the site. At that point, eBay would charge the seller a listing fee, which was capped at a maximum of one dollars. Since the acquisition of Up for Sale back in, eBay had purchased several other companies, and most of the were either auction services or payment systems. In two thousand one, eBay bought a French company called I Bizarre,

which gave eBay another foothold in Europe. It was another similar service that was going on in France, and all of this led up to the largest acquisition the company would make in those early years, which was PayPal. That acquisition happened in two thousand two, and it was valued at one point five billion dollars, making it by far the largest acquisition eBay had pursued up to that point. According to a press release, Meg Whitman said, quote eBay

and PayPal have complementary missions. We both empower people to buy and sell online. Together, we can improve the user experience and make online trading more compelling. We can also capture greater value from the e commerce opportunities occurring both on and off our site. PayPal had been founded by Peter Thiel and Max Levchin, who had worked together on a business called Confinity. In nine Confinity launched PayPal to fill in a gap the two perceived an online payment processing.

PayPal had just held its own I p O back in February two thousand two before this acquisition, and it would remain part of eBay for more than a decade. It would eventually spin off in two thousand and fourteen as its own company after leadership faced some tough demands

from important investors. More on that in an upcoming episode, and I'll also cover an even larger acquisition in that future episode, one that raised eyebrows and Silicon Valley and created a buzz that perhaps Whitman was making some fullhardy moves. It's another big name in tech that would eventually find a new home at Microsoft. And of course I'll talk more about Whitman's legacy at eBay before she stepped down as CEO, as well as what the company has been

up to more recently. One thing I do want to cover since we're talking about the dot com boom and bust, is how eBay was all to weather that storm. In large part, it was because eBay fell into a category that we largely associate with the concept of Web two point oh. And I've talked about this before about how web two point oh is kind of a weird phrase. It sounds like it was the next version of the web that you first had Web one point oh and then you had Web two point oh. It's not quite

that simple. Web two point oh was really more about a group of best practices that if you followed, you were more likely to survive than if you did not follow those and that included having ways for users to interact with each other and with the site, to have some sort of dynamic user generated content be part of your experience, and that that would demonstrate more value and

people would be more likely to support your company. And so eBay fell into that category, as did companies like Amazon, whereas other companies that did not have this feature found it more difficult to survive. Now it's too simple to say that just because the community eBay was able to weather the storms of dot com, they also were flush

with cash. They had had a very successful I p O. They were they had a successful way of generating revenue, so they were actually making money because people were still using eBay to sell things, so they had a working revenue model. That was a large advantage over a lot of the startup companies that bloomed in the dot com days before they wilted away because they no longer could

demonstrate value. They couldn't make money. They had these great ideas and they had a lot of investors, but they didn't have a business plan, and ultimately that ended up failing. Or they tried to expand so quickly that eventually they realized they were reaching too far and they overbalanced themselves. eBay did not do either of those things, even though it did make this enormous acquisition in PayPal. Our next new episode will actually be a celebration of tech stuffs

tenth anniversary. Yep, we're turning ten years old, so we're gonna put the story of eBay on hold until after our ten year celebration episode, but we will pick back up again once we finished partying, you know, and the streamers have come down, and I've taken the lamp shade off my head, and we'll be picking back up in about two thousand two with eBay and I'll see you then,

party people. For the meantime, If you guys have any suggestions for future topics for tech stuff, send me an email the addresses tech stuff at how stuff works dot com, or drop me a line on Facebook or Twitter. The handle it both of those is tech stuff H. S W. Don't forget to follow us on Instagram and I will talk to you again on text stuffs tenth anniversary? Can you leave it really soon? For more on this and thousands of other topics, is it how stuff works dot com